[Father-n-Son]

Hi Folks,
Just looking for some in-put on paying with 1099's.
Because I ran across a guy and it's the only way he pays people working for him.
I know the guy gets/estimates at $35/$40+ per hour. I'm not saying what he said he pays.

Just woundering what you all do or think is fair when paying people by the hour with a 1099's.

If you got $40 per hour and paid people by the hour as a sub.
What do you think is fair hourly wage?

 

[Brian]

If you are paying people by the hour then they are employees and a 1099 is out of the question. A 1099 is for subs. The IRS has rules for subs, and paying them by the hour disqualifies someone as a sub.

I've used only subs for the past 12+ years. They get a set amount to do the job. That meets the IRS requirements (there are about 20 other requirements as well), but the hourly pay is a big one.

Brian Phillips

 

[Father-n-Son]

Brian,
I never thought of that. But I just went to the IRS site and found some info on employee or contractor. By reading the info real quick, They become a "common-law employee" as far as I can tell. Might as well say they are employees.

Glad I won't have his tax bill at some point in time.

 

[slickshift]

Yeah, you don't pay subs by the hour
He's (they are) using the 1099 as a "cheat"

 

[ProWallGuy]

Glad I won't have his tax bill at some point in time.

You will if they find out you pay him as a sub, but he only qualifies as an employee.

 

[Wolverine]

According to my CPA... technically... it's OK if you pay them less than $600 per year.. because... well... you don't have to report it...

 

[Nathan]

I used to pay all my subs via 1099 and it worked out great. But I NEVER paid them an hourly rate... it was always per job. In the end though they made more and so did I. Motivated work force!

 

[sgrprince]

It's perfectly fine to pay subs by the hour, as long as they actually are subs and not just employees masquerading as subs. Imagine doing something time and materials for a general contractor, are you suddenly his employee? I would agree with you guys that most painting companies that pay people as subs and give them a 1099 are breaking the law, I'm just trying to point out that it's POSSIBLE to pay subs by the hour.

 

[welovepainting]

This is not my feild but If you find subs that are incorporated isnt it true they dont get 1099's?

 

[Brian]

It's perfectly fine to pay subs by the hour, as long as they actually are subs and not just employees masquerading as subs. Imagine doing something time and materials for a general contractor, are you suddenly his employee? I would agree with you guys that most painting companies that pay people as subs and give them a 1099 are breaking the law, I'm just trying to point out that it's POSSIBLE to pay subs by the hour.

One of the IRS rules regarding a subcontractor is the ability to make a profit or sustain a loss. Paying by the hour violates this rule. Anyone paid by the hours is not a subcontractor according to the IRS rules.

Brian Phillips

 

[sgrprince]

It would be easy for your sub to take a loss, he'd just need to pay his employees more than you're paying him, or buy a fancy truck, or buy a million dollar sprayer I don't think that this thread is talking about that kind of relationship, but it's certainly possible to pay contractors by the hour. If you hire a plumber to fix a toilet at your house, is he your employee? Find me a link on the IRS website that backs you up that you CAN'T pay by the hour.

Looking online, it looks like you're right welovepainting. Are businesses required to put Inc. after their name if they're incorporated?

 

[Father-n-Son]

Below is an example from the IRS for a Sub Contractor. The way the person above is doing it is diffrent. Below the person submitted a job estimate for the job by the hour. They were not offered an hourly rate.



Who is an Independent Contractor?

A general rule is that you, the payer, have the right to control or direct only the result of the work done by an independent contractor, and not the means and methods of accomplishing the result.
Example: Vera Elm, an electrician, submitted a job estimate to a housing complex for electrical work at $16 per hour for 400 hours. She is to receive $1,280 every 2 weeks for the next 10 weeks. This is not considered payment by the hour. Even if she works more or less than 400 hours to complete the work, Vera Elm will receive $6,400. She also performs additional electrical installations under contracts with other companies, that she obtained through advertisements. Vera is an independent contractor.




Here is a link to the IRS page.

http://www.irs.gov/businesses/small/article/0,,id=99921,00.html


Forgot to add:

I did some checking in around. I was talking to a guy that knows a couple of people caught doing this. Paying Subs by the hour. He said they paid fines of $250.00, for paying by the hour. But this was a few years ago. Who knows what the fine(s) are today. I didn't look into that part yet. But I will see what I can find.

 

[Brian]

It would be easy for your sub to take a loss, he'd just need to pay his employees more than you're paying him, or buy a fancy truck, or buy a million dollar sprayer

This is simply wrong.

Taking a loss pertains to a particular job. For a sub to take a loss, his expenses must exceed his revenues on a particular job.

The purchase of an asset such as a truck or spray rig is not an expense that is allocated to a single job. Such costs are amoratized over the life of the asset, and therefore the expense is allocated to many jobs, not just a single job. Therefore, even if he purchased a $1M spray rig for a particular job, the expense allocated to that job would be relatively small (the actual amount would depend on the projected life and residual value of the asset).

In the context of this discussion, neither the IRS nor GAAP (generally accepted accounting principles) would allow for an asset such as a truck or spray rig to be depreciated for a single job.

Brian Phillips

 

[welovepainting]

Thats called depreciation right? Depending on the item you can depreciate a small percentage each year until its paid off. Its alot of work at times accounting and bookeeping wise.... we sometimes forget to depreciate eqipment and such.

 

[Brian]

Thats called depreciation right? Depending on the item you can depreciate a small percentage each year until its paid off. Its alot of work at times accounting and bookeeping wise.... we sometimes forget to depreciate eqipment and such.

Yes, that is depreciation. If you use QuickBooks it isn't too hard to keep up with. In addition, my accountant tells me how much to depreciate and when.

Brian Phillips

 

[Rich]

If you got $40 per hour and paid people by the hour as a sub. What do you think is fair hourly wage?

First off...I was just reading about this (since I'm done with employees and only going to hire subs from now on!) and there are STRICT differences between an "employee" and a "sub" or "independent contractor" per IRS rules.

Anyway...IF I were to break it down by the hour, I'd say somewhere between $15-25 "per hour". This is only an "IF". Depends on the guys skill level, the job, and how much you want to make.

 

[slickshift]

I'm using my tools and my ins, and taking out my taxes, like a sub would, I need more than $15
That's like not even $9 an hour real time

 

[Rich]

John
Yeah...the $15 would be a "cheat" sub's pay, if you know where I'm going :whistling2:

 

[welovepainting]

Yes, that is depreciation. If you use QuickBooks it isn't too hard to keep up with. In addition, my accountant tells me how much to depreciate and when.

Brian Phillips

I myself think it's alot of work but thats just me. When you have to depreciate 50 ladders, 20 sctions of scaffolding, 10 sprayers, 3 power washers, 5 vehicles, etc. ect. to me its alot of work. I dont do it myself thats probally why it doesnt get done right... just like the old saying goes if you want something done right you must do it yourself. Kind of like scraping, sanding and priming.

 

[Father-n-Son]

John
Yeah...the $15 would be a "cheat" sub's pay, if you know where I'm going :whistling2:

Hey Rich, I'm in R.I. I'll take the $15.00 per hour!!! :no: