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What constitutes a subcontractor?

Discussion in 'Business Fundamentals' started by jrc5049, Sep 9, 2009.

  1. jrc5049

    jrc5049 Member
    from pa
    Messages: 37

    I hold a few contracts where i live, i would like to get a couple guys this year to work for me this coming winter. I am a sole proprietor and DO NOT want employees, or to do a payroll. my question is...... hopefully someone can help me, b/c the IRS today said it could take 6 months to get a "determination" back. ( It will be spring before i get an answer haha)

    Okay, generally subcontracors i have used have there own trucks, and own insurance and plow a said lot, just like me "the contractor".
    Now, what if they use my equipment to do the job??? are they still a subcontractor? or would the IRS say that they are an employee? The women i spoke with on the phone today said it shouldnt matter who's equiptment it is that they do the job with, but rather how you treat them? are you telling them what to do? and so on? it was very vague to me and she didnt even know the answer.
    Is there anyone out there that has some answers for me? thanks alot!
     
  2. basher

    basher PlowSite Fanatic
    from 19707
    Messages: 8,992

    Use the search feature, this has been covered a number of times.

    Welcome to Plowsite:waving:
     
  3. jrc5049

    jrc5049 Member
    from pa
    Messages: 37

    I would appreciate if someone could answer my question on this thread because i will have follow up questions.. thanks tho!
     
  4. Crash935

    Crash935 2000 Club Member
    Messages: 2,377

    long read but try this,

    A contractor who behaves and is treated like an employee is an employee from the viewpoint of the U.S. Internal Revenue Service (IRS). The IRS applies a 20-part test in order to determine whether a certain worker should be classified as an employee or an independent contractor. The main issue underpinning the test is who sets the work rules: employees must follow rules set by their bosses; independent contractors set their own rules. An individual who sets his or her own hours, receives payment by the job, and divides his or her time between work for several different employers would typically be classified as an independent contractor. Other criteria involve who provides the tools and materials needed to complete the work. An individual who works at an employer's facility and uses the employer's equipment may be considered an employee—unless the individual is providing software consulting, for instance; one who works at a separate location and provides his or her own equipment would be classified as an independent contractor. Finally, an independent contractor usually pays his or her own business expenses and takes the risk of not receiving payment when work is not completed in accordance with a contract; an employee is usually reimbursed for business-related expenses by the employer and receives a paycheck whether his or her work is completed or not.
     
  5. jrc5049

    jrc5049 Member
    from pa
    Messages: 37

    okay, then if they use my equiptment to do the job they would be considered an employee correct? Okay what if they rented the equiptment off of me to do the job on their own? then i could pay them as a sub right? pay them like 60$ like a normal sub, but send them a bill for equiptment rental for like 40$ per hr, (just an example)?
     
  6. AiRhed

    AiRhed Senior Member
    Messages: 401

    I think what's key here is this. A Subcontractor who uses say for example, YOUR skidloader could still be a subcontractor if they, set their own rules, hours, receive payment by the job, don't receive payment for substandard work, they work for several different employers, and carry their own Insurance and business registration.

    They would need insurance if they were renting the skid from you and operating as a sub. At $20 an hour, they seem more like employees with little assumed risk.
     
    Last edited: Sep 10, 2009
  7. jrc5049

    jrc5049 Member
    from pa
    Messages: 37

    So if i find a sub to handle a lot for me they could use one of my trucks as long as long as i allow him to do the job without me giving him direction? as long as he can come and goes as he chooses he is a sub not an employee? ha gzz. this gets confusing
     
  8. AiRhed

    AiRhed Senior Member
    Messages: 401

    I read it as being a little more concrete than that. I think in your instance, if your sub is going to use your truck and not be assumed as an employee, he/she MUST have his/her own insurance AND assumed name or DBA registration. This makes it clear that they are operating at THEIR risk on THEIR dime as a Sub. What you describe,
    sounds like an employee situation. It's all just to cover your ASSets.
     
  9. jrc5049

    jrc5049 Member
    from pa
    Messages: 37

    Do you see a way that i can make it work legally with a subcontractor thats uses my equipment then?
     
  10. Mick

    Mick PlowSite.com Veteran
    from Maine
    Messages: 5,546

    This gets tricky and Crash935 gave the best detailed answer. I'd say (and my opinion means nothing to the IRS) is this could easily be determined to be a part-time employee because of the phrase "provides the tools and materials needed to complete the work". Remember, these requirements are here for your protection, too. Case in point - person using your truck gets hurt. He claims benefits under Workman's Compensation. He says he thought he was an employee BECAUSE he was using your equipment. The judge will decide. Yes, it happens - ask any insurance agent. You could try drawing up an agreement for him to sign stating that he understands his status as a subcontractor but I'd run it by a lawyer and your insurance agent.
     
  11. basher

    basher PlowSite Fanatic
    from 19707
    Messages: 8,992

    Ask your accountant. But briefly , If he uses your equipment but he must have his own insurance (with the same coverages you have, includung auto with rental coverage, workmans comp and general liability, you need to have a certificate of insurance on file) pay his own SS and Medicare and the employers matching, work at his own schedule, be paid by the event on a fixed schedule and have all proper State, county and municipal licenses.

    If you want to lease him your equipment then you will have to report his rental payments as income and pay rental tax on it.

    You will need to have a contract stating the parameters of service he is to provide and at what rate.

    All this and more have been covered in previous posts on this subject. If you spent a little time reading there are questions you have not thought of.

    Remember if they declare him an employee at audit you will have to pay ALL the un paid taxes, etc, yourself and go after him for remburstment.

    Your accountant is the one to be answering these questions, he is the one who will standing beside you in an audit.
     
    Last edited: Sep 10, 2009
  12. Mark Oomkes

    Mark Oomkes PlowSite Fanatic
    Messages: 10,853

    Bingo, nicely stated.

    And in IMO, you're not going to get around it while having him using your equipment.

    Why don't you want employees?
     
  13. Mark Oomkes

    Mark Oomkes PlowSite Fanatic
    Messages: 10,853

    Or, you could just be like the guys that readily admit to plowing 'under the table' and just forgo all laws and IRS requirements.

    After all, we're all just doing this for beer money, right?
     
  14. jrc5049

    jrc5049 Member
    from pa
    Messages: 37

    I Just dont want employees because my accountant always tells me that its a headach that i do not need, tons of paperwork, and time consuming. but its looking more and more like this is the route i will have to take
     
  15. Mick76

    Mick76 2000 Club Member
    from Maine
    Messages: 2,157

    you hire a payroll mang co and they take care of all the work... $ well spent IMO
     
  16. mullis56

    mullis56 Senior Member
    from Indiana
    Messages: 824

    DITTO, DITTO....Ding, Ding!
     
  17. jrc5049

    jrc5049 Member
    from pa
    Messages: 37

    how does that work? how do they charge you?
     
  18. basher

    basher PlowSite Fanatic
    from 19707
    Messages: 8,992

  19. Mark Oomkes

    Mark Oomkes PlowSite Fanatic
    Messages: 10,853

    I better stay out of this one, I already was partially at fault for a different thread that went bye-bye.

    Woohoo, first one of the season.

    Bring 'em on newbies. :p :cool: :drinkup: :nod:
     
  20. cet

    cet PlowSite Fanatic
    Messages: 7,202

    I have a few sub contractors that I use. I am in Canada but I bet it is very similar.
    The 3 main pieces of evidence that we have to submit to determine a sub is, Proof of ownership of equipment being used, a Registered Business License and 5 invoices for the same type of work to either other contractors or people/businesses that have hired the sub.

    If you rent your skid to your sub for $40/hour and then he charges you $40/hour for the skid then I don't think that is going to work. These guys aren't dummies and have seen all the scams you can think of and a few you haven't.