• he seems to be comparing his prior 'take-home' (after-tax) pay with his new venture 'profits' (monthly pre-tax).
• as another redditor points out, he may be in for a painful 1099-reclassified-as-employee showdown with the tax and employment authorities
And yet, good on him. He's found a niche and will now rapidly get to learn the tax & employment law details.
It by no means signifies a guaranteed success, but it is definitely a good sign when an entrepreneur recognizes legitimate criticism about issues that could make or break his business and actively seeks to address them.
The city and state his business is headquartered in (he's in DC Metro so it could be any of a bunch) is also going to tear into him for unemployment taxes and fees. We had drama with this even though we don't even have independent contractors.
This isn't the only problem: the post would make a great issue spotter for an employment law class.
Why can't they be contractors? He said they're providing their own transportation and supplies. So he's just handing them clients and appointments, and a checklist of cleaning tasks to complete and a few limitations on the supplies used. Isn't that analogous to handing a contracted software developer a requirements document and a deadline?
I have business cards, a personal website, and a professional reputation. My clients ask for me by name.
I do not submit applications. I do not respond to advertisements of employment.
I often have discretion to have work performed by subordinates selected and instructed by me, not my client.
I receive negligible training from customers.
My work is often evaluated by myself or not evaluated, because I am more competent as to the details than my clients are, this being why they hired me to do it. If there is a checklist, I wrote or had substantial input on the checklist.
I work at hours I pick or by mutual agreement. I routinely do not tell clients when I start or stop working.
If a problem arises with my work, I will ordinarily be the first person told about it.
The services I provide for my clients are largely not their main line of business. They do not invoice customers for my work directly. They generally have no employees who do substantially what I do, this being a major reason why they would hire me.
There is a written contract in place between me and each of my clients, often with contentious custom language in it.
I routinely incur expenses in the course of my business which are not reimbursed by clients.
At least, that is the main argument here in Germany.
Summary of the case at: http://www.djmlaw.ca/downloads/Snapshot_April_2010.pdf
Does he tell them when to work? Employee. How to do their work (a checklist)? Employee. Provide supplies? Employee. Do they wear a 'Maid In Black' uniform? Employee.
If he were a matching service, it might be easier. But, he's extending his brand/guarantee/monitoring over the service, so he may have to thread-a-needle to win any challenge that a regulator or (perhaps more likely) disgruntled contractor raises.
Note that this is not done on a whim: these laws and interpretations were introduced because employers were systematically exploiting workers, hiring them as contractors just to work around their established rights.
And it works both ways, really: having a clearer set of rules reduces the risk for costly litigation when something happens.
While this is the most common form of abuse, it is sometimes also used as a means of tax evasion by the employer, employee, or both.
However He sounds like he would be happy to treat them as employees long-term anyway (if they agree to it of course), but then that's a good problem to have, and really starting with employees from day 1 would have made this far harder to get off the ground, so he's gone about it the right way, he just has a steep learning curve ahead.
If they were, they would be extremely unhappy with this arrangement, because 1099 employees pay both halves of FICA ("self-employment tax").
One possible way this pans out: eventually, he ends up with a worker who gets a notice of imputed liability from the IRS; that notice threatens to put the worker into bankruptcy, and so he calls an IRS help-line or his state labor board or an attorney. The IRS reclassifies all his employees and now threatens him with bankruptcy.
Comcast has a huge independent contractor network that they use to subsidize their full-time on-site tech support. All of those contractors wear Comcast shirts, have Comcast written on their trucks, must meet customers at the times that Comcast schedules, and do receive at least a portion of their supplies from Comcast.
Would it be OK for the cleaner to subcontract the work?
If so, it could be legit. If not, they're employees. From the original thread, I don't get the impression he'd be OK with subcontracting, so he is probably non-compliant.
That said, I don't think its a huge deal. He'll get audited, he'll pay the owed taxes and penalties and move on with his life. I've been audited by the ESC, its really not that big of a deal.
He's also learned that his customers will pay a premium for good service, so if he has to raise the price, big deal. He'll be fine.
Certainly, in this country, the maids would be unambiguously employees.
I'm not an employment lawyer, but I have been through a state employment classification audit, and I am pretty confident his maids would be reclassified if he came under scrutiny.
The IRS has a 20 point "Independent Contractor vs Employee" checklist, and he falls on the wrong side of a number of these items: http://www.webster.edu/about/policy/independent_contractor_c...
I don't issue a 1099 to Staples for delivering office supplies (though I realize we dodged that bullet by a hair a couple years ago). However, I do issue one to a guy I find on CraigsList to redesign my web site. In that case the difference seems obvious. But where is the line?