Employing Others Is Linked to Wealth and Wellbeing
news.gallup.com
news.gallup.com
Further research into the wetness of water needed, but I'm sure these crack researchers can handle it.
I detect some snark. Whenever you pay someone to get something, and you do it on your free will, not being coerced, you perceive that you get is worth more than what you pay. Otherwise, why would you do it, in a free society.
This is universal. It happens when you buy a car, when you dine at a restaurant, when you book an airplane ticket, and yes, when you pay someone for their labor. I do pay a cleaning lady, and she comes once every two weeks and cleans my apartment. Is this exploitation? My guess is that you'll say that yes, I'm exploiting her. And also that water is wet.
People who have employees and haven’t yet gone out of business are likely to have a good product and business model. Having a good business model is likely to make you wealthier than not having yet found a good business model.
“We interviewed a 100 bananas and found that the ripe ones were yellow”
I had to google to see if this was from somewhere else, but seems like no. Thank you for this wonderful comment.
EDIT: one of the most toxic part of VC culture is that growth is measured by headcount growth.
(Those bananas do exist)
I'm okay with that insight. Employing others is riskier, but gives happiness and wealth advantages to the tiny 2% that succeed.
A question I have: of the 2%, what fraction comes from money and privilege, what fraction comes from the middle class, and what fraction comes from the lower class? I think class matters here. I think we'd also find class has to do with employer success rate as well.
Another Q: if and when we have a Queer Autonomous Communist Revolution, what happens to that bourgeois 2%? Gulag driven re-education, right? C'mon, Queer Autonomous Gulags! (/S, but not fully)
It used to denote a middle class stratum between the peasants and the aristocracy, or even just city dwellers.
However, I use it in the Marxist sense, to refer to the current capitalist leadership and ownership class, which emerged during the industrial revolution.
Homeowners and small business owners are petit bourgeois - little bourgeois/middle class. This is different from the haute bourgeois - high bourgeois/upper class.
During times of stability, the petit bourgeois want what the haute bourgeois want, and aspire to become haute bourgeois. During times of instability, the upper class tramples the middle class, turning them into an enemy.
I think we're entering a time were petits no longer really expect the hautes to help them. And I think that's a good thing, since that makes petits more likely to help revolutionize!
The median for non-employer owner being 24k while the median for employee is 62k is surprising, I would expect the owner to be above or comparable. I guess there's a lot of unsuccessful one-person businesses. Looking at the full report, the median household income for NEO is 100k, and 110k for employee, and wealth for NEO is 5k higher. So there's something else going on there.
I could see myself doing the same or similar. Starting a business with the goal of growing it to the point of just sustaining my family's lifestyle to bridge the gap to retirement. Once we own this house and our kids become self-sufficient, our monthly expenses can drop quite drastically and we'll be able to sustain ourselves off of something much more modest than my current salary. Giving boat tours on the great lakes while fixing up a small cabin or something like that. Also considered a camp site / cabin rentals. Something that gives me an excuse to get outside more and moving around but rarely involves urgency and deadlines. All things which can earn some money, but unless I really grind at it they really aren't designed to grow too much.
Well.. those and the liabilities and risk.
And what liabilities do they have?
All of them associated with operating their business. The most pertinent to this discussion would obviously be workers compensation in cases of work related injury or illness.
Is insurance that offers unlimited coverage free? No? That's a liability, then. You will have to pay this insurance whether you are profitable or not. That's a risk, you see?
> there is the corporate veil for that.
Very few business actually structure themselves in such a way to receive this benefit. It's not automatic either, you'll still need lawyers to make this argument for you in court should you be sued.
> Just declare bankruptcy and start over.
You do realize there are multiple different types of bankruptcies and not all of them allow you walk away and "start over."
> Not like you are losing the money you extracted from the company.
Yes, those are called "profits" and they are taxed. Most companies are not entirely liquid and the majority of the value is in the operation not in past "extracted" money.
Owning a $100 million business is not at all like having $100 million in the stock market.
My post is not targeted to the people who have started a lifestyle business or someone who has built a $100M enterprise from the ground up.
Much of the worlds wealth is concentrated through inheritance and the effect of compounding interest.
A person of normal intelligence with a large inheritance can easily live off other peoples work by a diverse portfolio, accumulated by previous generations. Large wealth inheritance creates obvious power imbalances in any economic system, unless every participant(or most, anyway) in the system has themselves large amounts of inherited economic wealth.
My (skilled) labour is valued somewhere at $50-$250/h. Yet, the offspring of the ultra rich("the owning class") receive x10-x100 of what i receive without lifting a finger.
I will note that SEs include contractors. They may have less admin work than other owners or SEs, but also less freedom and opportunity to innovate, and perhaps more cause to feel unhappy.
Aside from that, I don't have much insight into non-contractor SEs, how they differ from NEOs, and why they're supposed to be less happy.
The toll is also much worse in developing nations where the demand in the job market is low. Business failure then could mean people being long-term or permanently out of work.
Entrepreneurship is a massive driver of employment in developed markets (especially VC backed). Ironically, entrepreneurs in developing markets may be dissuaded from employing so not to carry this risk.
what risks do you have when employing, other than spending more money? if you stop earning money you can let people go. i did that without problems.
in a weak job market, entrepreneurship is often the only option. developing countries have some of the highest numbers of self-employed people. since there is no job security either, the risk of failure is not really relevant, because often the alternative is unemployment. and they are very aware of their families depending on them. that's why they are doing it.
Some facts:
- I own a CAD design service
- I don't employ others (but this might be changing, see details below)
- I don't work on contract
- I only have one customer, for four years now
- My revenue is around 30k/yr
Considerations:
I'm almost an employee for my customer. However I deliver work at a price I choose, and let the demand curve determine the resulting volume. This let's me survive on 4 to 8 hours of labor a week. This accommodation is necessary due to disability challenges I face, and would be hard to secure as an employee.
I'm like a long term contractor for the customer. I charge more than their employees and get work only when there is overflow work. But I'm not on a contract or 1099 - the customer just sends me work and I invoice for it. Any contract between us is verbal, having to do with expectations on quality, lead time, and confidentiality.
I could say I'm self employed, but the service has around 10K LOC of Python and C# CAD plugins I wrote to make us much faster and higher quality than ordinary workers here. I'm working on turning those tools into a product - so I own some IP and innovative processes that might make me an owner.
I could say I'm a non-employer owner, but then I should be happier and more thriving! Jokes aside, I'm also working to build an efficient training curriculum for my tools, and am currently onboarding an intern - a promising CS grad student with a knack for both CAD design and algorithm design. I hope to sell work to new clients and upgrade the intern into an employee once they drive revenue, and into a worker-owner if they start helping me develop our tools. Ultimately I want the company to be a worker owned commune. So I could be transitioning into an employer?
So which am I? Should I consider myself a non-employer owner making an effort to become an employer? Or am I just a self employed bum, which is what I feel like? Feel free to ask questions!
1099 obviously does not apply, but even if it is just verbal, you are on a contract.
but you are also building something to make you more independent, which is good.
as for your last question, it really depends on how you like to work.
i try to hire people because i like to work with others in a team. but my ability to hire depends on my success at getting contracts. i try to hire people who will benefit from working with me even though there is a higher risk that i can't keep them when i don't get new projects. ironically this works well in both a strong and a weak job market. in a strong job market i do not need to worry about letting go people because they will easily find another job. in a weak market the people i hire often don't have another option anyways. and if they do want to leave because they find something more stable then i am happy for them. what i don't do is get people to quit their existing job in order to work for me.
you should make an effort to achieve your goals. whether that means becoming an employer depends on how well that aligns with your goals.
as per the other comments, clearly 1099 does apply. i only briefly looked at a short description and missed the key line "other income".
>But I'm not on a contract or 1099 - the customer just sends me work and I invoice for it.
Assuming you mean the U.S. 1099-NEC tax form, you most certainly are "on 1099". If your client is not issuing one to you every year, they are breaking the law and subject to penalties.
Suppose I was a machine shop rebuilding engines for mechanic shops. They send me busted engines, and I send them working engines and invoices, which the customer pays. I'm on the hook for a warranty if the engine fails due to my mistake. There is no need for a 1099. Why is that?
In my case, the client sends rough and noisy data from CMM devices, and I return smoothed and rationalized designs and invoices, and I'm financially on the hook for mistakes that cause rework. How am I legally different from the machine shop?
Don't say single customer, since that seems irrelevant. I'm free to sell to other customers, including my customer's own competitors.
If you can cite specific documents or laws, that will help.
I would also like to know your reasoning for why you think I'm self employed rather than a NEO. You just state your view, but that doesn't explain the principles you're applying.
I also don't understand your reasoning as to why you think I'm committing or helping my customer commit employer tax fraud. I own my own process, intellectual property, and material assets. I have to service my liabilities, I'm on the hook if I cause damages, and I am free to sell to competitors. I am clearly a sole proprietor. The question is how I fall in the article's classification.
If you would please explain your reasoning behind these things, that would help me decide whether your analysis/implied advice is helpful to me. Thanks!
Because it's the law. Per IRS instructions for Form 1099-NEC[0], which applies to your customer:
File Form 1099-NEC, Nonemployee Compensation, for each person in the course of your business to whom you have paid the following during the year.
• At least $600 in:
1. Services performed by someone who is not your employee (including parts and materials) (box 1); or
2. Payments to an attorney (box 1). (See Payments to attorneys, later.)
I wasn't stating my view regarding NEO, I was trying to apply the sloppy, partly overlapping definitions provided by the article. The term "self-employed" is pretty well understood and referenced in the tax code; the term "NEO" is just something used in this article to draw some unclear (to me) distinction. If you talk to your state's employment development department, a tax professional, or a banker, they will probably not understand what you mean by "NEO".
> I am clearly a sole proprietor.
The rules are pretty well established, and come down to what tax people call "facts and circumstances". Per IRS Pub 15-A,
"To determine whether an individual is an employee or an independent contractor under the common-law rules, the relationship of the worker and the business must be examined. In any employee-independent contractor determination, all information that provides evidence of the degree of control and the degree of independence must be considered.
Facts that provide evidence of the degree of control and independence fall into three categories: behavioral control, financial control, and the type of relationship of the parties."
See Pub 15-A for a more detailed discussion.
> that would help me decide whether your analysis/implied advice is helpful to me
I did not give you any advice, I was only trying to explain what the rules are and how they are applied. If you pay your full tax obligation including self-employment tax, and neither you nor the firm are ever audited, you will probably do just fine. You are missing out on employment benefits such as worker's comp, unemployment insurance, overtime, paid vacation/sick leave, etc. but you don't seem to mind.
[0]I could look up the actual tax law but don't need to spend that time for this purpose.
However, we were structured as a partnership, and later became a sole proprietorship. And both require 1099s!
It's even possible my partner at the time described us an LLC when we initially acquired the customer. So they might be fully blindsided by this issue.
It seems I must inform my customer that they need to retroactively file 1099s, and eat the consequences.
Assuming they didn't know, I face a risk that they will drop me - or even sue - for the expense and misrepresentation.
If they did know all along, the risk of losing the customer seems to grows by a lot if I now request correction.
I'm going to consult with a CPA this upcoming week and do the right thing. As you can likely infer by now, there are other non-compliance issues that we will need to address. But the fact that I've put my own customer at risk is hitting me like a ton of bricks. Never would I have expected or intended that.
I will immediately formulate a plan to remediate, with the aid of a CPA.
I very glad you called my attention to this very serious issue. You have just saved me a world of pain, even if fixing this is going to hurt like the dickens.
Thank you very much, PopAlongKid.
That kind of surprised me.
Examples:
Age is a factor. How many "self employed" people are young up-and-comers who do not yet have the resume to actually make good money as contractors? What percentage of the "self employed" workforce is that? That's just one example.
Type of business is another. A one-person house cleaning business is likely to make a lot less money than a one-person niche SaaS company.
After thinking about it a bit, this stinks of "we have a conclusion, here's how we manipulated the data to support it."
Rich people also don't self-employ. They just hijack companies through cronyism and such.
Of course, that's the lofty, textbook ideal. Plenty of capital owners actually do want to extract and exploit. To me, that's not the intent of capitalism, but rather a propensity that needs to be curtailed with strong legal/regulatory incentives.
- Baiting a prospective employee with lies about the earning/advancement potential [illegal]
- Pressuring an employee to perform work off the clock (this is often done by setting performance standards that are unattainable without overtime work, while simultaneously "forbidding" overtime) [illegal]
- Using information you know about an employee (such as their inability to switch jobs because of personal circumstances) to low-ball their pay [not illegal, just sleazy]
- Manipulating the circumstances around incentive-based pay so that the employee performs the incentivized work but doesn't end up qualifying for the bonus [illegal, depending]
- Interfering with an employee's career growth/marketability so they won't be able to command higher pay [not illegal, just sleazy]
Edit: I suppose the theme here is seeking to capture more of the value of someone's labor in ways that undermine their ability to negotiate the best deal for themselves. It undermines the whole idea of people freely negotiating for a mutually beneficial relationship.
A fair deal is when both are better off by the same amount, which is not a typical situation with wage labor in capitalism. And a deal that isn't fair is an exploitative one.
Capitalism doesn't really have an "intent". It's just an economic system with unbounded private ownership of capital, hence the name. However, there are certain things that inherently follow from that notion, to wit: because the ability to extract economic rent is proportional to the amount of capital owned, all else being equal, past a certain amount of rent extracted there is a positive feedback loop. Or, simply put, large businesses - and their ultimate form, monopolies - are the natural outcome of capitalism. And since larger businesses have a higher imbalance of power wrt both their employees and their customers, it results in deals (for both products and labor) that are less and less fair - and thus more and more exploitative. Thus, capitalism is also inherently exploitative.
And you can certainly counter that by things like strong trade unions and rigorously enforced anti-trust legislation, but it's kinda like putting a motor on a boat that's rowing upstream - it helps, but why are you going in that direction in the first place?
I wouldn't agree with that. Suppose I'm a graphic designer and Adobe Creative Cloud is essential to my work. At $60/month, Adobe is capturing far less than 50% of the total economic value the software provides me. I don't think this arrangement is unfair to Adobe. They offered that price, and I accepted it.
I think fairness is really hard to define, but is largely procedural. A deal is fair if we both understand what the deal actually is, if we're not preventing the other from pursuing other options, and a bunch of other stuff. But I don't believe a 50-50 split in the surplus is required.
> large businesses - and their ultimate form, monopolies - are the natural outcome of capitalism
Yes, laissez faire capitalism comes to that. Scale can be disincentivized, and I think society would be stronger and more prosperous if it were.
> why are you going in that direction in the first place?
What's the better alternative? I think capitalism is the least-worse economic system that anyone has proposed.
Nonsense. You can't guarantee this anywhere. E.g. employees in training get paid $15/hr, the employer gets no benefit while they are in training, and the employee gets all the benefit at the cost of their own time.
Software in particular, develop a product or produce a binary once, you can run it an infinite number of times. No software developer is paid $infinity, and will never be paid $infinity.
Go ahead, price in the cost of experiment research that which produces nothing after 5 years. Failed projects? Products gets superseded by brand new inventions?
> Capitalism doesn't really have an "intent". It's just an economic system with unbounded private ownership of capital, hence the name. However, there are certain things that inherently follow from that notion, to wit: because the ability to extract economic rent is proportional to the amount of capital owned, all else being equal, past a certain amount of rent extracted there is a positive feedback loop. Or, simply put, large businesses - and their ultimate form, monopolies - are the natural outcome of capitalism. And since larger businesses have a higher imbalance of power wrt both their employees and their customers, it results in deals (for both products and labor) that are less and less fair - and thus more and more exploitative. Thus, capitalism is also inherently exploitative.
Drivel. No thank you.
You don't have a definition of "fair".