POLL: Paying your workers: Hourly vs Per Car vs Commission %

[David Fermani]

Let's discuss how you employers are paying your workers.....

Do you pay them hourly? Per Car? Commission/%? Other?

Pros & cons of each.

My workers are paid a % of what each job takes in. I don't feel it's wise for the worker or the employer to pay per hour. This not only promotes laziness, but also limits each person's earning potential. Paying them a % gives them incentive to work harder/quicker and develop an efficient detailing regiment. If you pay them hourly, there isn't anything encouraging them to work harder and what you end up becoming is a babysitter.

 

[RMD]

Additional tip, Regardless of how wages are determined, if they are employees you need to make sure you are complying with tax withholding requirements and have workers comp ins, etc.

 

[RTexasF]

Not if they are contract labor. That would essentially be the same as self employed just like many construction jobs.

 

[RMD]

Unfortunately its not that simple, which is why I posted. The issue that may arise based on the poll question is employee vs. independent contractor (or contract labor as you used the term). The reason it matters is that employers have to withhold and pay over income taxes for their employees and report the income of their employees to the IRS on quarterly forms (941). Employers also have to pay a "match" to the IRS for each employee's income tax. Employees also need to be covered by worker's comp ins. Independent contractors on the other hand are self employed, and the business that hires them has to prepare 1099 forms for each independent contractor who has provided more than $600 of services at year end so that the business can deduct that amount on its' year end taxes. No wage withholding is required for independent contractors. Some of the considerations include whether you can control how the worker does his job; if he is washing cars do you tell him how to do it, supervise his work, leave him alone to do it however he wants, does he provide washing services for other businesses, does he use your products and towels, does he provide his own products and tools and do you reimburse him for those?

The method that the business chooses to pay workers, percentage or commission or hourly amount or whatever, does not by itself determine whether that worker is an employee or an independent contractor. You can absolutely have employees who are paid a commission or a piecemeal amount based on a given job or sales quota, etc. You can also have independent contractors who are paid a rate based on the number of hours they spend on a task.

The consequences of not properly classifying workers can be severe as far as the IRS goes; specifically meaning an audit and requirement to pay all the withholding taxes that should have been paid for those workers you considered "independent contractors" along with a pretty hefty fine and interest for the money the IRS considers you to have failed to pay in those quarters that you improperly paid employees as independent contractors.

The IRS guidelines for who is an employee and who is an independent contractor is listed on their website.

Choose wisely, and remember that the IRS almost always comes down on the side of classifying workers as employees (more money for the Gov't).

Independent Contractor (Self-Employed) or Employee?

 

[Bunky]

Choose wisely, and remember that the IRS almost always comes down on the side of classifying workers as employees (more money for the Gov't).

Independent Contractor (Self-Employed) or Employee?

This is probably one of the biggest tax dodges by many employers by classifying workers as independent contractors rather than what they are really are- employees. The problem is the IRS does not have the staff to chase down the small shops so they get by.

 

[RMD]

This is probably one of the biggest tax dodges by many employers by classify workers as independent contractors rather than what they are really are is employees. The problem is the IRS does not have the staff to chase down the small shops so they get by.

You are spot on. And taxes are only part of the equation. There are many unscrupulous people out there who will claim injuries while working as a supposed "independent contractor" for someone and file a worker's comp claim; even day laborer types who hang out in front of Home Depot. The person or business who hires these people as "independent contractors" or day laborers then find out that the worker's comp board considers the person an employee and you then have a claim on their hands. Not having workers comp in that situation can be financially devastating. ...Unfortunate consequences of our paternalistic government, but I will hold off on the rant.

 

[Paul Mitchell]

The reason it matters is that employers have to withhold and pay over income taxes for their employees and report the income of their employees to the IRS on quarterly forms (941). Employers also have to pay a "match" to the IRS for each employee's income tax.

The match the employer pays is for the FICA tax which is social security and medicare. Many people have no income tax withheld but all have FICA withheld.

 

[RMD]

The match the employer pays is for the FICA tax which is social security and medicare. Many people have no income tax withheld but all have FICA withheld.

You're right. Thanks for clarifying. I should have been more precise.

 

[David Fermani]

The issue that may arise based on the poll question is employee vs. independent contractor (or contract labor as you used the term).

The poll question is how do you pay your worker? Not if your worker is an employee or independent contractor. Regardless, both employees and IC can get paid each of the ways I listed.

On a side note, using legitimate sub-contract labor in detailing can be a great thing. Just make sure that you as the contractor consults your accountant & attorney to make sure you're within the guidelines that the IRS recognizes.

 

[Trouble]