The pitfalls and perks of an employee. Advice please.
 

My little brother and I bought a massive foreclosure home last year. We've been taking it from rough framing and are currently 2 months from completion. Suffering under the great workload, I finally hired a construction helper to maximize my time.

Now, I'm actually considering bringing him on as a full-time employee. I know I'll have to obtain worker's compensation insurance and deduct for Social Security/Medicare. I would also sign him up for a health savings account with high deductible to give him health insurance. What other expenses should I expect to incur?

With only one employee, you may want to "lease" him from a labor provider. He goes down and enrolls in the pool and then presents them with your job. You can always pay him a "bonus" every week, but your costs and the cost of payroll will be handled by the company. At near minimum wage and then their markup, he will cost you a lot less that way even if you equal his gross in fold-able cash. Never give someone like that a check under any circumstances. I'm sure you can find somewhere in your accounting to use the cash expense.

You not only deduct for social security (6.2%) and medicare (1.4%) but you also have to match those amounts. You will also deduct for federal & state income taxes and send that off to the government. Those are the mandatory expenses and any additional expenses are really up to you (ie., vacation, mileage, etc).

+1

Alright, so even if I plan to employ him permanently full-time, I should use the labor provider? I plan to audition him for a few more weeks, but he has potential to be a great long-term hire for future projects and also with rental property maintenance.

Does the company handle worker's compensation insurance?

Tidy, thanks for the clarification. My hands were typing faster than my head. I know I'll have to eat half of the SS/Medicare deductions. I accept my obligations to the Federal government, but am still unsure about the best way to proceed further in a manner that's legal and beneficial for employer and employee.

Jurgen

i know you know, but no matter what, do not try to get away without the workers' comp insurance. the chance of him being injured is very high and you will get nailed if you dont comply. your probably better off hiring a fully insured "handyman" type of guy to assist you with this project

Employees are the single biggest liability a company can have. You're better off (way better off) with contract help. Independent contracting is the way to go unless there's absolutely no way to avoid it.

If he has the potential to be as valuable as you think, you should think hard about turning him out to the contractor pool; good help in the construction trade is hard to find, even with the slowdown, and you might just turn around and find him working for someone else when you need him most.

Just sayin.

I definitely am not interested in going without worker's comp. There's too much to lose and so little to gain.

I would certainly consider a handyman for a month or two, but I really need someone who'll be there for the long-term. I want to advance to the next level (new home construction) and get back into distressed real estate. I'll piss away too much money if I hire out contractors, and I'll never obtain that attention to detail, as well as disrupt my desire for custom, one-of-a-kind workmanship.

PoP, liability is my biggest concern right now.



I suppose life would be much easier if I could quench my thirst for bigger and better things. ;)
jurgen

That's my thought. I've already tried 2 other guys and they were disappointing. This new fellow impresses me immensely. I see potential for a meaningful long-term relationship, particularly after associates have given unsolicited praise of his work. The primary debate I have is will the cost to retain him exceed the value he brings. This thread addresses my thoughts.

Thanks guys. I really appreciate the comments.

if you hire him, make sure your incorporated and are fully insured in case he runs over the neighbors kid with the company truck ... develop a good understanding of master/servant (business) law...he will be your agent and you will be responsible if he is negligent

Thanks, scott. I noted your advice and will seek out professionals for guidance.

I had to send the helper home early today to keep the overtime under control. Then, I realized how many hours I put in every week (a lot more than 40).

Can you have him start his own LLC, then contract to you and carry his own liability? I'm no expert, so maybe my thought is swiss cheese.

Just to be sure you understand my comment, you don't eat 1/2 the deductions - you match (i.e., you deduct 6.2% from the employee for social security but you pay the IRS 12.4% you do the same for medicare). For taxes, you just deduct from the employee and submit to the IRS. Depending on the size of the payroll, you will have to submit pmts monthly or quarterly. At the end of each quarter, you have to file a payroll tax return - usually within 30days of the end of the quarter.

Regarding workers comp insurance, I would think you just buy an insurance policy for workers comp. As far as handling claims, I blieve there are services for this for small business's - you just send the employee to a special doctor and they handle the paperwork with the insurance company.

It does get complicated but it's not that difficult. Lot's of CPA firms do accounting for small businesses (ie. pay the bills, invoice dustomers, and payroll).

Why don't you set up an LLC, and in the event that he sues you, he gets the company truck or something else that you can financially absorb fairly easy?

Then write up a contract between the LLC and him that joins his obligation to the LLC with a self-employed status. No taxes, no workers comp insurance to deal with, just a mere 1099 at years end.

You may not be able to do that where you are though.

If you don't use employee leasing, do at least use a payroll service. Paychex is very popular. One of my bookkeeping clients has payroll that's around $10K every two weeks. Their cost to use Paychex is only $48/payroll. You would spend hours trying to keep track of the tax reporting... and then you may or may not get it right. Get a good bookkeeper to enter the payroll into Quickbooks using journal entries.

A sub-contractor has to work for others, or he is considered a full time employee, and you get nailed for not paying insurance, worker's comp, etc.

You are probably better off hiring subcontractors for everything at this level, until you have a need for multiple employees. Yes, unfortunately the laws blow for small business owners.

Many thanks, guys. I definitely need to research employee leasing. A cousin works for Randstad. It can't hurt to ask, and it might eliminate a lot of hassle. I viewed staffing companies as places to obtain labor as opposed to places to track labor. That's what I get for thinking.

Tidy, read you loud and clear. I deduct half of 15.x% FICA from the employee's paycheck, and I match that amount. The Federal government gets that 15.x% and gives me thirty lashes of the whip.

mattdavis, the 1099 would be easy, but I don't want to get caught. I gladly push the limits of the law in many instances, but I don't feel comfortable here.

dad911, I must agree. It's either all or nothing here. Either grab an employee now and plan for more down the road, or keep it simple and go it alone.