SUB-CONTRACTING SWEEPING Get rid of your employees!

This article was taken from the Cleaning Management Magazine, June Issue 2002. For subscription information call 518.783.1281

Replacing employees with independent contractors can have significant benefits…for both parties.

Personnel issues are often the biggest headache-and expense-faced by owners of carpet cleaning and restoration companies.

What if you could eliminate some of the expense, while simultaneously avoiding a lot of the hassle of employing techs?

If you meet certain criteria, you might be able to do away with employees in favor of having independent contractors (IC's) perform carpet cleaning or disaster restoration for your business.

The benefits

A company utilizing ICS

  • Pays no payroll taxes or withholding
  • Pays no workers' compensation
  • Has no unemployment obligations to its contractors
  • Doesn't pay ICS vacation, sick or holiday time or provide other benefits

You aren't obligated to withhold taxes; the IC files quarterly as a sole proprietor. The company pays no workers' compensation insurance, unemployment or FICA.

The company or the IC will never realize 100 percent of the savings because an occupational accident insurance policy - which mimics workers' compensation - will need to be put in place for the ICS. However, this policy will be a fraction of the workers' compensation cost.

Because of the savings, your company can pay the contractor more money for his services. In addition, contractors can claim business expenses on their taxes and earn mileage credit for using their vehicle.

The more jobs the contractor performs, the more money earned - many contractors will perform at a higher level because they are better compensated.

Some worker won't like this kind of compensation plan because they are satisfied and complacent. They won't last. As the cream rises to the top, you may find fewer bodies are required for the same workload.

Do you qualify?

In order to qualify as working with ICS, you must be in the business of brokering services.

A broker accepts a contract from a customer, conveys it to a worker along with the customer's instructions, and survives off the realized margin between billing and cost of performing a job.

If this brokering model is close to what you are doing you may be able to utilize ICS. However, there are a number of compliance issues:
Federal, state and local agencies and departments determine the compliance of an IC.

The first step in maintaining (IC) compliance is adhering to the IRS's "20-factor common law test" (see "put your business to the test" on this page).

Most states add the "ABC" test (see the ABC test" on first page) and locally towns can require business licenses.

Here are the basic requirements:

  • Independent contractors work by themselves; have all the tools necessary to perform the job or can rent them.
  • They are unsupervised and contracted with according to the quality of service they render you.
  • ICs are sole proprietors that have several tax advantages over the employee and the ability to make more money.

Obviously, not all carpet cleaning/restoration firms can be complaint. However, residential cleaning services, such as maid, carpet and upholstery cleaning companies, are currently utilizing ICS.

Maintenance companies whose services can be performed by a single individual should also consider (IC).


The ABC test

In many steps, a worker is considered an independent contractor if:

  1. The worker is free from company control or direction
  2. The worker provides services outside the usual course of company business
  3. The worker is engaged in an independently established trade, occupation profession or business.

Put your business to the test

In February 28, 1996, Margaret milner Richardson, commissioner of the internal revenue service, released a draft copy of the IRS training guide, "employee or independent contractor?"

However, the IRS emphasized the guide should not be construed as its technical position on any related issue. This gives you an idea of how ambiguous, confusing and vague the issue is even to the IRS, the self-proclaimed authority on the subject.

The test for determining whether a worker should be classified as an employee or an independent contractor are based on "common law" rules that rely on custom and usage rather than written codes.

A key factor is the degree of control - or right to control - business has over the worker. If the worker is required to comply with instructions about when, where and how the work is to be done, he would be classified as an employee.

The IRS bases its interpretation of common law on 20 rules that must each be weighed by the facts pertinent to a particular situation to determine whether workers are employees or independent contractors.

Just how much weight each item is given varies case by case, depending on the type of business involve, industry standards and other factors.

A Company is treating independent contractors working the employees if:

  • The worker must comply with the employer's work instructions
  • The worker receives training from, or at the direction of , the employer
  • The worker provides services that are integral to the employer's business
  • The worker is hires, supervised and paid by the employer
  • The worker has an ongoing working relationship with the employer
  • The worker must follow set hours of work
  • The worker works full-time for the employer
  • The worker does the work on the employer's premises
  • The worker must do the work in a sequence set by the employer
  • The worker must submit regular reports to the employer
  • The worker receives payments of regular amounts at set intervals
  • The worker relies on the employer to provide tools and materials
  • The worker lacks a major investment in resources for providing services
  • The worker works for one employer at a time
  • The worker does not offer services to the general public
  • The employer can fire the worker
  • The worker may quit work at any time without incurring liability.

According to the US department of labor, cleaning workers held 4.2 million jobs in 2000. Approximately 5 percent of those workers were self-employed independent contractors (ICS).

Note from Masco Sweepers:

This article was written for the janitorial industry and you may find that some of the information does no apply. The purpose of sharing this information with you is for you to evaluate if the method of Sub-Contracting sweeping is something that would work for you. Many companies use this as part of their business plan. There are companies that Sub-Contract only a small portion of their business, some half of there business and then there are a few companies that do not own any equipment themselves and completely Sub-Contract all of the work. Let me know what you think, email me your comments at mike@mascosweeepers.com .

Mike Dyck
General Manager


 

 

 

 

 

 

 

Masco Sweepers