I’m a one man show and have a better chance of retiring vs hiring employees, question is for my daughter. She has a small residential cleaning company with a few small commercial accounts. One of her customers has presented her with an opportunity at a large business requiring multiple visits and workers per week. She could do it by herself but would need to drop many of her residential clients which she doesn’t want to do. Fortunately she has several people she can use to get the job done, all would be 1099 employees. She asked me for some advice, my simple answer was how long will it take and how much do you want to make an hour, that works pretty well for a one man show but in my opinion falls short with employees. Do any of you have rules of thumb for 1099 employees? Any suggestions for getting this quoted correctly regarding costs and margins for 1099 employees?
Do these 1099 contractors have their own business? You have to be real careful when designating someone a 1099 or employee. See below from the irs.
Common law rules
Facts that provide evidence of the degree of control and independence fall into three categories:
- Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
- Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
- Type of relationship: Are there written contracts or employee type benefits (that is, pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.
The keys are to look at the entire relationship and consider the extent of the right to direct and control the worker. Finally, document each of the factors used in coming up with the determination.
If they are truly contractors I would say margins would be less vs having them as an employee, at least in my experience.
This is crucial! The majority of 1099 employees (which is a misnomer, bc there is no such thing) are actually employees and not contractors. Folllow those IRS rules, or she can be sued, fined, etc. Basically, you can really only call them 1099 contractors when you are essentially sub-contracting out the work to another to handle the job. Some of the biggies are, do you tell them how to do the job and when they have to do it, or is it outcome based and tied to a deadline, etc.
Obviously, the goal of the rules is to require one to make them employees in most cases, as folks avoid it to avoid paying the associated benefits, taxes or OT that comes with employees in most jurisdictions. In most cases it’s not realy a chouce you’re making…
I was a 1099 for several years.
You can’t be an ‘employee’ and a 1099 at the same time. They need to have their own ‘company’ entity including insurance, tools, tax ID and vehicles. Basically they are subcontractors. They have the power to say yes or no to a job, they are not bound to working exclusively with that contractor.
I also worked on a percentage of the job, not an hourly rate. My first ‘contractor’ was quite generous at 75%.
Yes, I obviously mis-spoke, these are 1099 contractors not employees. I reached out to my CPA this morning, asked for a rule of thumb for what an employee “costs” an employer over and above his salary. A good rule of thumb is 10% excluding any benefits, of course every state is different, that’s for MO. Where I was going is I know how much to charge for me, my equipment, my overhead and how much profit I want to or can make. I’m looking for insight from people who pay 1099 contractors, do they have any general rule of thumb numbers for their profitability to you. I understand it depends on how hard they work, how much do they break etc.
How hard they work really doesn’t factor in too much (unless we’re talking overall capacity), because they’re going to be on a lump sum/per job payment basis. The benefit of using them is they are responsible for their own benefits (and typically tools/equipment/etc.) which takes all of that off your plate, and locks in your costs. The real question would be what you want to mark up the work they do (to cover admin, marketing, and the costs you’ll still be eating, plus your profit). That is going to vary based on what you/she puts into those things.
What @JAtkinson said. I would make better on profit with employees, subcontracting not so much….they usually have prices as high as my own, time I take out our overhead the profit is less. We will sub if it’s a huge job and need another crew to help though. Of course now I don’t mess with employees or contractors….after 30 years we just take on what we can do in half days 6 months out of the year, 
If they are going to be working full time for her, then make them and employee. If part time, say 2-3 days/ week then I’d 1099 them. Either way, she needs to bill them out at least 2-3 times what she’s paying them. In the landscaping business $65/hr pretty common median. $50 on the low side to $85 on the high side. Like on leaf or yard cleanups I bill out at $150-$175/hr for 2 or $200 for 3 people. That includes all costs. Then she just needs to figure out how long the job will take.
Thanks all for good input, Racer exactly what I was looking for. Is why I enjoy this forum.
At 2-3x be sure they’re providing their own tools/supplies and insurance (they should be). If anything is being provided to them, I’d up that number. Just take the basic overall job cost breakdown (labor/mat’l/truck/insurance/marketing/sales/etc.) and drop every cost line item into one column or the other. If they’re taking on 35-40% of the overall costs, then 2-3x works.
A temp agency might be an option to look at.
thanks for the detail and ideas
She’s a bit hesitant to do that, if she grows that might be her best next option. As of now the few people she has can get her over the hump. Kind of that classic go or no-go decision.
as stated, 1099 are not employees.
a way around, is when an employee does work for the employer under other capacity, outside the work description.
I’d recommend against looking for a “way around”, but you’re kind of right about the work description. Many misuderstand the W2/1099 discussion as 2 options one can choose between. That is only true if one defines the relationship in such a way to meet the 1099 requirements as listed.
I am nkt sayong to get around it,
What i am saying you can have your side business and provide services to your employer outsife your original work scope as an W2 employee
