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sedge
02-03-2011, 11:54 PM
Have a question, as a friend of mine pays his employees cash and claims it saves him money.

Pay the guys cash benefits. No paper work to take care of. No payroll matching and workman's comp. Guys will work for less.

Paying by check benefits. You get to deduct their wages.

Ok, in the end when all considerations are figured in, what really is the cost savings one way or the other. I have read that an employee costs 25% above their direct pay in related expenses including payroll taxes, workman's comp and costs to do all the paper work, etc. If you pay cash you eliminate all those expenses, plus the guys will work a bit cheaper.

If your in the 30% tax bracket, then writing off employees is only saving you 30% correct? Or what am I missing.

watsmi57
02-03-2011, 11:56 PM
pay cash ....keep up with it...and 1099 em

aird208
02-04-2011, 12:12 AM
Your missing the fact that paying your employees cash and not paying payroll and unemployment taxes is AGAINST the law. You can not 1099 an employee, only subcontractors. Your friend is just setting himself up for a nice bill from the govt.

lyndont
02-04-2011, 12:25 AM
Anyone willing to work for just cash or 1099 is dumb unless the pay is great or its just every once in a while he needs help. Sometimes if it rains and I get behind I have a buddy help me and I split it with him and its good for both of us. I only do this part time right now until I feel I can fully support my family without my full time job so when it rains I need help. I love doing this but working 50 hrs a week and doing this 20 hrs a week can really take a lot out of you. Last year I was working from sun up to sun down every sunday and I need to be in church on sunday. Just wish there were more hours in the day sometimes. I would sell my house and live with my parents until I had 60 or so clients if I were single and didn't have a 2 year old daughter
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sedge
02-04-2011, 12:29 AM
Your missing the fact that paying your employees cash and not paying payroll and unemployment taxes is AGAINST the law. You can not 1099 an employee, only subcontractors. Your friend is just setting himself up for a nice bill from the govt.

So is speeding and I bet you speed.....

I am not saying anyone should do it, just which way is cost benefit.

On the 1099's, great idea until you get caught and you WILL get caught doing that fir sure. IRS looks closely at 1099's.

aird208
02-04-2011, 01:06 AM
Well short term yes it will save you money. It's just a gamble whether you get caught or not. There was a local curbing company here that tried the paying cash routine until an employee got injured and then exposed the company hadn't been paying workman's comp, the result was the company paying all medical bills and a hefty fine.

BadRancher
02-04-2011, 01:42 AM
Can you technically call them contract labor and make them sign a contract?

BadRancher
02-04-2011, 01:51 AM
Last year I was working from sun up to sun down every sunday and I need to be in church on sunday.
Posted via Mobile Device

I agree Bro. This season I am going to do my best not to work on Sundays. I worked alot of Sundays last year and missed church. I kinda think that is why I had so many issues with crap breaking down.... Religious Karma. Sorry to get off topic.

lyndont
02-04-2011, 01:56 AM
I agree Bro. This season I am going to do my best not to work on Sundays. I worked alot of Sundays last year and missed church. I kinda think that is why I had so many issues with crap breaking down.... Religious Karma. Sorry to get off topic.

Ha I know what your saying though. Life honestly just seems to go smoother if your going to church regularly. I intend to do the same but its hard to grow this and work at the same time. If I get a few bills knocked out I may just go for it but its hard to do when you have a mortgage and bills. I just want to work for myself so I can have a job I enjoy and feel good about what I do but at the same time I have to provide for my family
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Will P.C.
02-04-2011, 02:08 AM
Paying cash is obviously going to be cheaper. However, bad idea for a number of reasons as previously mentioned.

All it takes is a disgruntled employee to rat you out. This happened to a large landscape company near me.

bc3xx0
02-04-2011, 02:34 AM
Another good way to save money is to hire illegal immagrants.

Green Feet Lawn
02-04-2011, 08:06 AM
Also keep in mind, that you can not use it as a write off. Unless you are taking in enough cash to pay cash. But if you are getting paid by check, it is income that you are going to pay taxes on. Will cost you money in the end.

Also, IMO, as a lco operating in cash (without claiming it), you present yourself as unprofessional and a fly by night operation. The IRS will catch up to you and it will not be worth it in the end.

lawnprosteveo
02-04-2011, 08:29 AM
If you have a guy working for cash and no workers comp, and he injures himself on the job....any good lawyer will sue you and you will be wishing you had paid for the workers comp.

Not to mention, its the law. If you get caught speeding, you will pay a couple hundred bucks. If you get caught paying guys cash or doing the contract labor thing with guys who are employees, you will pay hefty IRS penalties and back taxes.

Be smart and dont take chances that could crush your business and personal finances.

bladesnshades
02-04-2011, 08:46 AM
If you have a guy working for cash and no workers comp, and he injures himself on the job....any good lawyer will sue you and you will be wishing you had paid for the workers comp.

Not to mention, its the law. If you get caught speeding, you will pay a couple hundred bucks. If you get caught paying guys cash or doing the contract labor thing with guys who are employees, you will pay hefty IRS penalties and back taxes.

Be smart and dont take chances that could crush your business and personal finances.

Totally agree Steveo, but i wonder how the part time LCO/ full time IRS agents out there feel about this?:nono::nono:

sedge
02-04-2011, 10:50 AM
Another good way to save money is to hire illegal immagrants.

No, in the end it will cost you!

Also keep in mind, that you can not use it as a write off. Unless you are taking in enough cash to pay cash. But if you are getting paid by check, it is income that you are going to pay taxes on. Will cost you money in the end.

Also, IMO, as a lco operating in cash (without claiming it), you present yourself as unprofessional and a fly by night operation. The IRS will catch up to you and it will not be worth it in the end.

The guy i am talking about doesn't get paid cash, or at least not much cash. I told him he was crazy, but he insisted on how much cheaper it was. I personally don't think it is cheaper, as he has to pay tax on the profit or what their wages were, as that will now show as pure profit.

No one else knows if your paying cash or not, so as per customers point of view, they could care less, but you are correct on the IRS.

JB1
02-04-2011, 11:15 AM
the person working for cash is dumber than a sack of rocks, one day when they get old enough, they might want some social security, guess what you didn't pay in so sorry, but then again if you don't have anything and are a deadbeat, they will still take care of you, well I'm done babbling, so long.

GreenI.A.
02-04-2011, 10:51 PM
Can you technically call them contract labor and make them sign a contract?

both fed. dept of labor and IRS regulate this, one of he big issues is that when you sub-contract the contractor is legally responisible if the sub is not properly insured and liceansed. So even is you sign a contract and they get injured you are still on the hook for it, and your insurance isn't going to cover it. Have a freak accident and the guy loses a hand or foot and you could loose your business, and if your not an llc you may loose youre house



I have a contractor in the area that Subs me for irrigation installs, what he does with many of his employees is they are on the books part time for minumum wage 10hrs a week, the other 30hrs they work he pays them cach. This way they still work and get paid for 40hrs but he doesn't pay full taxes/wc and everything else. But if something does happen then on the guy was working on the books that day

prezek
02-05-2011, 12:16 AM
The guy i am talking about doesn't get paid cash, or at least not much cash. I told him he was crazy, but he insisted on how much cheaper it was. I personally don't think it is cheaper, as he has to pay tax on the profit or what their wages were, as that will now show as pure profit.

No one else knows if your paying cash or not, so as per customers point of view, they could care less, but you are correct on the IRS.
Tax on profit? Chances are if this guy is skimming on labor issues, he's pocketing money and NOT paying taxes on it all, so it isn't a wash for him.

sedge
02-05-2011, 01:52 AM
Tax on profit? Chances are if this guy is skimming on labor issues, he's pocketing money and NOT paying taxes on it all, so it isn't a wash for him.

Only if it is cash. If it is via a check, ain't no skimmin going on, well, unless of course he is using creating accounting when he does his taxes.

lawnman_scott
02-05-2011, 09:15 AM
Can you technically call them contract labor and make them sign a contract?

You can call them anything you want, but you will be lying. Do they use their own equipment? Set own hours? There is an entire list of what makes them contract labor and employees aren't contract labor. To get back to the original question, I don't see the savings either.

Just to use round numbers, say you pay a guy $750 per period and the related expenses are $250 for a total of $1000 (although related expenses are not that high).

Then you take that $1000 as an expense off your year end taxes, say 250 in tax savings. You are back to a net out of pocket cost of $750. Now there is some idiot out there somewhere in a beat up truck, overalls, and 5 teeth that is paying $800 cash and smiling (kind of) thinking he is smart.

Fvstringpicker
02-05-2011, 09:46 AM
I think most of us know that if companies had the option of paying employees as contractors and not withholding/matching taxes, GE, Ford, AFLAC and all the Fortune 500 would be doing it. Getting caught is as easy a falling of a log. All that has to happen is a disgruntled employee turn you in or a laid off employee file for unemployment.

gasracer
02-05-2011, 09:54 AM
Another good way to save money is to hire illegal immagrants.

Don't get me started on how WRONG this is on so many levels.

gasracer
02-05-2011, 10:17 AM
Workman's comp cost are the same for contract labor as they are for employee's.You are liable for them either way.

starry night
02-05-2011, 10:25 AM
I won't even pay a guy cash for one day of helping out. You work one day for me and you officially become an employee with taxes, medicare, and social security withheld and put on the role for workers comp.

grass-scapes
02-05-2011, 11:40 AM
I have potential employees ask me if I pay cash or take taxes out. I tell them I take taxes out and some actually say they won't work unless its cash... I show them the door.

The other day on Craigslist, a company was advertising for an employee and actually stated in the ad that he paid cash and would 1099 them at the end of the year and they would be responsible for taxes. I informed him that what he was doing was illegal and posted the irs rules on employee/contractor rules.

He changed the ad slightly by removing he would pay cash part, but when he emailed me back, he used his business email....LOL. Now Im wondering if I should send all of this to the IRS...

I follow the rules. Someone trying to save money by not paying their taxes hurts ME.

Not only do they not pay the SSI and Medicare taxes (both portions, employer and employee), they also skip out on Unemployment insurance, income tax, and others.

Even if they get paid by check from customers, most customers (commercial excluded, of course) do not know to create a 1099 for their lawn company. So most of that income will go unreported, no matter paid with cash or check.

to me, if you pay under the table, you are no better than the old man with a push mower in the truck working for liquor money.

Pay your taxes. And NO, I don't love the irs. I hate them more than anything....but I do what I must and I can sleep at night.

gasracer
02-05-2011, 12:14 PM
Without writing it out I am posting the link to the IRS site on contract labor. There is a lot of information there.

http://www.irs.gov/businesses/small/article/0,,id=179115,00.html

gasracer
02-05-2011, 12:21 PM
I have potential employees ask me if I pay cash or take taxes out. I tell them I take taxes out and some actually say they won't work unless its cash... I show them the door.

The other day on Craigslist, a company was advertising for an employee and actually stated in the ad that he paid cash and would 1099 them at the end of the year and they would be responsible for taxes. I informed him that what he was doing was illegal and posted the irs rules on employee/contractor rules.

He changed the ad slightly by removing he would pay cash part, but when he emailed me back, he used his business email....LOL. Now Im wondering if I should send all of this to the IRS...

I follow the rules. Someone trying to save money by not paying their taxes hurts ME.

Not only do they not pay the SSI and Medicare taxes (both portions, employer and employee), they also skip out on Unemployment insurance, income tax, and others.

Even if they get paid by check from customers, most customers (commercial excluded, of course) do not know to create a 1099 for their lawn company. So most of that income will go unreported, no matter paid with cash or check.

to me, if you pay under the table, you are no better than the old man with a push mower in the truck working for liquor money.

Pay your taxes. And NO, I don't love the irs. I hate them more than anything....but I do what I must and I can sleep at night.


It is not to say if the guy was right or wrong in the way he was doing business.You may think he is a scrub.It depends on if he was counting it and keeping records. You can pay cash to employee as long as you show on the W-2 you took out taxes and all required deductions.

grass-scapes
02-05-2011, 12:31 PM
It is not to say if the guy was right or wrong in the way he was doing business.You may think he is a scrub.It depends on if he was counting it and keeping records. You can pay cash to employee as long as you show on the W-2 you took out taxes and all required deductions.

If you issue a w-2, then he HAD to be an employee to generate one. He said 1099.

Sure, I can pay cash to an employee too, as long as I deduct the same thing as if I were paying by check.

gasracer
02-05-2011, 12:51 PM
If you issue a w-2, then he HAD to be an employee to generate one. He said 1099.

Sure, I can pay cash to an employee too, as long as I deduct the same thing as if I were paying by check.

That is true. You can't have it both ways.

starry night
02-05-2011, 03:05 PM
Look, if a guy is paying his help in cash, I think we all know what his objective is.

Fvstringpicker
02-06-2011, 09:01 AM
Now Im wondering if I should send all of this to the IRS...

You don't have to. The IRS data mines these type sites (and this site).

grass-scapes
02-06-2011, 10:19 AM
No no no, not THIS thread....I already know this site and others are monitored. Im speaking of my conversation with the local lco to me that posted on craigslist and then sent me an email telling me he paid under the table. I probably won't, because he will get caught soon enough. I hear the IRS is cracking down on that. (of course, ive been hearing that for a long long time).

GreenI.A.
02-06-2011, 10:48 AM
No no no, not THIS thread....I already know this site and others are monitored. Im speaking of my conversation with the local lco to me that posted on craigslist and then sent me an email telling me he paid under the table. I probably won't, because he will get caught soon enough. I hear the IRS is cracking down on that. (of course, ive been hearing that for a long long time).

he'll get nailed when his employee gets hurt and is looking for workmans comp. The LCO will have either pay his medical bills in cash or risk being sued and having everything comeout. Or his emplyee tries filing UI, State says no and he then appeals it, bringing the LCO's business practices to light

snomaha
02-06-2011, 12:49 PM
Workman's comp cost are the same for contract labor as they are for employee's.You are liable for them either way.

You don't pay work comp on contract labor. The first thing they ask for in an insurance audit is the insurance certs for your subcontracted labor.

gasracer
02-06-2011, 03:57 PM
You don't pay work comp on contract labor. The first thing they ask for in an insurance audit is the insurance certs for your subcontracted labor.

If they don't have it you better carry it.

snomaha
02-06-2011, 04:49 PM
If they don't have it you better carry it.

Agreed - If they don't have insurance then they are not a sub contractor. IRS, dept of labor and your insurance company will all have something to say on suspicious "contracted labor".

Not throwing stones - just my experience.

gasracer
02-06-2011, 05:12 PM
It's called a "What if","Phantom" policy. issued by the insurance company. Even big companies have several "contract laborers" and the company carries the Work Comp. I don't think some part time worker can afford to carry his own Work comp and a employer can't risk them getting hurt either.

snomaha
02-06-2011, 08:16 PM
It's called a "What if","Phantom" policy. issued by the insurance company. Even big companies have several "contract laborers" and the company carries the Work Comp. I don't think some part time worker can afford to carry his own Work comp and a employer can't risk them getting hurt either.

We might be talking about two different things? IRS is pretty black and white on contracted labor - if you are carrying the work comp on someone the employer taxes are on you. If you are a solo independent contractor you need liability insurance but don't necessarily need work comp.

gasracer
02-06-2011, 08:43 PM
We might be talking about two different things? IRS is pretty black and white on contracted labor - if you are carrying the work comp on someone the employer taxes are on you. If you are a solo independent contractor you need liability insurance but don't necessarily need work comp.

I would talk to a CPA,lawyer about the contract labor and your insurance company about the Work comp guidelines.

Here is the link to IRS on contract labor.
http://www.irs.gov/businesses/small/article/0,,id=179115,00.html

snomaha
02-06-2011, 08:54 PM
I would talk to a CPA,lawyer about the contract labor and your insurance company about the Work comp guidelines.

Here is the link to IRS on contract labor.
http://www.irs.gov/businesses/small/article/0,,id=179115,00.html

Agree...free advice is worth as much as it costs. :)

Green Feet Lawn
02-07-2011, 07:49 AM
My CPA tells me that the IRS hired 56,000 new employees so that they can dig up as much extra $$$$.

Mahoney3223
02-07-2011, 09:29 AM
payroll is the only way to go if your a serious business. i'm not talking you solo and helper or helper + another during busy times, i'm talking guys with year round employees 4 or more. i know a few guys that got nailed for 1099 guys and no thanks! i've had my problems with the payroll taxes yes, but i know all too well what the penalties are if you get popped on something. most guys wanna go under the table because they are lowballers to begin with and dont charge enough to cover their payroll. this just means they aren't going to be around long anyways so they mine as well pay cash because in 2 years they will be working for someone else.

riivvers
02-07-2011, 07:13 PM
Coming in 2012 there are new laws on W-9's, 1099's and reporting on them. The Gov. tightening up on small loop holes and who is reporting, maybe even witholding on payments to contractors and sub-contractors.
If you are providuing the equuipment and setting the hours and direction of the work being preformed then you don't have a sub-contractor but an employee.

LB1234
02-09-2011, 12:05 PM
one day when they get old enough, they might want some social security,


i'm sorry but does anyone else find the humor in this? I believe this is a BIG BIG ASSumption to think when we come of age there will be enough coins in the pot to collect.

hoyboy
02-14-2011, 09:27 AM
If your friend is unethical enough to pay cash and skip the payroll taxes, he is also unethical enough to not pay his income tax. So yes, he is "saving money" in the short term. Long run, though, those guys don't last.

That is no consolation when you bid against these guys and they are lowballing you by 10 or 20 %. You know why they can do it. Their cheats. There is a strong pull to do the same thing as them...skip corners and join them. But don't do it. Stay the straight and narrow and you will be glad you did. You will sleep better at night and hold your chin high. Those things can't be bought!

Dan Norton
mylandscapeoffice.com

GreenI.A.
02-14-2011, 12:06 PM
The big problem with these guys cutting the corners is that their will always be another one to take his place. Yeah Joes lawn care who is unliceansed, uninsured, and doesn't pay taxes may only be around for a couple of years. But when he finally either goes under or gets caught their will be a dozen more illegal companies waiting to bid on the work. I feel the only true way to combat this is to educuate the customer. If I bid a job and do not get it, the customer receives a brochure listing our services for future reference. there is also a large part on checking to be sure the comapny is opporating legally. Things like asking to see an insurance certificate for wc and gl, not just asking if they have it but asking for proof, and explains that they as the property owner could be held financially responsible for any injury or damage caused by an unisured worker. I have been called back many times to do jobs that I lost to illegal companies after I sent these out.

lawn
02-14-2011, 11:01 PM
The big problem with these guys cutting the corners is that their will always be another one to take his place. Yeah Joes lawn care who is unliceansed, uninsured, and doesn't pay taxes may only be around for a couple of years. But when he finally either goes under or gets caught their will be a dozen more illegal companies waiting to bid on the work. I feel the only true way to combat this is to educuate the customer. If I bid a job and do not get it, the customer receives a brochure listing our services for future reference. there is also a large part on checking to be sure the comapny is opporating legally. Things like asking to see an insurance certificate for wc and gl, not just asking if they have it but asking for proof, and explains that they as the property owner could be held financially responsible for any injury or damage caused by an unisured worker. I have been called back many times to do jobs that I lost to illegal companies after I sent these out.

brochure listing of your services? could you please share that? I have no idea what it looks like. Thanks

starry night
02-15-2011, 09:36 AM
brochure listing of your services? could you please share that? I have no idea what it looks like. Thanks

Maybe it's none of my business to answer because you didn't ask ME but
....do you know what ANY brochure looks like?
And do you know what various lawn services might be? Put the two together and there it is. Or maybe I didn't understand your question.

sunny days 101
05-22-2011, 09:38 AM
Can you technically call them contract labor and make them sign a contract?

no; you can not; contracted workers are people that have their own lawn mower, own trailer, own weedwacker and their own liability insurance that person can be your subcontractor. you do NOT want to tango with the IRS. They have 'local' offices for a reason, so they can come to your house and drag you into their 'interview room'. sound fun?