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View Full Version : paying workers "out of pocket"


DALMlawn&landscaping
06-22-2004, 01:17 AM
i've heard of a few guys doing this. they will just throw the workers like, 75-100 bucks at the end of every work day. i don't get paid like this, but who does it this way, why, what are some tax issues, just a question i was wondering about.

-jeff
Linahan Lawn Service
foreman

odin
06-22-2004, 01:20 AM
if you thinking about paying somebody"under the table"..i suggest dont .

DALMlawn&landscaping
06-22-2004, 01:27 AM
i'm not the one that cuts the checks, i had just heard of some people doing this and was just curious why it might be better or worse than a payroll or what. or is it like contract labor where they pay you with no taxes taken out, but come the time, they file, and you have to deal with it your self or what. i'm just curious at how this might be better or worse. i know guys that get paid like, 100 bucks a day, wether the works takes 6 hours or 10, for that specific job, they will get paid 100 (or 75 or 100 or 125 you get the idea).

-jeff

1MajorTom
06-22-2004, 01:42 AM
I don't think you will find too many people here admitting that they pay 'under the table'.

rodfather
06-22-2004, 06:42 AM
I can tell you that the government frowns highly on payroll tax evasion...get caught for it and you will be up the proverbial creek without sufficient means of locomotion if ya know what I mean.

Recently here in NJ the Department of Labor was looking for guys in the Green Industry who were doing just that and caught a number of them.

allstar
06-22-2004, 09:30 AM
Hi Jeff
I'm pretty sure that you're supposed to take out taxes on anyone employed by you.It doesn't matter if they're hourly or salaried employees.
From a business perspective,you're better off doing things the 'right' way because payroll is deductible.If you pay someone say $100 but don't take out taxes you certainly can't claim that as a business expense because if you're ever audited you'll get nailed.Good luck.
An accountant can explain all of this to you.

PR Fect
06-22-2004, 09:39 AM
I new of one LCO in our area who had no "employees", just "sub contractors". He then needed no workman's com., and saved the "employers share of social security. I believe he had them sign a sub contractor paper before he would let them work for him. He has done some major jobs in the area and he is the only employee.

DFW Area Landscaper
06-22-2004, 10:10 AM
This spring, I hired an employee. Works an average of 45 hours per week.

Anyway, I'm not sure if I've done the smart thing, but the employment taxes are a little b!tch.

Over time (hours worked over 40) = 50%
Social Security Taxes = 7.6% witheld from his check
Social Security Taxes = another 7.6% kicked in by me
Unemployment Taxes = another 2.7% paid by me
Workmans Comp Insurance (optional in Texas) = another 8% kicked in by me

I pay the guy $8.50 an hour and I've figured out that if my employee works an average of 50 hours per week, he's costing me $11.06 per hour.

My belief is that well over 90% of the LCO's around the country are paying their employees as sub-contractors. With my labor at $11 per hour, it's tough to compete with guys who have labor costs at $8 per hour.

Later,
DFW Area Landscaper

Rex1321
06-22-2004, 11:01 AM
PR FECT,

Just because a person signed the paper, it doesn't make him a subcontractor. There are 3 standards used to determine if a person is truly a sub or just a sub on paper. If he is just a sub on paper you will still be held responsible for what ever should come up. (wages, taxes, legal issues)

Rex

odin
06-22-2004, 03:27 PM
Originally posted by DFW Area Landscaper
This spring, I hired an employee. Works an average of 45 hours per week.

Anyway, I'm not sure if I've done the smart thing, but the employment taxes are a little b!tch.

Over time (hours worked over 40) = 50%
Social Security Taxes = 7.6% witheld from his check
Social Security Taxes = another 7.6% kicked in by me
Unemployment Taxes = another 2.7% paid by me
Workmans Comp Insurance (optional in Texas) = another 8% kicked in by me

I pay the guy $8.50 an hour and I've figured out that if my employee works an average of 50 hours per week, he's costing me $11.06 per hour.

My belief is that well over 90% of the LCO's around the country are paying their employees as sub-contractors. With my labor at $11 per hour, it's tough to compete with guys who have labor costs at $8 per hour.

Later,
DFW Area Landscaper


MY Unemployment tax is 3.5 percent ..illnois you have to buy workmens comp from insurance company ..mine3 is 13cents on every dollar my employees gross......yeah its tough but you doing right thing....and beleive me the fines and penalties are stiff no statute of limminataions to.

PR Fect
06-22-2004, 03:39 PM
Rex, I did not think what he was doing was liget. What are the 3 things?

Rex1321
06-22-2004, 04:06 PM
PR Fect,

The three test are the common law test (used by the IRS), the Economic realities test, and the Hybrid test.

The common law test - Employment relationship exists if employer has right to control work process, as determined by evaluating totality of the circumstances and speific factors.

Economic realities test- Employment relationship exsists if individual is economically depedent on a business for continued employment.

Hybrid test- Employment relationship is evaluated under both common-law and economic reality test factors, with a focus on who has the right to control the means and manner of a worker's performance.

Bottom line is that the lawyers fight it out but in the end you still get to pay.

Rex

PR Fect
06-22-2004, 04:24 PM
OK, so if a sub only has one contract and is dependent on that contract he is not a sub.
If the employer own's most or all the equipment so as the sub is dependent on the employer he is not a sub.
If the sub has no control when and where and how he completes the work, he is no sub. Sound right?

Rex1321
06-22-2004, 04:48 PM
PR FECT,

Bulls Eye!! Rex

DALMlawn&landscaping
06-22-2004, 04:56 PM
i didn't mean this to be such a confusing question. i know that you're supposed to take out taxes, blah blah, but i was asking about why some people do this up-front cash payment at the end of everyday. It reminded me a lot of when i worked for a company and was "contract" labor, and so they paid me 7 bucks an hour, working like 55-60 hour weeks, and every two weeks i'd get a check, no taxes taken out. then come tax time, i had to pay taxes. AllStar thanks for clearing up most of my question, i'll have to talk to my cousin's wife, she and her dad are accountants. it seems also that its like, when you do a favor for a neighbor and they throw you a 20, and you're like, thanks, i'll buy some beer, and the 20 is forgotten about by both parties. anyone know what i'm getting at? good thing i dont have to deal with it yet or anytime soon.

-jeff

nelbuts
06-22-2004, 05:29 PM
Actually there is a "Casual Labor" law.

My accountant told me about this several years ago. If you have someone you just hired and he only worked one day. You can write them a check for "casual labor" and not do the tax thing. Check with your account. You can actually pay someone under this law up to $600.00 before the taxes.

proenterprises
06-22-2004, 07:33 PM
Originally posted by DALMlawn&landscaping
i didn't mean this to be such a confusing question. i know that you're supposed to take out taxes, blah blah, but i was asking about why some people do this up-front cash payment at the end of everyday. It reminded me a lot of when i worked for a company and was "contract" labor, and so they paid me 7 bucks an hour, working like 55-60 hour weeks, and every two weeks i'd get a check, no taxes taken out. then come tax time, i had to pay taxes. AllStar thanks for clearing up most of my question, i'll have to talk to my cousin's wife, she and her dad are accountants. it seems also that its like, when you do a favor for a neighbor and they throw you a 20, and you're like, thanks, i'll buy some beer, and the 20 is forgotten about by both parties. anyone know what i'm getting at? good thing i dont have to deal with it yet or anytime soon.

-jeff


some employers will do this with day labor. for instance, if you just need a guy to help you for a day, you are obvisouly not going to be putting him on payroll, you just give him cash at the end of the day and hes on his way.

some smaller opperations with 1 or maybe 2 employees dont take out taxes for employees. usually with smaller part time opperations. its alot easier.

buck 927
06-22-2004, 09:13 PM
put it as contract labor and you dont have to pay taxes on it. that what my cpa does

jtslawnservice
06-22-2004, 09:24 PM
I have 2 employees that work about 25 hrs each per wk. Is it easier to 1099 them both at the end of the year or pre-tax everything?

biglawndog
06-22-2004, 11:21 PM
Originally posted by jtslawnservice
I have 2 employees that work about 25 hrs each per wk. Is it easier to 1099 them both at the end of the year or pre-tax everything?


My accountant told me that if you have employees that work less than 32 hrs per week they can be classified as "seasonal" employees and you can 1099 them. Sure would save you some money if you can do it.