Employee Pay & Turnover 1099 vs W2 & OverTime

Discussion in 'Lawn Mowing' started by DFW Area Landscaper, Feb 21, 2004.

  1. DFW Area Landscaper

    DFW Area Landscaper LawnSite Silver Member
    from DFW, TX
    Posts: 2,116

    Ok. This thread is intended to open up an honest discussion about the benefits of each type of pay system. There is a tremendous difference between paying 1099 and W2. And I have yet to speak with any LCO, face to face, that's told me they were paying their help via W2. I even get the feeling my accountant thinks I'm nuts for using W2 pay with my help.

    I had posted some questions re W2 vs 1099 earlier this winter, and based on all the feedback, I had made the decision to do everything by the book...overtime pay, unemployment insurance, federal tax whithodings, etc.

    The thing that really got me to thinking about this again was, I bumped into an LCO the other day who says he pays his lead guy $150 per day. He's had this lead guy for something like six years. And the LCO has been in business for 10 years...never bothered by the government. He pays no overtime for hours worked beyond 40 in a week. He pays his entire crew this way. If they work til 1:30, they're paid for the full day. If they finish before 1:30, they're paid for half a day's work. He's not sure they're legal, but as he says, he's not the INS. He can't tell if the doc's are real and it's not his job to verify doc's.

    Ok. Fine. But if I'm going to do everything by the "rules", my labor costs are going to be huge compared to his. Here's the math:

    His costs

    Cash payment of $150.00 per day with nothing witheld. Figure $750.00 for five days at 10 hours per day. Plus another 10% for workers comp insurance. Total cost to the LCO: $16.50 per hour

    My costs

    If I want my lead guy to take home $150.00 per day after all witholdings, it'll depend on how many dependents he says has. So let's figure he's married and he's got three kids (or at least he says he's got three kids). In order for him to take home $150.00 per day, or $750.00 per week, I have to pay him about $880.00 per week. That's $16.00 per hour for forty hours and $24.00 per hour for 10 hours. I've also got another 10% for workers comp insurance, which is about $88.00. Since I'll be laying a lot of people off every December, I expect to pay the maximum in unemployment insurance, which is currently 8.4% in Texas. That would cost me another $73.92. Then there's the social security tax that I must match, which is another $66.00. Total cost for the week is $1,107.92 for the week. Divide that by the fifty hours of work, and my labor costs are $22.16 per hour. And they only go up as we work beyond 50 hours in a week due to overtime rules.

    If I play by the rules, my labor costs are 34% higher than my competition's labor costs!!!

    Why shouldn't I label my employees as subcontractors and issue 1099's???? I mean, my God, this guys been doing this for 10 years.

    Later,
    osu2winbig12
     
  2. lawnman_scott

    lawnman_scott LawnSite Fanatic
    Posts: 7,547

    Well its not legal, bucause they arent subcontractors. But, you will probably never get caught. I dont think you have to pay for workmans comp on subs, but im not positive on that.
     
  3. DFW Area Landscaper

    DFW Area Landscaper LawnSite Silver Member
    from DFW, TX
    Posts: 2,116

    ++++I dont think you have to pay for workmans comp on subs, but im not positive on that++++

    You probably don't have to, but I'm not going to chince on that one.

    Later,
    DFW Area Landscaper
     
  4. Landmark

    Landmark LawnSite Member
    from Indiana
    Posts: 23

    I have been mainly reading here and not saying much, but in regards to this I have some input. I was recently audited by the unemployment office and they wanted to see every single check, receipt, invoice, you name it for the last 2 years. This was just a random audit. I have always done it by the book. The auditor says he was looking for people paid under the table and if they were paid this way (1099) he wanted to see those too. Basically he wanted to make sure that if I had worker's who should be employees (according to the IRS they are, not sure how people label them otherwise except by being dishonest) that they be paid as employees and all unemployment costs paid on them as well. Needless to say I would hate to get caught and have to pay penalties for not doing it legally. It seems to me that the small amount saved by cheating will cost you lots and lots of money in the long run, maybe ruin your business if the penalties, back taxes, and interest was high enough. Be honest :angel:
     
  5. Landmark

    Landmark LawnSite Member
    from Indiana
    Posts: 23

    One more thing, the unemployment office ended up owing mw money.:D
     
  6. DFW Area Landscaper

    DFW Area Landscaper LawnSite Silver Member
    from DFW, TX
    Posts: 2,116

    ++++Be honest++++

    That was my plan, and probably still is. But when none of my competitors are 'being honest" and they're labor costs are literally a fraction of what mine are, how am I supposed to compete?

    Later,
    DFW Area Landscaper
     
  7. dkeisala

    dkeisala LawnSite Senior Member
    Posts: 911

    DFW - Make your lead man a salaried supervisor or manager. Figure out what his total compensation will be, using the numbers you used above, for the season. Divide that number by 12 mos. Now, he nows how much he is making and you can better budget for the expense.

    It is my understanding that you don't have to pay over-time to a salaried supervisor or manager that is making at least $22,000 a year. This information recently came from the US Dept. of Labor.
     
  8. John Allin

    John Allin LawnSite Bronze Member
    Posts: 1,489

    Ah.... age old problem..... operate like a business, or cheat.

    And people wonder why others think of us as "guys that can't find real jobs"........

    Hint: Loads of guys out there making a good living at this operating like real businesses. And, they don't get the opportunity to go to jail down the road either.

    If ya can't operate like a business, get outta the business. You "compete" by not worrying about them. Don't do that kind of work. Don't go after that kind of customer. Adopt the right attitude.

    If you think you can, or you think you can't...... you're right.
     
  9. dkeisala

    dkeisala LawnSite Senior Member
    Posts: 911

    Or, you "compete" by not thinking like them.
     
  10. John Allin

    John Allin LawnSite Bronze Member
    Posts: 1,489

    That's better than what I said, by a mile.....
     

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