My wife, sub-contracting, insurance, & taxes

Discussion in 'Business Operations' started by tiedeman, Dec 8, 2004.

  1. tiedeman

    tiedeman LawnSite Fanatic
    from earth
    Messages: 8,745

    The title of the thread sounds like a heck of a story doesn't it?

    Ok, let me lay out the story for you guys and see whether you can lay some knowledge on me. Even though I am going to talk to an insurance guy tomorrow and my accoutant I thought that maybe I would talk with you first. This is not set in stone, but my wife has options as stated below.

    This is the situation, my wifes employer can't afford to pay my wife anymore at her current salary. So the option is (which the employer presented to my wife) is to do a cut in her pay, or sub-contract work out to her and pay her her normal gross wage (basically not taking out the taxes, just paying her the whole amount). Which I already sat down and figured out, that the employer would only save about $1,300 a year by doing that (payroll and taxes) since the employer still has to have workers comp for sub-contracting. My wife would only make approx $200 more a year if being sub-contracted work (my figures).

    Questions now:

    1. Since work is being sub-contracted out to my wife, doesn't she now fall under being self-employeed and have to pay in the regular 15% taxes?

    2. Doesn't my wife now need insurance since work is being sub-contracted to her? Even if the employee gives her a 1099? And even if the employer already has insurance?

    3. Does my wife only need liability insurance or both workers comp and liability since she is being sub-contracted work to?

    If anybody could offer me any advice that would be great.
  2. J&R

    J&R LawnSite Senior Member
    Messages: 835

    She would pay the 15.3%. It all depends on what type of work she will be doing thats were the Lib & worker comp ins. would play a factor.
  3. 65hoss

    65hoss LawnSite Fanatic
    Messages: 6,360

    1. You didn't say what type of work, is it physical or office work?
    2. Would she do it from his office or home?
    3. Technically he wouldn't need workmans comp.
    4. He would not be paying any benefits.
    5. He will save lots more than the $1300 you came up with. Health ins., workcomp, unemployment taxes, SSN his 1/2, etc
    Generally speaking from past experience with this situation, its a no win for your wife. She will pay all her own taxes, his portion also, no health insurance, no vacation, no unemployment, and its all the same original $$ amount with lots more expense. OH, and since he will be getting all the business write-offs she will have nothing to offset income. BAD situation in most cases.
  4. Mueller Landscape Inc

    Mueller Landscape Inc LawnSite Senior Member
    Messages: 489

    1. She will pay the 15% self-employment tax plus additional income tax. Right now she pays half the self emp tax (soc sec).

    2. She will need insurance and a Business Licence.

    3. She only needs Liability, no work comp unless she hires someone to work for her. Although, this might depend on the laws of your state.
  5. tiedeman

    tiedeman LawnSite Fanatic
    from earth
    Messages: 8,745

    Hoss to answer some of your questions
    1. She works at a day care
    2. She would do it from her place of employment
    4. I already figured in her vacation time and paid holidays in what he would save.
    5. Actually, the only thing I forogt was unemployment taxes, so he would save about $1,800 a year.
  6. Mueller Landscape Inc

    Mueller Landscape Inc LawnSite Senior Member
    Messages: 489

    Better check out the licensing for day care operators in your state, if she will be a sub.

    Honestly, I do not know how the owner of this business can get away with classifying your wife as a sub since she will still be required to show up on time, use the facility, etc.
  7. tiedeman

    tiedeman LawnSite Fanatic
    from earth
    Messages: 8,745

    that is what I was thinking as well Meuller.

    If my wife is being sub-contracted to, doesn't my wife now need a day care license
  8. 65hoss

    65hoss LawnSite Fanatic
    Messages: 6,360

    I would not do it for 1 main reason. Liability. Being in a day care situation, if something happens they will come after her. She isn't an employee, she is set up like her own biz. A DayCare has a huge liability attached to it.

    I think you are still way unshooting the cost saved by him. Just assume she makes $15,000 per year...his part of SSN is $1125 alone. Being a high liability business, I would bet his G/L and Workcomp on her alone is $1500+. Unemployment $$ I don't know for your area. Vacation and sick days are worth money to him. I would bet it will save him $4000-$6000 per year and increase her cost dramatically compared to what she normally has.
  9. tonygreek

    tonygreek LawnSite Gold Member
    Messages: 3,915

    for all of the cost and liability reasons listed above, i'd stay status quo in her current role if the cut in pay isn't too much, or "explore other options" as they say.

    also, as you've described the scenario, i don't see how the employer would meet the irs requirements of what a sub needs to be.
  10. tiedeman

    tiedeman LawnSite Fanatic
    from earth
    Messages: 8,745

    ok, just got off the phone with my lawyer and this is what she says

    1. my wife would still be considered an employee to her employer because under the tax codes of SS8 the employer is still setting the hours and wages.

    2. my wife would be paying in the 15.3% during the year

    3. Yes, my wife would need liability insurance for the work

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