Employees, Independent Contractors, Sub-Contractors

What is the difference?

MISCLASSIFICATION : IMPROPERLY CLASSIFYING EMPLOYEES AS INDEPENDENT CONTRACTORS, LLC’S OR SUB-CONTRACTORs

It is almost an industry standard to misclassify an employee as an independent contractor or by paying in cash to save on employee expenses.

If you’ve been in construction at all, you’re probably aware of a few “tricks” used in the industry to save money.  It’s likely you’ve worked with someone who either pays in cash, or as a misclassified 1099 subcontractor.  It’s significantly cheaper than going through E-verify, making sure that your paperwork is in order, providing the appropriate employee benefits, paying matching taxes and so on.  In fact, the average cost of an employee for a business is generally around 25-40% more than the wage of the employee..  That’s a huge savings that many contractors bank on when bidding for a job..  

The problem is that misclassification leaves workers uninsured and at a high risk of wage theft, and the contractors can be held responsible for up to 10 years of back taxes, hefty attorney fees and fines from the Department of Labor.  Over the last 10 years, the DOL has been refocusing their efforts on stopping misclassification and small businesses who most often don’t know any better are at risk.  

SUBCONTRACTED LABOR DONE RIGHT

Using subcontractors to perform work is done all the time.. There’s nothing inherently wrong with using a sub to get your jobs done, however you need to realize that there is a distinct relationship difference between an employee and a sub.  An employee is told where to work, how to do the work, and when to work along with the employer’s expectations for performance, hours, processes and more.  This is defined by the IRS as direction and control.  The more direction and control that is exercised in a relationship, the more that points to an employer-employee relationship.  Less direction and control lends to a contractor-subcontractor relationship..  

By fundamentally changing the relationship between an employer and his employees, you can create a true contractor-subcontractor relationship..  It may sound simple but is in fact fairly difficult.  For example, there are many industries and professions where this is not possible, or in the very least, not a positive change for those involved.  A supermarket would want to retain direction and control over their workers, or they may lose the cohesiveness of their brand.  In construction however, most workers can perform the job without the direction and control of an employer.  

To make this change, the employee would need to create his own business, set up a bank account, get insurance, licensed… It’s a process, and to do this alone can be scary.  Even after going through everything and getting things set up, if the relationship doesn’t change, he can still be classified as an employee.  

WHERE WE COME IN

We simplify the entire process.  Not only do we walk the employee through setting up their business and getting licensed, but we also train them on what it takes to be a powerful business owner.  All of this in preparation of becoming a legitimate sub.  Once the entity and license are ready, we will handle all negotiations and contract compliance on behalf of the new sub.  

Our process:

• Subcontractor business creation (Generally 1-2 weeks)

  • EIN

  • Bank account

  • insurance

  • etc.

• Subcontractor Licensing (Through the Utah Homebuilders Association)

  • 25 Hour training for the specialty license.

• Professional business training

  • We have created an in-depth curriculum tailored to the new business owner. Our training covers everything from basic business terminology, marketing and bookkeeping to understanding the differences between LLCs, PLLCs, Partnerships and Corporations.

• One-on-one business mentorships and reviews

  • New business owners can choose to hire us as their professional business mentor. We will meet with the owner one-on-one to walk them through their beginnings to success. Along with reviews of potential contracts, paperwork and other business questions. Our mentors focus on the ultimate success of each business professional we work with.

• Online tools

  • We have tools ranging from access to our job board, estimating tools and much more.

WHAT THIS MEANS FOR YOU

All the headache that comes with employees, all the added cost… They are no longer a stressor for you.  The threat of misclassification is gone because you are now using true subs for your labor and your relationship has been effectively changed.  You know that every sub that we produce is licensed, bonded, insured and trained.  You will receive an invoice from the subcontractor for each job that is completed.  You get to keep a majority of that 25-40% on your labor costs and the liability of having employees is gone.  

You no longer need to worry about what time the work is done, how it is getting done, training or setting expectations (more than you would for any other standard sub).

To sweeten the deal, you now have access to a completely scalable workforce without the need to hire and fire during corresponding seasons. 

The work being done by these new subs you’ll find is a higher quality of work.  Because they now represent themselves, their work is a reflection of their brand.