Are Your Cleaning Company Workers Employees or Subcontractors?

Copyright 2006 The Janitorial Store

As your cleaning company grows and your client list expands, you'll soon realize that you can't do it all yourself. Hiring, supervising and taking care of payroll are very time-consuming measures. Rather than putting an employee on the payroll, some companies elect to use independent contractors. But if you improperly classify a worker as an independent contractor when the IRS views them as an employee you could be liable for back taxes, penalties and interest!

Putting employees on the payroll means that you are responsible for withholding income taxes, social security taxes, Medicare, and unemployment taxes. A business can get around all of this by hiring "independent contractors" instead of putting employees on the payroll. The independent contractor is then responsible to pay his or her own taxes and insurance. But the IRS has strict guidelines that determine if they are truly an independent contractor or if they are actually an employee.

Who is an independent contractor? If you, as the employer, only have the right to decide the result of the work being done, and not how that result is achieved, then the individual is most likely an independent contractor. However, if you as the employer control not only the end result, but also how that result is achieved and when the work is to be performed, then the individual is your employee and not an independent contractor.

Following are factors you should consider when determining if you should classify an individual as an employee or an independent contractor.

1. Does the worker need to follow your methods for getting the job done? An independent contractor can generally decide for himself (or herself) how to complete an assigned task.

2. Do you provide training for the worker? If you have to train an individual for a job, then that person will probably be considered an employee.

3. Is the employee's services an integral part of the business? This will probably bump a worker into employee status.

4. Do you require the individual perform all the services personally? Independent contractors may have their own employees or their own subcontractors that perform part of the work.

5. Do you set the worker's schedule and hours? An independent contractor will set his or her own hours. A contractor may have to work between a certain time frame because of agreements with vendors, but specific hours are generally not set.

6. Do you provide the supplies and equipment used on the job? An independent contractor is responsible for the providing their own supplies and equipment used on the job.

7. Do you pay expenses, mileage, etc.? An independent contractor is usually liable for their own expenses, even though they might bill you and seek reimbursement for items needed during their working relationship with you.

8. Does the worker have other clients? If an individual is working with multiple clients, that is a sign that they are an independent contractor.

9. Do you have the right to fire the individual at any time? Or does the individual have the right to quit at any time? Independent contractors are usually bound by a contract and can only be let go if there is a failure to meet the contract's requirements.

10. Does the worker have his or her own office? Having their own office space is a good sign the individual is an independent contractor and not an employee. The office can be a home office, but they should have a phone line dedicated to their business.

If you believe that your worker has satisfied the independent contractor status, strengthen your stance by doing the following:

1. Put your agreement with the contractor in writing. Make sure that you include a description of the project, the time duration, the amount to be paid and a clause that recognizes that the individual is an independent contractor.

2. Get a completed W-9 form from the individual and then be prepared to complete a 1099 at the end of the year.

3. Pay only when the independent contractor submits invoices to you.

4. If the particular project changes in any way, goes over budget, takes longer than expected, etc., address these issues in writing.

5. Have the independent contractor provide you with documented proof of insurance.

6. If at all possible, do not pay the independent contractor on an hourly basis. Instead, break down the amounts to be paid in terms of deliverables you receive throughout the life of the project.

Following these guidelines is not a guarantee the IRS will consider the worker as an independent contractor. If you are in doubt about the status of an individual, you can submit Form SS-8 to the IRS and ask for a determination of the worker's status.

You can run into an endless nightmare of fines, penalties and taxes if you improperly classify your workers as independent contractors when they are in reality employees of your cleaning company. It may seem easier to just call your workers "independent contractors" than have them on your payroll. But if you can't convince the IRS that these are not your employees, your cleaning company may have a tax burden big enough to drive you out of business!

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