Dozier Digging
Well-Known Member
As my company has grown I need to hire workers ,drivers etc. what is the best to pay employees taxes I know in the pass they wouldn't work for me if I gave them a 1099 at the end of year
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Employee taxes
- Thread starter Dozier Digging
- Start date
mitch504
Senior Member
The ONLY legal way to do it is by setting them up as employees, withhold income tax, paying SS, unemployment, etc.; or, to hire them through an employment service, but then you pay all those expenses, plus the services profit.
To pay someone with a 1099 legally, you have to be able to show that they are not employees. If the IRS, or your state DOR notices you using 1099s to claim workers are contractors, they will simply tell you they are not, and then, instead of withholding income tax, and the employees half of FICA, etc you will have to pay it out of your pocket. They are getting strict about this, even a lot of times declaring drivers who own their truck but only work for one customer to be employees.
To pay cash leaves you in the same boat, only worse.
To pay someone with a 1099 legally, you have to be able to show that they are not employees. If the IRS, or your state DOR notices you using 1099s to claim workers are contractors, they will simply tell you they are not, and then, instead of withholding income tax, and the employees half of FICA, etc you will have to pay it out of your pocket. They are getting strict about this, even a lot of times declaring drivers who own their truck but only work for one customer to be employees.
To pay cash leaves you in the same boat, only worse.
mitch504
Senior Member
I second the Quickbooks suggestion, to keep up the withholding, etc.
Dozier Digging
Well-Known Member
Are y'all using quick books payroll I already use quick books pro
Dozier Digging
Well-Known Member
Can you give me a rough idea (I know it'll very varies) if I'm paying a employee 12 to 15 per hour how much should I charge the customer for that employee
thepumpguysc
Senior Member
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- Master Inj.Pump rebuilder
I'm no accountant but>> Lets say "for instance" I get payed 25/hr.. MY COMPANY charges 110.00 to the customer.. I GUESS that takes care of all the taxes and benefits..??? and turns a profit..
Here is what I pay (Idaho)
Company SS = 6%
Medicare = 1.45%
Workers Comp = 6.32%
State Unemployment = 2.72%
Federal Unemployment = .6%
Total = 17.09%
So at $15 per hour your cost will be $17.56
My insurance (liability) is based somewhat on my payroll, but I don't have that exact number broken out, so let's just say 20% overhead to cover non billable hours and insurance. This may not be high enough.
$17.56 + 20% = $21.95 before profit.
Your rates on workers comp and unemployment rates will no doubt vary, and you may have state and local taxes that I don't. You may provide personal protective equipment, gloves etc. that would have to be added in.
If you were to add 10% profit you would be at $24.39 per hour, bare minimum in my opinion.
Company SS = 6%
Medicare = 1.45%
Workers Comp = 6.32%
State Unemployment = 2.72%
Federal Unemployment = .6%
Total = 17.09%
So at $15 per hour your cost will be $17.56
My insurance (liability) is based somewhat on my payroll, but I don't have that exact number broken out, so let's just say 20% overhead to cover non billable hours and insurance. This may not be high enough.
$17.56 + 20% = $21.95 before profit.
Your rates on workers comp and unemployment rates will no doubt vary, and you may have state and local taxes that I don't. You may provide personal protective equipment, gloves etc. that would have to be added in.
If you were to add 10% profit you would be at $24.39 per hour, bare minimum in my opinion.
CM1995
Administrator
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Everyone pay attention.:cool2
Oxbow just broke it down very well in what your labor actually costs. Substitute your state percentages and overheard, you'll have what you need to charge for labor and make a decent profit, or at least cover your costs.
For example I charge out bare labor at $30 an hour with a base pay rate of $15 per hour. That's calculating my costs and profit margin. Even at $30 an hour, there is no real profit in general labor as the money is made with the yellow iron.
1099's should only be used for true subcontractors as the others have stated. It's just like skirting OSHA, licensing rules, etc - you can do it and may do it for a while but when they catch you it burns.
Some accounting services will run payroll fairly cheap.
I text my hours in, she has checks and a stamp, sends out the checks and makes required deposits to tax entities.
E-mails me checkstubs and deposit amounts.
I keep my books on quickbooks 2003.
Runs about $5 an employee a week, and with 1 employee most of the time, and 4 at the most it's nice.
The hardest part doing it yourself is keeping withholding amounts and deposits for the withholdings all straight and not forgetting to get them in.
I text my hours in, she has checks and a stamp, sends out the checks and makes required deposits to tax entities.
E-mails me checkstubs and deposit amounts.
I keep my books on quickbooks 2003.
Runs about $5 an employee a week, and with 1 employee most of the time, and 4 at the most it's nice.
The hardest part doing it yourself is keeping withholding amounts and deposits for the withholdings all straight and not forgetting to get them in.
willie59
Administrator
1099's should only be used for true subcontractors as the others have stated. It's just like skirting OSHA, licensing rules, etc - you can do it and may do it for a while but when they catch you it burns.
Exactly. In the American Judicial System one is "innocent until proven guilty", the burden is on the prosecutor to prove guilt. With the IRS it's the other way around, you're guilty until you prove yourself innocent, they wipe you out right up front and you have to prove you're innocent to recover. And if you can't...
JBGASH
Senior Member
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Quickbooks Pro with the payroll feature is excellent and will do all that is needed to keep everything correct and legal. As with anything there is a learning curve but it is very inexpensive and gets the job done.
Everyone pay attention.:cool2
Oxbow just broke it down very well in what your labor actually costs. Substitute your state percentages and overheard, you'll have what you need to charge for labor and make a decent profit, or at least cover your costs.
For example I charge out bare labor at $30 an hour with a base pay rate of $15 per hour. That's calculating my costs and profit margin. Even at $30 an hour, there is no real profit in general labor as the money is made with the yellow iron.
1099's should only be used for true subcontractors as the others have stated. It's just like skirting OSHA, licensing rules, etc - you can do it and may do it for a while but when they catch you it burns.
I think CM's example is probably a good rule of thumb, i.e. double the straight time pay, as a place to start. The amount of overhead is the fuzziest part of these calculations, as non billable hours, travel time, add up pretty quickly. Suppose you drive an hour to the job, spend a half hour getting things started and replacing teeth on the bucket, and then get rained out, drive home - now you have 2.5 hours of non-billable time that you cannot charge for directly, but I bet your employees would like to be paid for that time.
I should have added a few things in my breakdown:
I based those numbers on 40 hours per week, but we try to work at least 45. We travel a lot and a nine hour day turns into 12 pretty consistently. Anyway...
If you typically work lets say 50 hours per week, and pay $15 per hour, your gross pay to the employee is $825. Divide that by 50 hours, and the starting point for the calculations is now $16.50 per hour for a $15.00 per hour employee. And remember, this would be for billable hours. If you are a small company, and everybody jumps in at the end of the day to fuel, grease, shovel out tracks, etc. then you have 30 minutes a day that is not billable, which means the hourly rate that you charge for an employee has to include the portion that is not billable.
We do about 20% prevailing wage jobs, and they require adding fringes, zone pay, etc. to the starting number.
Again, I think CM's example of the billable rate being double the hourly rate is probably a good rule of thumb to start out with.
Another nice thing about Quickbooks is that it is nice for creating reports that help one to see things like percentage of non billable hours.
kthompson
Well-Known Member
I want to add to the discussion on 1099 people. First I am full time insurance agent doing a good bit of work in the group market and want to address it from there. Some of you may have more than 50 employees and you have legal obligation to provide them reasonable price health insurance or face a federal fine. Will not try to explain that amount it is on the internet. So there are those who really feel they need to pall all the "people" they can on 1099's when there is no way they can prove they are really independent contractors.
Lets say the company does not offer group insurance period and with the law having penalty on the individual if they do not have quality insurance they face fine when they file their taxes. So they complain. Some accountants know the law requirement but the simple tax preparer may not. But any way some of those "people" are talking with people when doing their taxes who know this law. Second if they apply using one of the "MARKET PLACES" at least on the Federal Site they ask who they work for. So lets say 15 people say they work for ABC Sitework and they have no insurance, may not raise any flags. But lets say 45 do or 60 do, I have no doubt they do not check to verify how large that company really is.
Now another twist to that, the company has some employees that are key and they pay their insurance but may not even offer it to others, you may not have broken insurance law at least that has any real penalty to it but in but you had DEPT OF LABOR LAWS For that is discrimination. Those fines are like $100 per employee per day as long as the discrimination takes place. So 10 employees is $30,000 per month. Most companies can not afford such.
Lets take a company with say ownership is husband and wife and that company has 30 employees and are buying a company with 30 more and they come up with the idea of just the wife owning it so they do not have more than 50 employees. Or less say the company they are buying belongs to his brother and they really are merging to be able to handle larger jobs. So the two brothers own the second company of 30 employees and the first brother and his wife owns another company of 30. No problem right? Probably wrong answer. Think you will find the Federal Government looks at the two companies and say; "COMMON OWNERSHIP" so total of 60 employees.
What am I saying: please be careful on using such as 1099's or such and games with ownership of companies to avoid the cost of honesty reporting. The fines are strong and can be swift. If they "decide" a 1099 person is really a true employee you can be in for a battle even if they really are honest 1099, I know it hit my business. Had a lady who was selling through my agency and did so when she wanted to, did not work in the office, did not have key to office, may sell two or more through us one week and then nothing for a month. A true 1099. She came to me asking for a job as she did not find selling suited her and I had opening for office manager. Hired her and the 1099 stopped as she went to true employee. Well only a hand written note on the tax filing for workers comp saved me. My accountant said others wise I would have had to pay the taxes and such as was well pointed out above.
Believe I know the cost you face, my business does also. But do play it legal to a fault and be sure who ever is giving you accounting and insurance advice know the law. There are still some options on group insurance you can work with that are "reasonable", well compared to some other options. If you have been listening to the news on the premium increase for 2017 on the Obamacare plans (individual) you can bet they will be watching for companies not complying even more so. DO LET ME REMIND YOU, if your company has 50 or less employees you have no Federal Obligation to offer medical insurance and for goodness shake DO NOT PAY THEIR ACA (Obamacare) premium or any part for them, can get you and them in trouble if they are getting a subsidy.
Lets say the company does not offer group insurance period and with the law having penalty on the individual if they do not have quality insurance they face fine when they file their taxes. So they complain. Some accountants know the law requirement but the simple tax preparer may not. But any way some of those "people" are talking with people when doing their taxes who know this law. Second if they apply using one of the "MARKET PLACES" at least on the Federal Site they ask who they work for. So lets say 15 people say they work for ABC Sitework and they have no insurance, may not raise any flags. But lets say 45 do or 60 do, I have no doubt they do not check to verify how large that company really is.
Now another twist to that, the company has some employees that are key and they pay their insurance but may not even offer it to others, you may not have broken insurance law at least that has any real penalty to it but in but you had DEPT OF LABOR LAWS For that is discrimination. Those fines are like $100 per employee per day as long as the discrimination takes place. So 10 employees is $30,000 per month. Most companies can not afford such.
Lets take a company with say ownership is husband and wife and that company has 30 employees and are buying a company with 30 more and they come up with the idea of just the wife owning it so they do not have more than 50 employees. Or less say the company they are buying belongs to his brother and they really are merging to be able to handle larger jobs. So the two brothers own the second company of 30 employees and the first brother and his wife owns another company of 30. No problem right? Probably wrong answer. Think you will find the Federal Government looks at the two companies and say; "COMMON OWNERSHIP" so total of 60 employees.
What am I saying: please be careful on using such as 1099's or such and games with ownership of companies to avoid the cost of honesty reporting. The fines are strong and can be swift. If they "decide" a 1099 person is really a true employee you can be in for a battle even if they really are honest 1099, I know it hit my business. Had a lady who was selling through my agency and did so when she wanted to, did not work in the office, did not have key to office, may sell two or more through us one week and then nothing for a month. A true 1099. She came to me asking for a job as she did not find selling suited her and I had opening for office manager. Hired her and the 1099 stopped as she went to true employee. Well only a hand written note on the tax filing for workers comp saved me. My accountant said others wise I would have had to pay the taxes and such as was well pointed out above.
Believe I know the cost you face, my business does also. But do play it legal to a fault and be sure who ever is giving you accounting and insurance advice know the law. There are still some options on group insurance you can work with that are "reasonable", well compared to some other options. If you have been listening to the news on the premium increase for 2017 on the Obamacare plans (individual) you can bet they will be watching for companies not complying even more so. DO LET ME REMIND YOU, if your company has 50 or less employees you have no Federal Obligation to offer medical insurance and for goodness shake DO NOT PAY THEIR ACA (Obamacare) premium or any part for them, can get you and them in trouble if they are getting a subsidy.