Hiring an employee with performance based pay

[Kevin Sobilo]

My main strategy so far has been BRRRR and like many people I have been the cog that makes the machine turn. So, with that there are limits to how fast I can accomplish things. I've been pondering how to adjust my role so that I can so from basically being self employed with my BRRRR investing to actually having a business that will accomplish work with or without me.

So, I have been pondering hiring an employee. Someone who has handyman skills and who could do rehab/handyman work, a little project management and GC type work as well under my general supervision.

I have also been thinking of how I want to structure pay. Some of the work will be lower value handyman work and some higher value work. Also, since I will only generally be able to supervise I'd like pay to be somewhat performance based. I was thinking I would pay an hourly rate at a handyman rate ($10-15/hr which is normal in my location), but give them a bonus on each completed rehab. I think a percentage based on the ARV - (Purchase Price + Rehab Costs + Holding Costs + Any Debt Service). So, basically a cut of the equity created through the rehab itself. The idea is for the bonuses to be fairly substantial and payable when I refinance each property.

So, a couple questions:

1. What experience have people had hiring their first employee?  (What kind of role did they fill for you?)

2. Any thoughts on my idea to pay an employee based on performance?

[John Mocker]

Kevin,

There is another consideration on whether or not to hire this person as a W2 employee or as a 1099 subcontractor.   The IRS, State Revenue depts., & Workers Comp. insurance companies all have "Tests" to determine if someone is truly a subcontractor or an employee for Taxes or for Insurance.  Some of those things are:

- who directs the work

- how are they paid (per job vs Hourly/Daily/Monthly)

- do they work for others

- is there a contract in place

The list continues and varies based on who is checking (IRS has different standards compared to Ins. cos.). 

If you have Workers Comp. for your business, your agent should be able to help.   Your WC policy is auditable and if the subcontractor does not have WC himself, you may end up being charged for him anyway.  If you don't have it, you will need it (even if the person is a 1099 it would be advisable to have it).