Should I make a handyman an employee or contractor

Question

Hey everyone,

I have a tenant that I pay hourly for handyman projects at all the properties I own. I was thinking for liability(him breaking tenants property or anything else that could happen) reasons about making him an employee. But would it be easier and better for me to have him create an LLC and I just hire the Llc?  Any thoughts on this subject would be helpful, thanks. Kevin

Basit Siddiqi · Answer

@Kevin MayYou must treat the handyman as an employee/contractor dependent on your relationship with him.Below are characteristics of a contractor relationshipThe contractor works on his own scheduleThe contractor has his own toolsYou deal with him on a job/task basis and your relationship is not necessarily length based.Exactly the opposite for an employee relationshipYou dictate the his/her scheduleYou provide toolsYou have a relationship that extends beyond that of the job/task assigned to him/her.

Joe Splitrock · Answer

He is an employee, because his working full time for you and the wage you pay is so low that no reasonable person would consider this a contractor rate. Since he is an employee, you are responsible for withholding taxes and reporting to the government. Here is a list of your responsibilities:

https://www.irs.gov/compliance/criminal-investigat...

This isn't a question of health insurance, but rather how you structure the relationship. As I said, the way it is currently structured, he is an employee and you are not meeting employer legal requirements. If you try to claim he is a contractor, then you need to file a 1099 which means you need a W9 form from him. He will be responsible for paying taxes.

Whether he is an employee or contractor, you there are forms and procedures you need to follow with the government. This is a serious matter and you need to step up and understand it quickly.

I will also challenge you to reconsider your pay at $12 per hour. This is an unfair wage for either an employee or contractor doing this type of work. It is even worse if he is a contractor, because he will be hit with a surprise tax bill since there is no withholding.

Walmart hires cashiers (or greeter) for over $12 and they get benefits. Maybe not your intent but you are taking advantage of a veteran.

Joe Splitrock · Answer

I apologize for accusing you of treating him unfair. I am sure that was not your intent. My concern is for him. I doubt he knows he will be responsible for paying 15% self employment tax on top of regular income tax. Plus as a contractor, there is no tax withholding, so he will need to come up with all the money (maybe 30-45% depending on tax bracket.) This will be a big shock for him. He is used to being an employee, where the employer took care of taxes. Worse yet if he neglects to pay this tax (after you send a 1099 on him) then the IRS will come after him. If you don't send a 1099, then you are at risk yourself to liable for his taxes.

If you respect him, have a conversation with him so he understands that he is responsible for self employment taxes on top of income tax and that it will be reported to the IRS using 1099. Also let him know there is no withholding, so he can expect a large tax bill. Odds are good he has no idea and keeping this from him will turn out badly.

Here is an article that explains some differences:

https://www.legalzoom.com/articles/employee-vs-ind...

Kevin May · Answer

@Joe Splitrock  I do not take advantage of him or anyone. This is a guy that was making $10 in a factory before being fired for moving to slow. This guy approached me about work. I don’t know how much you pay people to hang blinds, change furnace filters, change batteries in smoke detectors and do some painting but I’ll give him your contact info since it’s a lot more than I do. Amazon starts out at $15/hr so why doesn’t everyone from Walmart and Wendy’s go there?  Come on, people like to do certain things(even for less money) and be treated like humans.

Second I forward every document and record every penny over to my cpa. I was asking a question of what was the best approach for me going forward because this guy wants to work.  Thanks to Tim and other BP members I have a call into my tax guy to figure out the best way.

But taking advantage of a vet, HARDLY

Kevin

Tim Johnson · Answer

Need to be careful on this one, at that rate I would hire him as employee.  Comp shouldn't be to much if hes just doing small jobs and painting.  If he's only working for you as the others have said, he's already your employee, might as well put him on the books.

I have had horrible luck at adding these handyman guys to the books, because they don't want to be an employee.  I would take him out to lunch and discuss it with him and options.

Kevin May · Answer

@Tim Johnson he’s working 40 + hrs right now but that will slow down to about half in a few months. I pay 12/hr. He’s an older Veteran who just wants to do smaller jobs like painting. He doesn’t need health insurance since he is a veteran.

Kevin May · Answer

@Edward Liu thanks for the info. I see my cpa in a few weeks and will go over this. Thanks again

Edward Liu · Answer

If that person works nearly full time, then it depends on your income level.  With the new tax law, there are some benefits for hiring employees if you are below certain income threshold and your rentals are making money after depreciation.   You could get extra deduction if you qualify.  Please check with your CPA - new tax law is more complex for real estate investors, there is no simple answer any more.

Tim Johnson · Answer

how many hrs a week is he working?

How much you paying him an hr?

You would have to do some math to figure out workers comp rates and all that.

I'm guessing have him open an LLC and 1099 him will be cheaper, but it all depends on his hourly rate and insurance rates

Scott Mac · Answer

Hi Kevin,

Discuss it with (your) tax specialist, because the IRS has guidelines as to who is Independent Contractor and who is an Employee. You don't always get to choose.

If they come back  at a later time and define him as an employee and you have not withheld taxes on him, they will go after you for it.

Good Luck!

Should I make a handyman an employee or contractor

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