Hiring Your friends, family and day laborers

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Hiring Your friends, family and day laborers

Account Closed
New Jersey, NJ · Member since 2015 · 327 posts · 137 votes

Hello everyone, I have a question that pertains to getting the right insurance. I'm sure many investors who first started out had hire their friends, family and day laborer from craigslist or home depot because its cheaper than a contractor and in the beginning there's not enough funds so things need to be stretch out.

I have done my research and shopping for general liability insurance seems like shopping for a car, there's so many of them with different terms. Your friends, family and day laborers are consider independent contractors and not employees so technically you sub the job to then but then that means they are require to get insurance themselves but that doesnt make sense if a friend is only hire for one day to paint 3 rooms.

Whats the right insurance that would cover for any lawsuits and injuries in case a friend, family member or day laborer are hire for a job and something happens? 

I'm located in the New York New Jersey area, I don't know if this insurance is different in every state or its universal.

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Frank Chin
Investor · Bayside, NY · Member since 2017 · 1k+ posts · 1k+ votes
9y

If you do rentals. make sure you buy insurance that covers rentals. But for hiring people to do work on your rentals, I gone through this already, make sure they're licensed and insured. On this you got to be careful, and ask them to furnish you with a certificate of insurance. I once had a home repair company come for an estimate, was ready to give him the job, says on the truck licensed and insured, and he tells me business is slow, his insurance was cancelled for non-payment. Since it was a significant job, his price was good, I only agreed to give him the work if he paid up on his insurance, show me proof of payment, and put me down as an additional insured. This would guaranty if he then cancelled his insurance, I'll be notified. I learned this little trick when a tenant got renters insurance, sent me a certificate of insurance, then was canceled for non payment. His apartment was flooded during a heavy rainstorm and he wanted to file a claim against my insurance. So I said, "file against your insurance first". He then admitted he canceled it, at which point I threatened to evict him, for violating the lease.

I once set up a management company for my rentals, and checked into getting my own workman's comp. For this, I have to maintain a workman's comp policy of at least $25,000, maintain payroll records, and subject to inspection by the state. After they told me the requirements, figured it's simpler to hire companies that's licensed and insured.

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  • Frank Chin
    Investor · Bayside, NY · Member since 2017 · 1k+ posts · 1k+ votes
    9y

    If you do rentals. make sure you buy insurance that covers rentals. But for hiring people to do work on your rentals, I gone through this already, make sure they're licensed and insured. On this you got to be careful, and ask them to furnish you with a certificate of insurance. I once had a home repair company come for an estimate, was ready to give him the job, says on the truck licensed and insured, and he tells me business is slow, his insurance was cancelled for non-payment. Since it was a significant job, his price was good, I only agreed to give him the work if he paid up on his insurance, show me proof of payment, and put me down as an additional insured. This would guaranty if he then cancelled his insurance, I'll be notified. I learned this little trick when a tenant got renters insurance, sent me a certificate of insurance, then was canceled for non payment. His apartment was flooded during a heavy rainstorm and he wanted to file a claim against my insurance. So I said, "file against your insurance first". He then admitted he canceled it, at which point I threatened to evict him, for violating the lease.

    I once set up a management company for my rentals, and checked into getting my own workman's comp. For this, I have to maintain a workman's comp policy of at least $25,000, maintain payroll records, and subject to inspection by the state. After they told me the requirements, figured it's simpler to hire companies that's licensed and insured.

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  • Vincent Priore
    Investor · Wyckoff, NJ · Member since 2015 · 100 posts · 35 votes
    9y

    @Account Closed

    This can be tricky, and you should be covered.  I would recommend talking to @AnthonyLee from Cobalt Steele here in NJ.  Great guy and has helped me streamline the insurance portion of my business immensely.

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  • Account Closed
    OP
    New Jersey, NJ · Member since 2015 · 327 posts · 137 votes
    9y
    Frank Chin what about for flip properties, how would this apply?
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  • Account Closed
    OP
    New Jersey, NJ · Member since 2015 · 327 posts · 137 votes
    9y
    Vincent Priore thanks I will communicate with him
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  • John Mocker
    Insurance Agent · Norwalk, CT · Member since 2016 · 2k+ posts · 1k+ votes
    9y

    Frank,

    Under the Statutes in CT (NJ is probably similar), you are required to provide Workers Compensation coverage for any employee.  Day Laborers, Friends, etc. will more than likely be deemed to be Employees under the Workers Comp rules.  Just paying them on a 1099 does not make them an independent contractor under the Workers Comp. rules.  The Workers Comp. Board looks at such things as:

    - who directs the work

    - are they insured

    - do they work for anyone else

    - who supplies tools & materials

    - how are they paid (Hourly, weekly, by contract, etc.)

    Using that info and other things, the workers Comp. authorities will make a determination of whether or not the injured party was an Employee or Independent at the time of the loss.   If you do not have workers comp. coverage and they are determined to be an employee, you could be liable for the lost wages and medical bills that would have been paid.  

    I had a friend who owned a multi-family.  He allowed a tenant to do some work to offset a past due balance.  The tentant claimed injury and put in a Workers Comp claim.  My friend had no coverage and was forced to defend the case out of pocket.  Fortunately they were able to show that the claim was false and get it dismissed (several thousand dollars later).   I think this shows what kind of risk you are taking by hiring uninsured contractors or part-time workers if you do not have coverage yourself. 

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  • Account Closed
    OP
    New Jersey, NJ · Member since 2015 · 327 posts · 137 votes
    9y
    John Mocker when hiring your friend for a few days, would it be better to put them as an employee or independent contractor? And which one provides better protection for your real estate investing business?
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  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    9y
    Originally posted by @Frank Chin:

    ...

    I once set up a management company for my rentals, and checked into getting my own workman's comp. For this, I have to maintain a workman's comp policy of at least $25,000, maintain payroll records, and subject to inspection by the state. After they told me the requirements, figured it's simpler to hire companies that's licensed and insured.

     OH YEA!  Also much cleaner from the liability standpoint.

    1. do whatever yourself is fine
    2. otherwise, hire licensed contractors and be sure to see their liability policy and verify their license with the State Board of Contractors

    You will never be exposed by being careful.  You may pay a bit more but mentally consider that the virtual cost of insurance :)

    1Reply
  • John Mocker
    Insurance Agent · Norwalk, CT · Member since 2016 · 2k+ posts · 1k+ votes
    9y

    William,

    I can't tell what's best in just your case.  In general, it is a cost/convenience vs. doing it legally/properly. 

    - for a day laborer or friend that is not a contractor with their own business (which has Liability coverage & workers compensation coverage). They will most likely be treated as an employee by the Workers Comp. authorities, the state Labor authorities, and the IRS. If you are acting as your own General Contractor, you should have Liability and Workers Comp. The coverage should match the entity that is hiring them (if you use multiple LLC's or corp. you need to make sure they are listed). Most Contactors Liability is rated based on the Business's Payroll. The same for Workers Comp.

    There are many cost reasons that Contractors try to shift employees to Subcontractors.  The that, to do it properly, the documentation for using subcontractors is a paper work burden.  Contracts, proof of insurance, invoices, etc. are a burden for small contractors.  If you don't do the proper documentation, you could end up with an expensive claim or Audit.  The policies are written Workers Comp costs in Contracting are high, they want to avoid payroll taxes, etc.   The offset is based on an estimated payroll and then audited for the actual payroll at the end of the policy. 

    2Reply
  • BreAnn Stephenson
    Insurance Agent · Kansas City, MO · Member since 2010 · 90 posts · 53 votes
    9y

    It may be difficult in the beginning to feel that you can hire someone who costs a little more because they are properly licensed and insured, but the risk that you take otherwise could take you out of the game before you even get started...and may impact your personal financial future for years to come. Where saws and ladders are involved, injuries have the potential to be quite severe. Either you secure a Worker's Comp policy for those you hire or use someone who is properly insured and licensed. Frank also has the right idea with asking to be added as an additional insured... it doesn't extend coverage to you, but you would be notified if their coverage were to lapse or be cancelled. Better to save up more funds so you can do things the right way than to be over-eager to begin, use someone inexperienced and regret it later... Talk to people in your local investing group... chances are they will have some good suggestions for you about which contractors are legit but won't break the bank. Good luck!

    1Reply
  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    9y

    There are labor service companies all over the place that "fill the need" for affordable, short term, non-employee, insured, skilled and semi-skilled labor. For example (one of multiple companies available) I have used Labor Finders in the past and plan to use them (skilled and semi-skilled) for projects for our Greenville (NC) apartments. Just google the words 'temporary labor' followed by your city and state, like this for Raleigh NC.

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    OP
    New Jersey, NJ · Member since 2015 · 327 posts · 137 votes
    9y
    Chris Martin thank you I will look into it, didn't think hiring people you know can cause problems if they get injure.
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  • Christopher K.
    Real Estate Developer, Investor, and Broker · Raleigh, NC · Member since 2017 · 99 posts · 82 votes
    9y
    I agree with what appears to be the consensus here. I used to roll the dice in my early days and hired uninsured guys all the time to save costs. These days, I've realized the exposure is simply not worth it. Once you start actually accumulating wealth, I think you generally start thinking through things like this a little better. But there's a lot of wisdom in just doing it right from the get go. I wish I'd had a forum like this when I was getting started back in the day.
    1Reply
  • Account Closed
    OP
    New Jersey, NJ · Member since 2015 · 327 posts · 137 votes
    9y

    After extended research and communication with professionals, here is the answer. If you hire your friends, family or any day laborer, they are consider your workers and fall under the term "independent contractor" and not "employee". 

    You have 4 options that will cover you from any liability in case someone gets hurt and decided to bring a lawsuit against you.

    1. residence employee insurance- this will cover you if they are doing work on your property on a personal property and not a business property, (this insurance is good for homeowners but doesn't apply for flippers and rentals) This will cover your independent contractors and wont require to hire them has an employee and wont require them to have thier own insurance.

    2. Workers Comps insurance-which requires you to hire them has an W2 employee.

    3. Commercial General Liability insurance- which covers your independent contractors BUT they must also have their own insurance.

    4. Injuries to Sub Contractors Liability Coverage- which is the best option for hiring any friends, family member and day laborer for a project that covers your end even if they do or dont have insurance themselves.

    Every state and market is different so please check with you insurance agent to confirm.

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  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    9y
    Originally posted by @Account Closed:

    Chris Martin thank you I will look into it, didn't think hiring people you know can cause problems if they get injure.

    If someone gets hurt, and you hired them, then I think you could be at risk. So if you want to reduce your risk, make sure they don't get hurt OR don't hire them. Thinking hiring someone you know will immunize you from liability is the wrong logic. NONE of your insurance options will help you in the case of your own negligence. If you hire people for a dangerous job in an environment that you know is not safe, and they get hurt, then your insurance may abandon you when the injured makes a claim.

    I don't know if, from an insurance standpoint, there are any 'safe harbor' activities in real estate. Using third party, insured labor makes the most sense from my position as member/manager of a multi-member LLC. And insured contractors for anything above semi-skilled labor.

    Some RE activities, like land clearing (and tree harvesting) and construction, ... I wouldn't hire anyone without insurance and their own equipment. My company owns a Vermeer BC625A and no one but me runs that piece of equipment. Watch someone run a Rayco Mulcher or a TigerCat harvester and you'll wonder what those owner/operators pay in insurance premiums! I guess that's why I pay $250/hr for such activities. I know this is the other extreme, but I also know some land owners in rural NC who allow F&F to run equipment like this for compensation. Not what I would do...

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  • Account Closed
    OP
    New Jersey, NJ · Member since 2015 · 327 posts · 137 votes
    9y
    Chris Martin I think you went wayyyyyy out of context and off topic. I am only talking about room painting, cleaning the yard, taking out the trash and other simple labor jobs that a friend, family and day laborer can do. Getting liability insurance for a skill tradesman or a handyman is a whole another topic.
    0Reply
  • Steve B.
    Engineer · Portland, OR · Member since 2014 · 1k+ posts · 1k+ votes
    9y
    Christopher K. While it may be "rolling the dice". It's patently ridiculous that the state has conditioned normal free citizens to believe they are liable for injuries resulting from duties other people accept without having to find any culpability of the hiring party. I'm not arguing that you shouldn't use license and bonded contractors, as lawsuits are real, buts it's sad that reasonable people don't recognize this as another modern day, historically novel, oppressive imposition of the nanny state
    2Reply
  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    9y

    The topic is "Hiring Your friends, family and day laborers". I say...

    Go for it. When someone falls off your ladder or step stool, just make sure your insurance covers them. if they are out of work for three months (in a cast), make sure your insurance pays for their lost income.

    Been there, done that. My opinion only. You can ignore my prior post if you don't like it.

    Did I say I hire from places with insured labor, like Labor Finders? But that's me.

    Why employ your friends? Better rate? Just goodwill? Are they 'better' and more professional?

    In my business, I keep F&F OUT of my business.  It's the way I'm wired and just a fundamental difference between your philosophy and mine. But I'm old. My ways are old. But my ways fit me, not you.

    1Reply
  • Christopher K.
    Real Estate Developer, Investor, and Broker · Raleigh, NC · Member since 2017 · 99 posts · 82 votes
    9y
    Originally posted by @Steve B.:

    Christopher K. While it may be "rolling the dice". It's patently ridiculous that the state has conditioned normal free citizens to believe they are liable for injuries resulting from duties other people accept without having to find any culpability of the hiring party.

    I'm not arguing that you shouldn't use license and bonded contractors, as lawsuits are real, buts it's sad that reasonable people don't recognize this as another modern day, historically novel, oppressive imposition of the nanny state

     @Steve B. 

    I don't necessarily disagree with you. I view it as a necessary evil, so to speak. My participation in this system certainly doesn't mean I agree with how it's setup and why or that I'm unaware of the greedy, corrupt power structure that is the legal system and as a whole, government and politics.

    I'm just pragmatic and experienced enough to know that accidents happen every day on job sites across the country and I'm sure a new law suit is filed something like every 3 seconds in the US or whatever it really is statistically. And when you have assets, it makes you even more of a target. I've also spoken with multiple litigation attorneys in my state and have been shown multiple cases where the opposing counsel and courts slice right through any corporate veils and found the a owner or owners personally liable for injuries and deaths that took place on corporately owned residental investment propeties. These are extreme examples of course and even though I'm sure this sort of thing only happens on a small minority of  investor owned propeties, the fact of the matter is you never know when it could happen to you or on your job site. And if you're hiring uninsured or underinsured subs to work on your property, or if you're acting as a general contractor (according to your state GC boards definition, which you should make absolutely sure you're familiar with) without a GC license, you're leaving yourself exposed. Everyone's situation and risk tolerance is different so everyone has to decide for themselves whether the additional cost is worth the mitigation or reduction of risk. For me, I'm playing the long game and it's absolutely worth it.

    1Reply
  • Christopher K.
    Real Estate Developer, Investor, and Broker · Raleigh, NC · Member since 2017 · 99 posts · 82 votes
    9y
    Originally posted by @Account Closed:

    Chris Martin I think you went wayyyyyy out of context and off topic.

    I am only talking about room painting, cleaning the yard, taking out the trash and other simple labor jobs that a friend, family and day laborer can do.

    Getting liability insurance for a skill tradesman or a handyman is a whole another topic.

     I wouldn't be so sure, man. @Chris Martin has been at this a long time, pretty sure longer than most of us and has a lot of wisdom and experience to share. I read a lot of his posts, as he and I aren't located very far apart and run in some of the same circles. I've been in the RE biz full time for two decades myself.

    I get why you could view what he said that way and he did go into some other things that weren't directly in the scope of your exact project you're currently working on but he was comparing it to other experiences that did ultimately relate to your original question. I think you might perhaps be focusing too much on the differences and missing his overall point, which I think was a solid one. 

    You are on a message board so you are getting responses full of opinions from various people who may or may not know what they're talking about or may or may not be full of it and so forth. But I'd respectfully suggest that if you ask a question on an REI forum and gets replies from multiple investors who have been where you've been and done what you're doing and/or wanting to do many times over, that they might just have something worth listening to or at least considering.

    ..Or maybe not. Who knows. I could definitely be wrong, it wouldn't be the first or last time.

    I'm not trying to "talk down" to you on any level or be argumentative. Just ultimately trying to help out and contribute wherever I think I can. Feel free to write off any or all of what I've said in this thread. No worries at all either way on this end.

    2Reply
  • Account Closed
    OP
    New Jersey, NJ · Member since 2015 · 327 posts · 137 votes
    9y
    Christopher K. I understand what your saying and you made some solid points as well as Chris Martin I never said I disagree with his statements and he share some good information that would help in better understanding. Overall I was trying to provide the best information for other investors who wanted to hire a friend, family member or day laborer for a week project or painting rooms but at the same time be cover in case of lawsuit and injuries. I felt I got some good options for my market area but I did stated on my options statement "to speak with your insurance agent". Speaking with an insurance agent will always provide the best option that applies to your state and local area.
    2Reply
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