All Forum Posts by: Aaron McGinnis

 Frank -

I don't know you, you don't know me. But I will absolutely, 100%, swear and attest that those "unlikely horror stories" have either happened to me or happened to people I have a direct relationship with... often times, I've seen those exact horror stories play out more than once with different people. These are not just 'tales from the crypt' that I have imagined over the years, these are exact-experience cautionary stories from my life or the life of my fellow business owners.

It isn't a big deal... until it is.

How about that guy you paid $400 to work on your roof calls you up and says, "Hey man, pay me another $4000 or I'm going to report you to the IRS, the DOL, and maybe the DHS for acting illegally. Also, I think my neck hurts and it's related to the job you hired me for, and since I don't have no insurance you're gonna have to pay for it."

Or, "I got a bug bite and it got infected and I went to the emergency room for it. Here's a bill for $4000, you can either pay it or I'll report you to the IRS, the DOL, and maybe DHS and we'll let the judges sort things out"

Or worst of all, the guy you paid $400 to do something falls off a ladder and breaks his neck. Now his baby mamma calls you and says that you're responsible for him as an employee since he was using your tools and working hours defined by you. You owe her for the hospital bill, the lost income, pain and suffering, etc.

Orrr... you hire someone for $400 to do something, and give him a 1099 at the end of the year. He decides he doesn't feel like paying self employment taxes at the end of the year, talks to a friend or a lawyer or an accountant and realizes that he was legally an employee. The paperwork you gave him won't help you in court - he was an employee because he met the criteria for being an employee. Oh yeah, also his neck hurts due to an injury he got on the job.

OOORRRR... you hire the same guy for a few months and pay him 1099 regularly. Then he shows up drunk or high to the job and you tell him to get lost. He goes to the DOL and files for unemployment. Your 1099 paperwork will not help you because, legally, he was an employee. Now you must pay his unemployment bill or face a host of alphabet agencies who are convinced you are the devil incarnate. 

OOORRRRR.... you have a ton of regular 1099 employees. A pandemic happens and your business goes south. You want to apply for the PPP loan, but none of your 1099 employees qualify as regular payroll because "Dem's the rules, kiddo"... you are left out.

Do not laugh, do not cry, do not pass go. I have personally seen all of the above happen. 

Don't ever make your getting paid dependant on a process you don't have any degree of control over.

Aaron - I may be able to help. Please check your DM.

Use a cost plus model. Every receipt and invoice gets turned in and the contractor gets XX% added to it. 

You need to talk to a CPA and maybe a lawyer about this. If you're trying to create a proper paper trail you could quickly run into issues such as -

* Are you kids employees? (Do you have insurance? Paying withholding? Filing 940/941?)

* Are they 1099 contractors? (Do they file their own taxes? Do they own their own tools and work their own hours? Beware self-employment tax)

This seems like a good idea, but be careful about how you do it. You could start with the best of intentions and end up with a legal mess on your hands.

 Yes... we use the same trade partners over and over again. We spend a lot of time and effort vetting new trades, and once we find someone we like we stick with them until they give us a reason to move on. One of the big reasons for that is that we can build mutual respect and understanding and expectations. 

Whenever we use a new trade, there is always an element of holding your breath and waiting to see how it goes... not to mention the difference in work flow created by a new personality and crew, and the need for enhanced oversight by management during the job. There's a cost associated with that. 

As a GC... I tell people that if they want me to use a sub I don't know for critical path or big warranty (MEP/Roof/Foundation/Framing/Siding/Windows/Insulation), then fine... I'm going to vet that sub like I would any other hire and then make a hiring decision.

Outside of those trades, my view point is that the issues are going to be schedule and quality (Drywall/Paint/Tile/Flooring/Cabinetry/Trim). If you're willing to take 100% responsibility for schedule failures (including compensating me and my regular trades if yours screws the pooch) and quality problems (Including me making extra trips), then we can talk about it.

Usually, people hear that I'm going to backbill them for every extra hour I, my staff, or my other trade partners, spend dealing with any problems created by their hire and they suddenly don't feel so strongly about using their uncle Bill to do paint...

Typically -

* Own a house
* Go talk to a bank about getting a HELOC
* Bank puts house and borrower through underwriting and appraisal
* Bank approves HELOC
* You can write checks against the HELOC. Interest and [maybe] other fees apply once you write checks
* Bank has a warranty deed (in Georgia) for the house
* No pay, bank takes the house back

If these are in mint condition... the electrical will no longer meet code, and I recommend re-wiring.

The plumbing is a toss up, sometimes we scope lines and they are clean as a whistle; sometimes we scope lines and a 4" pipe has an effective inner diameter of 1/4"... just depends.