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Thread: Under the table employees?

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    Default Under the table employees?

    Hello everyone,

    Well update on the mobile car wash business I am running, couple months in and work is too much for me to handle! I went to local shopping centers and handed out 1,000 business cards and had a lot more people contact me than expected and I personally can not handle alone. I did put into thought if I do hire one employee for the mobile wash that the work would still be too much for two people to handle, and since I only have one van, I can't really divide the work to work in two different areas. I was thinking into finding a shopping plaza to set up shop, probably set up a canopy that can fit around five cars under and people drive up and we wash the cars and take off the mobile part of my business. I believe this would overall be cheaper and less of a hassle instead of getting more vehicles.

    Anyhow, my main question is how would employees be paid? Other hand car washes that do this in my city pay all their employees with straight cash at the end of the day for what work they do. I highly doubt the whole business is kept under the radar but isn't paying employees under the table frowned upon by the tax man? When they file their taxes, and the money made doesn't match up with how much work one employee can physically do in a year, that wouldn't raise a red flag? I really don't want to put myself into a position where I can get in trouble or even have to lie cause we all know avoiding taxes can come back to haunt us.

    Any insight on maybe something you guys know that I don't would be greatly appreciated!
    Last edited by Rafil; 02-02-2017 at 06:53 AM.

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    Member Needs New Keyboard Array tallen's Avatar
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    Paying workers "straight cash" at the end of each day does not necessarily mean that you are operating under the table. So long as you don't pay any one individual more than $600 in a year, then there are no IRS reporting requirements (although you still need to maintain records to back up the expense you would claim for your business). More than $600/year and you would have to file a 1099-MISC to report the payments to that person, assuming you are treating these workers as Independent Contractors rather than employees.

    BTW, setting up a canopy in a shopping center parking lot.... you are getting permission from the center management, right?

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    First off if they are working under the table they are not employees. There is a lot of risk to doing that. If one of them gets a serious injury which could happen pretty easy with the business you are in workman's comp won't be covering them and they can sue you. You would also not be collecting SS and other taxes and if the government discovered that they would come after you for uncollected taxes along with interest and penalties. You could classify them as independent contractors and 1099 them but with the set up you have they are not going to pass the official tests to qualify as independent contractors so that could come back and bite you as well.

    I will share a little story of what happened to me about two decades ago. I sold one of the machines we manufacture to a contractor in New England. He was out on a job and was paying his people under the table. They were going to get lunch and left one young guy to watch the equipment. He decided to climb up on top of the machine we manufacture and wash it off for something to do. He was about 10 feet up on the machine and it was slippery because of being wet. He tried to get down and slipped hitting his head. They took him to the emergency room and did an x-ray and all was fine. That night he was playing hocked and got a really hard hit on his head. The next day we went back to the emergency room and got another x-ray that showed a crack in his spine. He claimed it was from the fall from our machine. Now since he was working under the table Workman's Comp would not cover it so he sued us for a half million. They claimed we should have had a sticker on the unit saying there was a fall danger if you climbed on the machine and were negligent in not doing so. We were pretty new in business and thought we had the right insurance that would cover it but in actuality we didn't. Our agent had sold us the wrong policy. So it basically came back on me personally. Fortunately we ended up settling it for about 40 grand including legal fees but it was a mess for about a year. In this case it would all have been avoided if the contractor in New England had been paying him wages legally and not paying him under the table.
    Ray Badger, Turbo Technologies, Inc.
    www.TurboTurf.com www.IceControlSprayers.com

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    Wow, that's quite a story Ray!

    Yeah, my comments made the assumption that Rafil could classify his workers as independent contractors -- he would have to become familiar with the applicable standards (both from the IRS and from the state, which might be even more stringent).

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    Rule of thumb, just because it looks like other people are getting away with something, doesn't mean it's not illegal.
    Just make sure you're doing the right thing. You can simply ask your state department who handles these things and they'll tell you what the rules are.
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    There are a lot of things that allow someone to be considered an independent contractor and if the op wishes he can do a quick Google search for the official guidelines but in basic they need to provide their own tools and work at their own schedule. They can't be told where to go and what to do.

    If his guys had their own buckets and hoses and he said when you can go to this address and wash the corvette and you will get 20 bucks for doing it then they might fly as an independent contractor.
    Ray Badger, Turbo Technologies, Inc.
    www.TurboTurf.com www.IceControlSprayers.com

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    Many bars I've worked at, we'd pay a homeless guy to clean something or separate bottles or whatever. Of course we didn't put him on the books we just paid him out of petty cash. Sometimes out of pocket. I suspect that if he was scheduled to do the work and we paid him based on that schedule, and claimed or recorded that payment, there would need to be some kind of designation or paperwork.
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    Thanks for all the replies and info. I actually spoke with a friend who did work at one of the washes for some time. He did make more than $600 while he was working there (it was less than a year), and got paid at the end of the day due to the amount of work he did, still not 100% sure how that can go as an independent contractor. The job provided him with the tools needed to complete the job but when it came to scheduling he really wasn't given one. It was more of choose what you would like to do during the week and just come both weekends since those were the busiest days. Regardless, I will be going to the state department and asking the rules with this as soon as I get the permission from the owners of the parking lot, I have about 3 in mind I would like to set up at.

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    Quote Originally Posted by tallen View Post
    More than $600/year and you would have to file a 1099-MISC to report the payments to that person, assuming you are treating these workers as Independent Contractors rather than employees.
    With this, I can have them as a worker, but do not need to offer any other type of benefit? Obviously have the insurance in case of anything happening, but not mandatory to offer them anything else.

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    Classifying people as independent contractors for tax purposes is getting harder and harder. I have an article on my website Independent Contractor or Employee? that tries to explain it in simple language but the bottom line is that it would probably be very difficult to structure your operation so that the worker would really be an independent contractor.

    As Ray (turboguy) pointed out, characterizing a worker as an independent contractor can have other serious ramifications.

    Unless you are 100% sure that the person is an independent contractor, you will be much better off treating them as employees.

    Another note on paying cash: wage and hour laws apply to employees and you have to be able to produce appropriate records if you are challenged. If someone claims that they were not being paid the minimum wage or that they were not paid time-and -a-half for overtime and you have no records to refute their claims, you may end up paying money that you could have avoided if you had records to support your position.

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