Dave Whitaker wrote:I posted the quote below in response to George's request for an apprentice. It got me to thinking if anyone else has found a way to "legally" take on help as a subcontractor? Our state's workman's comp insurance puts farriers in the same risk pool as coal miners, high steel workers, and underwater recovery divers. The last time I tried to add an "employee", they wanted $23 per hundred of salary for WC insurance alone! It's the one main reason I haven't started a multi farrier business.... I could fill two more books with the work I turn away.
It's a real slippery slope, and a potentially costly one.
Dave
As you have already observed, the government
may view 'subcontractors' as employees.
The IRS uses three basic areas to determine the difference between a contractor and an employee.
1. Behavioral Control
2. Financial Control
3. Relationship of the parties
If you can meet the IRS's vague and broad definitions for these areas, you may be able to use an apprentice in a subcontract role. Just make sure that the apprentice is operating his own business and has majority control over that business. It can be done.
Interestingly, large employers (GE, IBM, Dell, Ford, etc) learned a long time ago that they could get around this by using outside 'help' in 'contractor', versus 'subcontractor' positions.
The linchpin that allows this to happen is the 'apprentices' self-designation as a 'sole proprieter' of their own business.
Millions of direct employee positions have since been replaced by the cheaper 'contractor'. The contractor positions often pay as much, or slightly less, than what the company would pay a direct employee. The real savings is in long term benefits (medical, pension, etc).
Many such 'contractor' positions fall under the IRS TIPSS-3 Contracts definition. Basically a 'lobbyed', bought and payed for 'loophole' that big business uses to avoid 'employee' status. Most such positions are IT (information technology) related.
For a small outfit, such operations may not be as cost effective.
You may find that the best answer to the 'apprentice' need can be resolved by identifying the new 'employee' as a business partner.
Many farriers operate their business as a 'sole proprietership' for tax purposes.
Changing that to a 'Limited Liability Corporation' would allow you to take on 'partners' that share in the profit and the risk while avoiding the pitfalls of the subcontractor designator. You would do this if the business need is intended to be long term.
If the 'apprentice' is capable of working alone (own tools, truck, proper skillset, etc), then you might also consider a 'broker' operation. This would allow you to send work to the other farrier, keeping a percentage of the money earned as a brokering fee. That money might be a small percentage of the total fee charged to the customer over some limited period of time. It could also be a single, fixed amount. It's much like another businessman buying a part of your business based on the referral.
I believe that Jaye Perry operates a multi-farrier business and could probably offer a good deal of insight into the topic.
Would make for a good discussion thread.
In my view, step one of taking on an apprentice is to TEACH THEM HOW TO RUN A BUSINESS!
Teach them to fill out a form 1040, 1040 schedule C, and 1040 schedule SE (self employment; social security and medicare, tax for monies in excess of $400 earned).
Give them control over what they earn and, to some extent, how the work is performed.
They should not ride with you. They should follow you in their own vehicle.
Encourage them to buy some of their own hand tools. They need to be able to show 'expenses' for their own business.
If they can do that, it makes it far easier (legal) for you to employ their services in a contractor role.
In short, they become an independent business person, selling their services to you as you teach them your trade. The 'teaching' becomes 'offering general direction' as to what you want done.
Here's an important key point. Make sure, as quickly as possible, that the 'apprentice' has two things!
1. They get a couple of horses to work on that are OUTSIDE your business interest. In other words, give them a couple of pasture pet trims so they can honestly claim that not ALL of their business depends on you!
2. Encourage them to advertise and seek out a few clients outside your book so they demonstrate some growth over a year. Even if it's only a single client. They need to look like a business independent of you.
Sadly, such arrangments leave out the 'rank novice' with no experience or wherewithall.
Here are some important, relatively brief, discussions on this topic from your friendly IRS website.
http://www.irs.gov/faqs/faq/0,,id=199637,00.html
http://www.irs.gov/taxtopics/tc762.html
Cheers,
Mark