Are My Workers Independent Contractors, and How Do I Pay Them?Apr 24, 2023
I often get asked, how should I pay my people?
Sometimes the question is really about payment structure -- like hourly, by the job, or per day.
Sometimes the question is about tax structure. Should I issue a W2 or 1099? Are they employees or independent contractors?
As you grow your decorative concrete business, you're going to need to hire some help.
There are a few different ways to structure how you pay your workers, and there is no right or wrong answer.
It often boils down to the type of people you're hiring and the structure of your company.
Let's talk about the top three options.
One way to pay workers is hourly.
This is my preferred option because it's easier for me to track and build my quotes on.
In fact, stick around to the end, and I'll show you how labor costs figure into your estimates.
When I pay hourly, I know what my labor costs are per hour. If I know how long a job should take, I can easily multiply that out. If something needs special attention or extra time, I can account for that, too.
Another way to pay workers is daily.
A day rate is a flat fee paid for a single day of work.
Day rates are common in industries where workers are employed on a per-project basis or for seasonal work.
For example, the concrete finishing industry often pays its laborers by the day. You may consider paying a day rate if that is the way the person you hire is used to getting paid.
A third option is to pay workers a square footage wage.
This is also known as a "piece rate" or pay based on measurable work completed.
The purpose of this method of compensation is to motivate employees to heighten their productivity beyond what a mere hourly wage would yield.
The benefit to the worker is that they have the opportunity to increase their income in return for extraordinary productivity. The benefit to the employer is that you can more accurately tie labor costs to completed work.
Pro Tip: All hours worked and payments made must be properly documented. You are required to pay overtime, no matter the method of payment. You must also meet minimum wage requirements.
Properly tracking and documenting hours worked will protect you in this area.
W2 OR 1099?
The other aspect of "how should I pay my people" is the tax structure -- specifically W2 vs. 1099.
W2s and 1099s are tax forms.
You use a W2 for employees and 1099 for independent contractors.
Let's take a minute to define each.
An employee is hired by your business under an employment agreement.
You withhold taxes from their wages, train them, pay employment taxes for them, and may provide benefits.
Because of this, you have more control over your employees — you dictate how and when they work.
An independent contractor is self-employed.
You enter into a contract with an independent contractor to do a specific role or complete a specific task.
Contractors likely set their own hours and use their own tools. They may even work for more than one business.
Since they are self-employed, you do not withhold taxes from their paychecks; they pay their own taxes and provide their own benefits.
How do I know if I have employees or am employing the services of an independent contractor?
In decorative concrete, if you tell them when to show up and what to do, they are an employee and should be issued a W2.
If you’re simply giving them a job and telling them to go do it, and they do it on their own time frame and in their own way, then they are an independent contractor.
Another quick test is if they drive your truck or ride in your truck, they work for you, and are an employee.
Tools of the Trade
We use an app to track hours. TimeStation.com offers a mobile app to clock in and out with a GPS location tagging so you know where your workers are when they do so.
We use APS online for payroll. They're found at apspayroll.com. We process payroll through APS, and they process and print the W2s and 1099s at the end of the year. Also, they do all of our 941 tax filings quarterly and all the tax remittances. We find it well worth the small fee we pay.
BONUS: INCORPORATING LABOR COSTS INTO YOUR ESTIMATES
Knowing whether your workers are employees or independent contractors and your method of compensation will have bearing on your estimates.
In every estimate, you need to factor in the following:
- Basic prep work
- Supplies - these are consumables like tape, brushes, buckets, etc.
- Materials - this is the cost of the actual products like skim, color, sealers, etc.
- Marketing and business overhead - this is determined over time.
- Labor - you will consider how long it will take to install the system you are quoting and how you pay your workers. Don't forget this includes the wage you've agreed to pay PLUS worker's comp and FICA if they are employees.
- Profit margin - this is the amount of money you want to make
SO THERE YOU HAVE IT
Three ways to pay your workers and the information you need to determine if they are considered employees or independent contractors.
PLUS, how your labor costs factor into your estimates.
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