How Does One Define What an Independent Contractor is?

Beside owners and their family members, there are several types of people usually employed in a coin or card laundry business. Attendants, janitorial workers and those who are engaged to close or open.

There are necessary others who are not employees, like repair technicians, accountants, and others who are regular outside contractors. Contractors are used to do almost every coin laundry job, but they are mostly used for opening, closing and cleaning.

These contractors are often paid unreported cash. “We won’t tell the IRS.” Some owners try to avoid treating contractor’s earnings as if they were subject to withholding. They don’t want the hassle and paperwork that is required to report to state and federal agencies for FICA, withholding, state tax, workers compensation taxes, etc.

However, unless one is clearly to prove that these workers are really not employees, all income should be reported. There is a real financial risk, and there may even be criminal consequences for business people who do not report earnings paid to so called “independent contractors” if they are really employees, as defined by the terms of the law. Besides, no one wants to live in the shadows.

What are the differences between employees and those who are independent contractors? The first major difference is that if you can tell them what to do, when and how to do it, they are employees, not independent.

Also, if you provide the tools for them to do their job, legally you must treat them as employees.

If you have been paying people in cash, you run certain risks. By not withholding and reporting on income, and they or you are audited, you could be liable for any taxes they don’t pay plus penalties and interest too.

Paying cash to contractors? Oops! How does that look to the IRS when you report your income?

In most of the western states it may be a criminal offense for not having workers compensation coverage on non-family members working in your business.

If the so called independent worker is fired, they might seek unemployment payments. When the state discovers that business people have not made payments, things can get very dicey indeed for those businesses.

If someone is injured while working in a laundry, even if the owner calls them an independent contractor, they may apply to the state for workers compensation. If records show no payments have been sent in making that worker eligible for compensation, the state could seek criminal sanctions against the laundry owner.

So, all in all, it is too risky to treat a worker as independent contractors unless that is what they really are.

Let’s see how we can get the maximum benefit from a janitor or attendant. And let’s also find a way you can pay them without withholding anything, but still deduct their pay as a legally deductible expense.

Accept as applicants for positions, such as attendants or janitors, only those persons with a City Business License or “Fictitious Name Filing”. This makes janitor John Jones into the John Jones Janitorial Service, an independent business. Write checks to the Janitorial Service Company just the same way as we normally write checks to a plumbing supply company or an electrical contractor.

You may have to show them how to do this, and front the costs. After that you must not treat them as an employee. They‘re in business. Make no deductions of any kind, because these people are not employees and you are not their main source of income

 

Create a bid form. On it indicate the type of service you want done. Include a list of things needed to fill that contract. Have them make a bid to perform the service.

These could include opening the laundry before a particular time in the morning, closing it after a certain hour, sweeping and tidying up, mopping, emptying trash receptacles, wiping the washers three times a day, cleaning the dryers’ lint screens on a weekly basis, picking up trash around the outside of the building, washing the windows so many times a month, stripping and waxing the floor on a regular basis, filling vending machines as required, and doing certain maintenance.

Add a paragraph, saying that you have to be notified of out-of-order machines or other situations or events that could affect your business.

End the bid form with a paragraph designed to protect you. (Check with your lawyer first.) “It is expressly stated as a further consideration of this agreement that the successful bidder for these services is an independent contractor as defined under current State Law.”

The advantage is that you can now treat the person who was an employee as a contractor. You’ll pay by check, which gives you a fully deductible expense. They get 100% of their money and you report it on a 1099. Their responsibility is to pay their own taxes.

 

It is important that you understand the definition of an employee. For example, in California, if you can tell someone what to do, how, when and where to do it, they are an employee, no matter how you pay them. For example, you may tell an employee to open the store at 7:00 AM. But with independent contractors you have to say that you want the laundry open before 7:00, so the independent contractor makes up their own mind about precisely when to open.

If you supervise someone, they are an employee. If you only outline what is to be done and they perform unsupervised functions at a time of their own choosing, then they aren’t employees but an independent contractor.

 

Another way to turn an attendant into an independent businessperson is to sublet them space in your laundry for the purpose of operating their own drop off laundry business. The rent they pay you can be in consideration rather than in cash. The consideration might be performance of services such as opening and closing, janitorial, keeping the machinery clean, etc. Before you take this step, be sure to check your local City Ordinances to see if that person will also require a business license.

As an insurance for yourself, you might also want them to have a city license and/or have them make a fictitious filing naming them as an independent business person when they rent their space in your laundry. Landlords should be advised about what you are doing.        

 

Re-read previous pages and then go talk with your attorney. Is this something you can do in your state?

You will always be better off doing things by the book. It’s far better to let bureaucratic regulations cramp your style a bit than it is to have you not following their rules that can cramp you into a jail cell. We’ve been told it’s better here on this side of the bars.

The risks of doing this as some kind of tax scam are far too great to do things in a haphazard kind of way. People have been ruined and even jailed for trying to cheat the state and federal government out of their share of revenue. And in the final analysis, it’s all done to save so little time and taxes.

Whoever you get to do the required work in your laundry must first of all be legally able to hold the position, and you should have the required paperwork to prove it. Next, whoever it is should be smart enough to work by themselves unsupervised, as they follow rules of engagement laid out for them by the owners.

Whether or not your attendants and janitors are employees or independent contractors, you should try your best to have the most benefit from the money you spend on them. Train them for success. The Coin Laundry Association is a good source for training films and materials.

Too often, operators in our industry will put someone to work, and just walk away. They get no training, no nothing! About all they know is that they’re supposed to wipe down washers and sweep up.

Without training and understanding of what their duties are, new hires will pretty much do as they want. It is so important that they understand how to treat customer wash bundles and paperwork. If it is made to look important, then customers feel important to the business. Sloppily handled, they are not important, and they may not come back..

Some operators think training of attendants is so important that they have a daily management book for attendants. Telling them what to do and when and how they should do it. They explain how washers and dryers work. Give washing, drying and stain removal tips. How they can be helpful to customers, etc. These books almost always talk about attitude toward the customer and how vital it is to the success of a coin-op laundry.

If you can tell someone what to do, how, when and where to do it, they are an employee, no matter how you pay them Not only will they be more productive, but both you and they will be a lot happier with the job they do. In that event it doesn’t matter whether they are independent contractors or employees.

They treat your customers better and are far more willing to sell the services your laundry offers. They will respect the job and the laundry owners are much happier because of the additional business they bring in.

 

Do a proper background check.

Have paperwork filled in and kept filed.

Explain what their duties are.

Spend sufficient time to be sure they know their duties.

When they do well, tell them so.

If they do bad, teach them, don’t yell.

Cheat neither employee or government, as both will eventually find out.

 

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