Besides owners and their family, there are basically two categories of people who are employed in a coin laundry business: attendants and janitorial workers and those who close or open. There are also necessary others who are not employees, such as repair technicians, accountants and independent 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, state tax, workers compensation, etc.
However, unless one can clearly prove that these workers are really not employees, all income should be reported. There’s 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” who are really employees in the eyes of the law.
So what are the differences between employees and independent contractors?
The first major difference is that if you can tell them what to do, when and how to do it, they are your employees, and are 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.
In most of the western states it may be a criminal offense for not having workers comp coverage on non-family members working in your business.
If a so called independent worker is fired, they might seek unemployment payments. When the state discovers that a business person has not made payments, it can get very dicey indeed for that businessman.
If someone is injured, working in a coin 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 an janitor or attendant. And let’s also find a way you can pay the without withholding anything, but still deduct their pay as a legally deductible expense.
Turning the employee into an independent businessperson may do it.
Accept as applicants for positions as attendants or janitors only those persons who have a City Business License and a “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 are in business. Make no deductions of any kind, because these people are not employees, you’re not their main source of income
USE A BID FORM
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 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.
DEFINING AN EMPLOYEE
It is important that you understand the definition of an employee. For example, in California, if you can tell someone what to do, how and where to do it, they are an employee, no matter how you pay. 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 when precisely to open it.
If you supervise someone, they are an employee. If you only outline what’s to be done and they perform unsupervised functions at a time of their own choosing, then they aren’t employees, but instead areindependent contractors.
RENT STORE SPACE
Another way to turn an attendant into an independent businessperson is to rent 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.
TRAINING IS IMPORTANT
Whether your attendants and janitors are employees or independent contractors, you should try your best to get the maximum benefit from what you spend on them. Think about training them for success. The Coin Laundry Association is a good source for training films and materials
Too frequently in our industry, we put someone to work, and just walk away. No training, no nothing! About all they know is that they’re supposed to wipe down the washers and sweep up.
Some operators think training of attendants is so important that they have a daily management book for the 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 have a trained attendant who knows exactly what to do, then you are getting the maximum return out of your expenses for them.
Keeping your costs down is another way of increasing your profits!
Re-read previous pages and then go talk with your attorney. Is this something you can do in your state? You are always better off doing it by the book.
Setting up contractors in their own business inside your business is not the answer for everyone. It could take you more time and make more trouble than you’d create sending in regular salary reports to the government agencies.
