Paying Movers: 1099 Contractor OR W-2 Employee

Hey, my friend. It's Luis Massaro, CEO of Moving Mastery and founder of Moving Sales Academy. I've been getting a lot of questions for a few months now about the right way to pay your movers. Should they be W2 employees or 1099 contractors? And we're going to go through the benefits, the pros, the cons, what you need to look out for what truly makes somebody an independent contractor. And this way you can make a decision on how you want to go about it. Alright, if you're a moving company that's just starting out, you know, you may want to start with them as an independent contractor, right? But then at some point you may want to move to having them be an employee. But let me lay out the pros and the cons. Let me lay out what a true independent contractor relationship looks like for a moving company, and then you can make the decision for yourself. All right? This is a very, very, very, very important topic and it's not something that I take lightly. And I want to make sure that I give you great information on this. All right? So first of all, you need that it's all about control, all right? When determining if somebody is a W2 employee or a 1099 contractor, it's all about control. Who has control over that individual? Does the company control everything they do or does the individual control everything they do? That's the basis for the determination of should they be classified as an employee or should they be classified as a contractor? Now, the reasons that you might want to classify them as a contractor is because, you know, you pay them whatever rate you pay them and 1099 them. You're not paying for, you know, FICA and employment tax and unemployment, you're not, you're not paying for all that, right? So there's not as much cost associated with a 1099 employee. So a lot of companies will look at it and say, you know what, it's much easier. Let me just, you know, I don't have to worry about payroll taxes. It cost me less as a company. Let me just 1099 them and that'll be the end of it. Okay? Now just so you know, there's companies that, you know, small, mid, even large companies that I know that have paid employees as independent contractors for a long time and have been able to essentially get away with it. All right? Because there's a certain way and a certain criteria that that individual needs to meet in order to truly pass the test of being an independent contractor. All right? So first off, thing you want to Understand. Is that it's very difficult for a helper. Right. To be an independent contractor for you and your company. All right, so let's talk about the drivers and how that relates and how they're either an employee or they're a contractor. All right, so let's look at what it would look like if you had a solid independent contractor arrangement with a driver. These are the things that a company that has this set up correctly would have in place. All right, let's go through this list. So they're going to pay the driver on a percentage of the move. All right? If you're paying your driver by the hour, chances are they're not passing the independent contractor test. All right? If they're a true independent contractor, they're receiving a percentage of the move or a flat rate per move and not being paid by the hour. Okay, Next, the driver will hire and pay the helpers, not the company. All right, so now we're talking about, if you have a driver that's a true independent contractor, what that would look like. So now you could say, all right, is this how my company's set up right now, currently, or is this something that I can get set up? But if somebody's a true independent contractor, they're getting a percentage of the movement and they're hiring and paying the helpers. Okay, Their helpers aren't being paid by the company. Number three, the driver also owns or leases the truck. Now, they could own or lease their own truck, which they went out and they acquired. Or as a company, you can lease them the truck. Or maybe you have a separate truck leasing company, right. That leases them the truck, but the driver would have to have a significant financial investment into the vehicle for them to be considered a true independent contractor. Okay. Driver will also pay their fuel, tolls and expenses. All right, Remember, you're paying them a percentage on the job. They're paying their own helpers. They're paying to either buy or lease the truck. They. They're also paying for tolls. They're also paying for fuel, maintenance, whatever other expenses go along with that truck and the job itself, they're going to be paying that. Number five, you know, one of the indicators is that the driver can experience profit or loss on the job. As an employee, you don't have the risk of having a loss on the job. Right? You go and you perform the move and you get paid pretty much usually an hourly rate. Okay. As an independent contractor, you're receiving a percentage of the move. Well, with that percentage that you receive that's all you receive. Now you need to pay for your helpers, right? So it's up to the driver to determine how much am I going to pay the helpers, right? Do I need two men, do I need three men? What am I going to, you know, how am I going to pay them? It's also, you know, what am I going to spend on equipment and fuel? The driver will have the potential to either make money or lose money. If there's no possibility of profit or loss, then chances are they are probably should be classified as an employee number six. The driver can accept or reject jobs. Remember, this is all about control. Control is really the main thing that's looked at. And when I say when it's looked at, this is by the IRS or this is by state agencies, all right? They govern this. So if the driver has complete control over what they do, which means you offer them a job and they can either accept it or not accept it without the possibility of getting fired, right. Then they have control in that area and they're considered an independent contractor. Right. So you know, the things that you want to remember that, you know, might be easy to just pay somebody 1099 and it also could be easy to say, you know what, I don't want to deal with it. I'm just going to make everybody a W2 employee. But when you do that, you also have much higher expenses. You're paying all the employment tax that goes along with that. There's workers comp and everything else that comes along with having an employee. So you may be able to set them up as an independent contractor, but it takes more than just saying, you know what, I'm going to cut them a check and send them a 1099 at the end of the year. All right? If you want to do it correctly, these are the types of things you need to have set up. All right? Also in this down below, I'm going to put a link to an article written by the IRS. It's a 32 page document specifically for moving companies on how to determine if this individual, because you have to look at it individual by individual, should be an employee or should be a contractor. Right? As an employee they would receive a W2. As a contractor, they would receive a 1010 99. There's major penalties and fines if you're misclassifying employees. So for example, if you have your movers and they come in and you have drivers and you have helpers and you're paying them all an hourly rate, right. They report to you, they Go in your truck, you tell them exactly what to do. You tell them exactly when to be there. They're pretty much acting like employees, but you're paying them as a 1099. You know, that's a risk. There's a possibility that the IRS or a state agency could come in and say, you've been misclassifying those employees. They look at your records. How long have you been misclassifying those employees? Then you have to pay the back tax, plus fines, penalties, and interest on that. All right? So I'm not telling you which way to go. All right? You can have your mover set up 1099 and have it done correctly, but there's extra steps involved, right? It's not just a matter of, here's the move. I'm just going to 1099. You versus W2. No, you need to understand the key components. That truly makes them an independent contractor or truly makes them an employee. All right? So go ahead and click on the link down below and take a look at this document. It's a 32 page document. It's not an easy read. I broke down most of the basic things you need to know in this video. But if you're serious about setting up independent contractors and you're a business that is established and you want to grow and you're planning on being in this business and you don't want to get, you know, sideswiped all of a sudden, you know, three, four, five, six years down the road, all of a sudden the IRS or state agency comes in and says, let's see your books. It could be catastrophic. Right? We paid our employees, we paid our movers as employees because I wanted to have the control over what they did. I wanted to. To make sure that they did things exactly the way we wanted them. And we paid additional money in, you know, paying their taxes and overtime and everything else. And that's why we charge higher prices to compensate for that. All right? So just make sure you're informed, make sure you're doing it correctly. Again, W2 employee can be correct. 1099 employee can be correct. But it's not just a matter of giving them a 1099. That makes that legitimate. I understand it's lower cost if you're just getting started, and that's how you need to get things going. But within a year of being in business, you need to either set this up correctly, right? So you either need to go, all right, I'm going to start paying them as employees, or I need to go through the process of truly making them an independent contractor. I need to lease them the truck. I need to pay them a percentage on the move. I need to allow them to then hire and pay the helpers. Right. You need to do this correctly. This is a big, big deal. All right. I hope this was helpful. If you have any questions at all, always leave them in the comments below until I see you next week. Go out there every single day. Profit in your business, thriving your life. I'll see you. Hey, my friend, it's Louis. I hope you enjoyed this episode. Do me two favors. Number one, subscribe to this channel so that you continue to get updates every time I release new training for you. And number two, if you'd like to get ahead a little bit faster and become more profitable in your business, what I'd like to do is give you a copy of my 10 rules of a profitable moving company. These are the same 10 rules that I applied in my business that helped me grow into a multi million dollar nationwide company. Okay, so all you need to do is click on the link on this page or head over to louismassaro.com 10rules. So that's Louis. L O U I S Massaro M A S s a r o.com 10rules. Just put in your name and email address and I'll email you out a copy. Okay? Until then, every single day, go out and profit in business and thrive in life. I'll see you later.