I Could Have Lost My Business If I Had Independent Contractors When This Happened:
As I continue to build up all the articles on Employees I came across this situation that really happened. But first I am going to remind you oof my own personal story, before telling you this pet sitter’s story.
If you are reading this and are either:
(a) Trying to decide which way to go
(b) Have Independent Contractors (ICs)
Then this article is for your eyes and brain. Please read this and understand the financial implications that a company incurs when choosing to have independent contractors. Especially in the pet industry. Pets that my own staff had been visiting every day in the middle of the day, every week, had a moment and SNAP causing over $29,000 in medical bills. I would probably be out of business if I had independent contractors when that incident happened.
MYTH: IC’s cost less.
FACT: The cost of your labor is 100% dependent on what you decide to pay. (*This all goes out the window if your IC gets hurt)
MYTH: I will only get good workers if I pay a lot of money.
FACT: If you pay a lot of money, you will attract people who are motivated by money.
As Paul Harvey used to say…and now, the rest of the story
told from a fellow and very well respected pet sitter in California:
If a company “hires” staff as IC’s, even if the IC has their own medical coverage, you, the employer, can still get into hot water.
Here is a real example of what happened to a pet sitter I know in California. This pet sitter hired employees. About 4 years ago one of her employees was going out to get the client’s mail, slipped and fell. Long story short, she broke her leg in two places, needed surgery, was in a skilled nursing facility for about 4 months.
Now, the owner of the pet sitting company did not offer health insurance (nor are they required to offer health insurance in case anyone is wondering). Yes, the employee had her own medical insurance.
Had the employee put this through her own medical insurance, the second her insurance company learned it happened on the job, they would be going after the pet sitting company for reimbursement.
Because the owner of the pet sitting company hired employees, she had them covered under WC, as required in the Sate of California. All of the injured employee’s medical bills were covered by WC .(I don’t know what the final bill was on all of this, but the first bill for just the first 3 or 4 days of hospitalization was over $10K). Also, one of the provisions with WC is that an employee cannot try to later sue the employer for their injuries.
Had this employee not been covered by WC, the employee could sue the owner. Even if the employee’s own medical insurance paid for her injuries, they would turn around and go after the owner of the company for reimbursement. The owner of the company would easily have been out of business in a heartbeat.
I would think long and hard, especially in the State of California, before anyone decides to classify their workers as IC’s. The State of California has previously told me “pet sitters” are employees and not IC’s. The State of California does not care how the IRS views it.
So you see, this is why it i very important to seek wise counsel. When I coach pet sitters I tell them they can answer their own question about the IC v Employee debate by simply answering this question:
How much risk are you willing to take?
If you can answer this question, there your answer will be. No matter how many documents you have ICs sign, no matter how much you call training “suggested procedures” it is a matter of time before something happenes in your business where you are forced to prove yourself in a court of law. Whether it be the state or feds, their sole job is to get you to say something wrong to incriminate yourself. Personally, I don’t want to take that risk. Personally, I want the control in my business and that is why I chose employees.
Danielle,
Thanks for your post on this topic. In Kentucky, we would be required to pay WC, SS, and thousands of dollars in other taxes to have employees and not IC’s. Let’s not forget Obama’s health-plan, which – if passed – will require all businesses to provide their employees health insurance at a significant cost to our business. The fact remains that for a small business like ours, we could just NOT afford to have employees. It would cost us thousands of dollars a month. I believe that states vary regarding their requirements, although I have not researched deeply. So, it becomes a matter of pay now and have employees, or pay later if something happens. Either way, we wouldn’t be making any money on our business. What are your thoughts?
Hi Betheny,
I would first ask you what is your WC rate in Kentucky? Second, what exactly is the “thousands of dollars” you are talking about so I can understand you better. Basically here is the way I see it:
ICs – Biz owners pay them 60% bc they think that is what they should pay. that 60% is a flat 60%
Employees – you pay less 40% and the taxes only bump it up a few percentage points
(roughly speaking of course)
I really don’t understand why so many people think it costs so much to have employees. I suppose it makes sense that they cost a lot of you are already paying them a lot and not factoring in the expenses or profit?
“If something happened…” it could put you out of business and give you enough lawsuit bills that you have problems for years! Or at least that is the way I see it 🙂
Thoughts?
Well this article makes me feel “safe” like in baseball! I took your advice and changed my 4 IC’s to employees last January 1st. The business is covered by Worker’s Comp, Liability Insurance, and a bond. I also do not have to worry about payroll taxes because I use a payroll service. (I raised my rates slightly this year, and no one complained.) Yes, all this bites into my profit, but it’s worth it to me. Running my own business is risky enough!
Mary Anne, I am glad you feel “safe” I do too! 🙂 It is so worth it to know that the risk is minimal.
I am curious about the WC. Did the insurance company the provided the WC insurance drop her after a claim like this? How did this claim affect the employer’s ability to buy WC insurance and how did it affect the rate? Is the client’s home owner’s insurance liable?
Julie,
Great questions! I don’t know the specific details of this situation but I can tell you about mine that I linked to.
When renewal came up, the company did drop us. Basically the small amount I paid for WC did not pay off for them bc they “lost $29K” with me. I opened the notice, freaked out for about 2 minutes. Called my insurance agent, Dennis with Mouer foster and he told me, “Yup! I already knew this was coming and found you another company. I will get you the new docs to sign. It will only be $10 more on your policy.”
Yay for having a great insurance guy who anticipates my needs.
The clients home owner insurance “dukes” it out with the WC people. if you had an IC then they would have to personally try to get the info from the client and personally go after them. What a head ache that would be. I don’t know anyone who likes to deal with insurance companies let alone trying to get paid on a claim and prove that they owe you. Does that make sense?
I love having IC’s! Its way more ffordable in WA to have ICs and not emloyees. What i paid in workers comp for a year in AZ is what i pay per quarter here!! There are enough business taxes in this state to sink a business.. Add on top of that thousands of dollars for employees, no thank you.
With ICs i dont have to take the time to train them as they are also pet sitting business owners that are helping me out! Im not their sole income so i dont feel Bad if there a slow week. They do all their own consults, buy note books, supplies… Then at the end if the week I get a check.
If they get sick i do have to cover their walk though which makes me a very busy girl, lol!
Sarah,
Thanks for your reply and great to hear from you! I don’t doubt that it might be cheaper in WA than AZ, but what would happen if your IC were bit by a dog?
Generally Speaking – Would your contracts really prevent them from coming after you, your company or your client and creating a scene? What if they broke their leg and they couldn’t work at all… not even their other jobs? I would be scared they would try to come after the company to protest that they actually were employees and deserve compensation while they can’t work.
Specifically Speaking – it sounds like you have legit ICs… which a lot of businesses don’t have. It is great that they have their own businesses and clients. Hopefully they went as far as to get their own WC policy on themselves too 🙂
Last, like I said in my article – if you start pay off at 60% and then try to have employee’s on top of that, of course, it will not work. But if you keep your labor costs (including taxes and insurance) at a reasonable rate – then you can actually make a lot of money. It is the businesses that are giving away 55-75% of their invoice to ICs that I simply don’t understand how they are able to make money. Alas, that is for another day 🙂
PS – I wish I were in Seattle now…. your pictures look awesome and GREEN and I am sure the weather is much better than in AZ 🙂
You would rock seattle!
My ic was bit bad on her hand, she washed it up took anti biotics and kept working:)
In the past anytime an IC or employee was bit, the owners always felt so bad so they offer to pay for medical bills.
I dont really make much money when they do their private walks, but i have a sliding scale for the park which Equals lots of money for the business so it really works out well for me!
Thanks Sarah! Wow that is a great IC. My employee was bit and it was $29,000+ in med bills. I don’t know how my client would have paid for that! 🙁
Your group walks look like a awesome life! Gotta admit 🙂
Thank you for posting. It’s really important to know the difference. I’ve spoke to many companies and overall worth having employees vs IC. A massage therapist contracted IC’s over a period of 5 years, the government found out about it, (someone was unhappy with their pay – and contacted them) The therapist went out of business. What we want to think is completely different from what the goverment really states. you love what you do? The proper research will get help you in the long run!
Vanessa,
That is a great point. You can think you know what you are doing but in the end you are the one on the defense with EITHER OR BOTH the State and Federal government trying to prove your case. Why take even take the gamble?
I love my ICs but for legal reasons I have considered switching to employees. The reason I have not is because there is not a good way to pay sitters for overnight stays, which my sitters love and we get a ton of. ICs are commonly used in my area and I have consulted with an employment lawyer who says I am doing well keeping them in the IC category. It is not a matter of cost, but affordable overnights are a must! Suggestions?
Liana,
Call up the Department of Labor and ask them what peace work is. It applies to pet sitting and it is what many pet sitters do for overnight workers. You get paid per the JOB. (For example $35/night) When you give them payroll it is a salary that changes each time. It is do-able without going out of business. 🙂 Hope that helps.
I don’t currently offer overnights, but I read somewhere – sorry, can’t remember where – that when it comes to overnights because the employee is sleeping for a good part of the time, they do not have to be paid the minimum hourly wage for the full time they are at the overnight. I can’t swear to this and maybe someone here can shed some light, but ask your Department of Labor or an attorney who specializes in labor law to be sure.
To the poster who asked if the sitter’s WC company dropped them after they filed the claim with WC, no, they did not.
For me, I decided I needed to be able to sleep at night and not worry about the State of California, WC or anyone else coming after me, hence the reason I have employees. My clients don’t have to worry about any lawsuits if one of my employees was hurt or injured while on the job. It’s great peace-of-mind for my clients, but especially for me!
Jan, Thank you for your comments and for sharing this story with me. It is nice to know there are other like minded individuals out there 🙂 “Peace of mind for me….every night” was one of my favorite points you made. Please keep the communication lines open and flowing with me. 🙂
Absolutely, Danielle!
What a great discussion. All I would add to it is that you seek out a lawyer that works with small businesses in your area to make sure you are fully protected against any possible liabilities. There are substantially different laws that protect employees and independent contractors. A qualified attorney an review your documents and make sure you are protecting your company. Most lawyers will provide an initial consultation at no charge. Keep up the great work Danielle
I too am a California based petsitter. We switched to employees about two years ago and really, the increase in cost is not as great as I thought it would be. Yes, I’d rather not pay WC but I know I’m covered if anything happens. The absolute best part of it is I don’t worry anymore about what I’d do if the EDD or IRS came knocking. The peace of mine is worth it, hands down.
Who did you contact to get info on hiring employees in california? I want to look into that but not sure who I call, what payments, and where.
Thanks
Hi Karla! What do you need to know exactly? You need to get workman’s compensation (insurance person,) payroll person (they will tell you about state tax payments) and that is about it. You can call the California Department of Labor if you have specific questions. I also have a Four Week Course dedicated to get you up and running with employees in four weeks! http://jumpconsulting.net/services/ Let me know if I can be of service!
Hi Danielle,
Here in South Africa, things could be different. We pay a jolly side more for everything, but our incomes are waaaaaaay less than yours. Hiring our own sitters has become a mission. First of all, we have to keep our rates low to remain marketable. We would have to pay our sitters 80% minimum of our incomes, then we still have the problem of employees being unreliable, do not pitch up or arrive late, they can’t afford their transport, sick too often, or take family responsibility leave for a sick kid, or maybe just plain mugged on the way to work etc. It is almost impossible to fire them without legal dramas, Our legal system protects the employee. etc. As a result, I have phased out my employees, and prefer to have a list of IC’s and tell my customer that the contract would be between them and the IC, as we act as an agent only, because I cannot do this particular sit, and would love to service them in the future. I then claim a placement fee from the IC. End of Subject. I do a follow up, however, to ensure the credibility and get a reference on the IC for future use. Am I just being naive, what are your comments herein?
Hello Carole!
I am so excited to hear that you are posting all the way from South Africa! To answer your question, I don’t think you are being naive at all! I think that it sounds like you really did your research and to take what the US government is doing and apply it to another country would be a disservice to your business. I wish I knew more about the laws in S Africa. Keep commenting ~ and send me a email so I can get connected with you! danielle (at) jumpconsulting.net
Hi there,
What do you do in the case of offering overnight services? I am at a point where I may be forced to change my contractors over to employees, and according to my employment attorney, the sitter must be paid an hourly wage even for sleeping which means that I would have to pay 8 hours of sleeping time plus the morning/midday/evening times. This could potentially reduce the number of people I have working in a week dramatically because they would hit 40 hours so quickly. My clients like consistency and they don’t want just any random sitter coming and going from their homes, so how would I be able to continue offering the best, quality and consistent service if the sitters are maxing out their time doing overnight jobs?
Any help would be greatly appreciated.