Over the past 5+ years, I have gotten to know Julie Fredrick very well. She is the owner of The Pet Sitter of Boise and a real class act. For the longest time, she has had Independent Contractors (IC) in her business, and was dead set against changing to employees.
As she grew, she struggled with the IC model’s limitations.
Late last year, she got sick of not being in control and she knew that she would not be able to achieve the vision she had for her business using independent contractors.
She began to see that her sitters were not true independent contractors, nor did they want to be. She became fearful that she would not pass an IRS or Labor department audit, and she worried about the risks associated with having independent contractors.
After researching the topic well, and talking it over with her CPA, she decided to transition to employees under the IRS voluntary worker classification (VCSP) to protect herself from a possible audit. While discussing her plans on the facebook boards she participates in, she discovered other pet sitting businesses were going through the same process at the same time. She and the other business owners decided to teleconference weekly to support one another as they navigated through their transitions. She learned a lot of things, and found a true bond with the other business owners.
Now clear through this journey, she has been singing from the rooftops about employees and feels such a sigh of relief. She says she has 101 reasons why switching to employees, was the best thing she has ever done… and below, you will read about 18 of them.
Together, Julie and I have prepared this article to help educate and ahead some light that is debated a lot about in groups, but not nearly written enough about in our industry. Here are Julie’s 18 real reasons why she is over the moon excited that she switched from ICs to employees:
1. Limits the risk of embarrassing litigation.
Independent contractors can put clients at risk. For example if the sitter (IC) gets hurt, medical bills likely to go back onto client’s and eventually their homeowners. It makes it awkward with the sitter looking at the company for help with medical bills, and then having to confront the client . This might happen between the home owner and the workman’s compensation company as well. But it will not be as awkward as literally handing the client a bunch of bills and asking them to pay. The insurance companies would duke it out, saving face of the company. Examples of injuries that can happen:
- Dogs pull on the leash (hurt back)
- Slip and fall on pavement.
I have interviewed business owner with ICs who felt horrible that they couldn’t offer to help their IC’s or get in the middle of it in fear that the IC would flip and try to try to reclassify themselves as employees.
With employees, the workman’s compensation insurance gets involved, assigns a case worker, and just keeps the business owner up to date as things happen. They also pay a percentage of the sitters lost wages, disability (if they became disabled or incurred a scare for life, etc)
TRUTH: Businesses can carry workman’s compensation on employees, protecting the business and them!
With IC’s, a company can always purchase a WC policy… but chances are that act alone will classify them as employees. The alternative is to enforce that they take out their own WC policy before they work for you. This would rarely happen!
Read more about the in’s and out’s from when I interviewed a insurance agent on this topic.
Warning: An IC can also claim workman’s compensation at another job they work at. In doing so, it requires them to declare all income they receive which can raise a flag to your business..
2. Staying in compliance with the Federal Government is much easier.
To be in compliance with employees it is pretty simple. ” Your tax responsibilities include withholding, depositing, reporting, and paying employment taxes. You must also give certain forms to your employees, they must give certain forms to you, and you must send certain forms to the IRS and SSA.” You also get an EIN number. Source: IRS website
With IC’s it is a little bit more intensive. There is a series of questions that are subjective. The US Department of Labor gives a great overview of what compliance means. For example, if you need sitters as a part of your business, had them contracting with you long term, do not contract with other companies on a regular basis, and they need to set the rate of pay. This is what classifies an independent contractor. They are non negotiable.
3. Staying in compliance with State Labor is much easier.
When you have employees, you need to make sure that they have the opportunity to make min wage. That is easy enough with employees with most pet siting companies paying at least $8/30 minute visits! You also may need to cover them with workman’s compensation.
With ICs there are so many regulations that you also have to meet. For example, a state question taken from California EED…. (and is very similar in other states) asks this about the contractor:
Is the work being preformed part of your regular business? Y or N
- They specifically ask if a business can complete the work without the contractors. Most companies need the pet sitters in order to survive.
Is the relationship between you and the person or company you perform services for a continuing relationship?
- In most cases, pet sitting companies like to try to keep regular sitters at the clients homes. For example, sitter walks Mork and Mindy every day for past three years. That is a continuing relationship.
Does the worker have a separately established business?
- Are they listed as a business? Registered with the state? Advertise? Have their own business cards?
“Originally, the IRS had the 20 Factors Test which was recently changed to the Three Categories of Evidence. In addition, each state has its own set of rules which means your company may be governed by a range of rules in different locations. Depending on where you are doing business it may be the “ABC Test” or the “Common Law Test.” California’s EDD, which runs one of the most aggressive programs in the nation, has One Primary Factor, plus Ten Secondary Factors when deciding who is an employee or IC. Each of the factors takes on a different weight depending on the profession being considered. Finally, both federal and state laws have statutes that make exceptions to the common law rules or the ABC Tests.”
4. You can always be coaching and mentoring employees.
This is great because managers can always be working on improvement within the company and staff. They can make corrections as needed and not worry about it being too much instruction or control.
For example, if a business has a IC and they call their manager asking, “How can I do this?” they technically need to be calling the client. The client, who is away on vacation, should be giving them their instruction. The manger can’t say anything to them.
True Story: A pet sitter I interviewed mentioned that her IC went on a consultation with wet hair. The business owner felt helpless but couldn’t coach them on how to dress.
5. With employees, you can all stay in the loop!
You can BCC them on all client emails if you wanted. You can have them BCC you on the emails that they send to clients at the end of the day.
As an IC, if this happened, it could be seen as “reporting” The Labor department specifically asks if the IC “reports” to the company.
6. Everything is covered under insurance!
Even if you require pet sitters to have business liability insurance, it is very tough to get them to do so. Often times, ICs will not want to pay the extra money to get it, or keep it current. Let alone, purchase their own workman’s compensation policy on themselves.
With employees, they are covered by all of the companies insurances.
7. Hiring employees is much easier than ICs!
When you hire ICs you are looking for people with their established business who have a similar philosophy on pet care. Often tines they are leaders, which means their personality types can be bull headed, driven, ambitious. Often mentioned is that IC business owners feel like they are incubators for their sitters who move on and start their own company. (But weren’t they their “own” company to begin with?)
With employees, you are looking for people that you can mold into your companies ways. Someone who isn’t looking to start up their own company in six months. Someone who is content in their place in life and more of a follower than a leader.
8. Managers can train the sitters how to do the job the company’s way.
Part of what makes pet sitting companies different from each other is the way in which services are preformed. Each company uses unique and different ways to make sure that every client has the same experience no mater who visits their pets. This creates great trust and loyalty in the business brand.
With IC’s training is not allowed by the company, only the client. Sure, you could guide or suggest to them (maybe) but even that is a very thin grey line. If the schedule changes last minute and you need another staff member to fill in, a business with employees has 100% full ability to direct that staff employee with instructions.
“The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.” – IRS.gov
9. Your sitters can work as a team.
With employees your staff is working for the greater good of the company. Not themselves. When they gain new clients through marketing efforts, it helps the whole company. They aren’t trying to gain clients for the benefit of their own business. The company can run contests between them. They can hold team meetings. Employees can rally together for the common greater good of the company!
The true definition of an IC is that the IC should have business from other sources, working for other businesses, and owning their own business. With employees there is a true non compete environment and you aren’t essentially competing against the same people that you are contracting work with. Technically you are hiring the competition to help with your business. With employees everything stays “in house.” If someone owns another business and contracting with you, they are learning your competitive edge for their own gain. For the right personality type, you could basically be an incubator of businesses in your area.
True Story: I received a call on November from a pet sitter who was being audited because he mentions that he has a “team” working for him. That small, tiny thing set the IRS off. Can you believe it? With employees you want to build everyone up together. To back up on another, get them to love your company, not be a bunch of individuals. With ICs there is no team building. You don’t have a team.
10. Risk of potential financial distress for legal fees diminishes.
With employees there are very few instances where the manger is looking over their shoulder wondering if they are in compliance, doing things the right way, or saving up to defend themselves should they ever need to. I know 8 pet sitters who have been audited and lost.
Lawyer fees are $235 per hour and Accountants are $150 per hour at least. So even if a company gets audited and win, did they really still win if they spent tens of thousands of dollars?
It isn’t even just the lawyer and accountant fees. If found not in compliance, the business now owes back taxes, fines and penalties, then the State DOL and Federal DOL too!
11. Managers can tell the sitter when to be at a job and how to do it.
Explicit instructions are important for this line of work. Clients have very specific requests and routines that need to be followed. When the employee has questions, they can always call the manager, and the manager can over see to make sure that the job is being competed the way in which the client wants.
With independent contractors, sitters are allowed to do job how and when they desire. Any instructions must come directly from the clients. The company is unable to tell them what time to be places. Basically quality control isn’t as easy with ICs and super easy with employees! It is very hard to have accountability.
See Part 2 of SS-8
12. Sitters will always work alone.
Employee manuals usually specify that the work must be done alone. No children tagging along, boyfriends walking dogs with the sitters, sleeping over on overnights, or other pets coming along to play. Employee manuals are able to set the rules of the company which often time includes, the sitters work alone.
With IC’s they can do whatever they would like. It is their business. They can take their kids, husband, pets, friends on pet sits to walk the dogs with them or complete their duties. The pet sitting company can not say anything about this, or it would be considered control.
13. Work will always be completed by the sitter it was assigned to.
With employees, the sitter assigned, will be the sitter that does the work.
IC’s by law are allowed to subcontract their work to whomever. This poses a big conflict in the pet sitting industry. If this happens, there is no way (of your company) being able to tell if the subcontractor is an ex-con, honest, reliable, skilled, etc.
14. Employees are provided the proper equipment to complete the job.
Managers can outfit their staff with proper clothing to always be representing the company brand in a good manor. They can give them leashes to help make a walk of the pet more enjoyable and cut down on the pet sitters injuries.
As an IC, sitters must provide their own tools, supplies, and expenses but many IC’s do not file like a business should at the end of the year. I heard a story from one business owner’s IC made her leash out of spare parts around her house because she didn’t want to purchase one.
15. Paying employees ensures that taxes get paid.
When you are giving a staff member a W2 that is showing that their taxes are paid. When you give an IC a 1099 and they don’t pay, there is a chance that it can raise a question from the government.
Getting paid from clients is easy as the business can collect the money and then pay employees!
As am employee, they do not have to deal with the money flowing from the client and getting it to the company. As an IC, they are supposed to be paid by the client and then they give the business their percentage. Take a look at what the Texas state law says here on this. I encourage you to check your own state out!
16. Sitters are scheduled for pet sits without any questions asked!
One of the best things about having employees is that the manager never has to ask them if they can work or do a job. The manger has the sitters availability and is able to plug them in where they are needed. Companies with employees have more control over the schedule. Think of the amount of time this will save the business owner or manager not having to call, text, or email, “can you do this job?” Let alone, having to make a client wait to see if the company can accept the booking.
IC’s always have the right to refuse jobs. They need to be asked, not assigned.
17. Pet sitting isn’t a skilled labor.
A pet sitter does not have to go to school for the profession. Individuals can be taught how to work for a pet sitting company. They do not need a degree.
When looking at the scope of skilled labor, a plumber, contractor, builder, all have to get their license. A hair dresser needs to go to school to learn all about cuts and color. A real estate agent needs to go to school and pass tests to become and agent. What does a pet sitter have to do? It can easily be argued that pet sitting is NOT a skilled labor. Therefor, what “skilled labor” have you contracted? It is tough to justify pet sitting as skilled labor.
- The courts and the California Unemployment Insurance Appeals Board have held that workers who are considered unskilled or semi-skilled are the type of workers the law is meant to protect and are generally employees
18. Scheduling software like Leash Time works perfectly for the employee model
Scheduling software can get tricky depending if you have ICs or Employees. Some software features clocks when a sitter arrives and leaves a visit. It tracks their notes and sends reports to the client and to the manager. Admittedly, in the manual it offers a lot of control. These types of features, while not good for companies with ICs are wonderful for those with Employees! So if you have employees you can keep all of the features turned ON.
Ready To Switch? Still Confused About How to Go About It All
Let me help you through the Employee Quick Start Guide. If you already have IC’s and are interested in making the switch, there is a IRS program that you might be able to participate in and in turn, they will guarantee that your company will not be audited.