I am coaching two incredibly awesome business owners right now. Rarely am I discussing the same topic with both, so this is a treat. I am diving in and really digging up everything I have on Switching ICs to Employees!
Should I switch my ICs to employees? One of my clients said, “Bella, I need you to convince me.” I told her, “Nope. That is for you to decide. I can lead you to the water, but you will decide how you go into it and with what life preservers.”
I told her this because it is a big decision. One that only the business owner can make because they have to have the burning desire in their belly to make a confident decision. It will be tested over and over again. I would feel terrible if one day, when they were going through the challenges that a business creates, and says “I don’t know why I am doing this. Bella made me. It is her fault.”
Let’s Look At The Big Picture:
In the beginning of our industry, it was the most popular choice to run a pet sitting company with ICs. Maybe it was because it seemed like an easy solution. You didn’t have to keep track of sitter’s taxes, didn’t have to have a huge manual and training program, didn’t have to control the situation. As the industry grew, so didn’t the control freaks (...and I am one of them) and those who don’t like to take a lot of risk (…I am one of those too). People like us want the safe bet. The things we can manage and control. The thought of being out of control or having to walk on egg shells puts us into a Valium grabbing frenzy and makes us so anxious looking over our back that the word relax has been omitted from our vocabulary!
Switching ICs to Employees
“The thought of being out of control or having to walk on egg shells puts us into a valium grabbing frenzy and makes us so anxious looking over our back that the word relax has been omitted from our vocabulary! ” – Bella
Thirty years ago, the government wasn’t conducting audits at such a rapid rate. Our industry was little known and the first twenty years was an education of the nation that they could actually hire a professional to come into their home and care for their pets.
More recently with apps becoming popular, it seems as though you can get anything instantly. Right now, I could down load an app and have a glam squad come to my house to do hair and make up. I could order a car service in less than 5 minutes, and I could even order my Starbucks as I am driving and walk into pick it right up. Everything is instant and to appeal to that instant, other apps like Ziggy and Wag have shown up too. This business has become so easy for many to mark their own nitch in the wheel and call it their own and for that, I love this country. I love capitalism. I love being able to create and grow a business.
But with all this immediate hustle, bustle, and growth, are the structures right? Now, I am not implying that any of the companies I previously mentioned are doing it right or wrong, in fact some of them are rocking it. Proper structure and classification is really for them, the government, the lawyers, and their clients to decide. I wonder what is going to provide a company the most stability, and the business owner with the most potential to grow exponentially?
I would argue that having employees would give you the least amount of risk and the most amount of potential growth.
It would be the least amount of risk for all the reasons that were outlined in the audit case studies I conducted a few years ago. I would also argue that it is much more straight forward to have employees. The rules are clearly defined and you can let your inner control freak out! Or perhaps that although many THINK employees cost more, they actually don’t as illustrated in this incredibly scary story that could have shut down this business if they had ICs.
But all we ever do is take my word for it…and the countless hours and hours I have put into research and answering every single question like: How does workmans compensation work? and Should I purchase worksmans compensation for my ICs? (Side note: The experts actually weigh in on these answers to these popular questions!)
So I want you to hear exactly what some of the pet sitting business owners arond the country think. I asked them
“Tell me why you believe ICs or employees”
Summer says: “The biggest positives I’ve gotten out of switching from ICs to EEs has been being able to have an employee manual to review and establish our company procedures with the sitters (even our sitters love having that guidance!) Plus I’ve like being able to provide items like company T-shirts, key tags, branded notepads, business cards, etc. to the sitters. Also just had our first on the job injury – a broken nose and it felt great to know we had worker’s compensation in place to cover it.”
Becki says: “For me, as others have said, it’s the control issue, mostly. I want to train my staff to my company standards and processes, I want to be able to schedule around our clients’ needs and not just hope that an IC has the time. Our business was started in 1989 with the IC model (though the former owners didn’t really follow that model correctly) and if a sitter didn’t want a particularly assignment, they just said no and we had to just go down the list until we found someone who wanted to do the job. Made consistency in care and reliability for the client a challenge. With employees, they are assumed available to take assignments within their stated availability and required to request time off in advance. Also, with ICs, the only real recourse if errors occur is to stop contracting with that person. With employees, they can be more closely supervised and weak areas strengthened through ongoing training. Finally, the IRS…. We were such a young industry back then that we weren’t on their radar ,but I’ve seen audits happening more and more as professional pet sitting has grown. It’s always in the IRS’s best interest to find workers to be employees (accountability for payment of taxes falls on the shoulders of one entity, the business, rather than having to track down 5 or 10 or 20 ICs to make sure they’re paying their taxes accurately), so that can make a business owner’s life miserable – and even shut down the business, as Bella as spoken of in some of her blogs. I changed our model from ICs to employees as soon as I took over the reins. smile emoticon”
Kath says: “I’ve never had ICs, just employees. I know myself well enough that I would treat IC’s like employees and would get myself in trouble with the IRS and VA Employment. Also, I’ve worked damn hard to build my business and do things a certain way and I want my staff to do things in a particular way. You literally have (or shouldn’t have) any control over ICs.”
Kim says: “ I believe I am the person you wrote about in a blog once. You didn’t put my name but you used my example which was 100% fine with me. I had a WC claim of about $200k. I don’t even want to think about the outcome had I used ICs and not been covered. Because she told me after that had I not been insured, she would have gone after me (challenging her status) and rightfully so. I also have always wondered why sitters who fret about hiring in the first place and stress about maintaining control would then choose the route that gives up most control. Lastly, using employees is not always more expensive compared to a properly paid IC. Feel free to use my name. I’m not shy about how I feel!”
Robyn says: “I believe the biggest expense is the first employee (set up fees and minimums.) from there the costs are negligible. I can’t prove it, but I believe my business ha less expenses because of the commitment to use employees. For example – we can train – and we do in depth so there are less errors. There’s more of an ownership/personal responsibility for our work and were more of a team. I believe we have higher retention, a great culture and overall a happier system and people because of those unmeasured benefits. I’d never go back.
For me the biggest value is higher slow, fire fast and train well. You can’t do those things with ICs since they really have the power in their contract (if it’s even legal and not just a matter of time before the IRS comes knocking for back taxes). Another point – the peace of mind.”
There are a LOT more comments I could add, but we are already at 1500 words on this blog and I know you must be getting tired of reading by now? 🙂
Now I Want Your Thoughts:
So I am going to close by asking you, the reader, if you are pro ICs…. tell me what reasons do you WANT to have a company with the structure of Independent Contractors? What about it makes it so appealing? Is there something that we are missing? Help us to understand why you chose this structure and why it works for you! 🙂