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Episode 151: BEST OF BELLA: Interview with a Small Business State Auditor

This episode is part of the “Best of Bella” series. Bella chose this episode with a former state auditor as one of the best, because she loves being able to bring unique experts to you. If you missed this episode the first time around you’ll be pretty surprised by what you hear.

Interview with a state auditor

Show Highlights

  • Who is Katrina Kadyszewski? [4:10]
  • How does interpretation come into play with auditors? [6:20]
  • Which documents should you have when being audited? [10:55]
  • What is the goal of an auditor? [15:20]
  • Should you get your lawyer or CPA involved when being audited? [17:15]
  • How are businesses chosen for audits? [22:40]
  • How far back should you be keeping records? [24:45]
  • What is the VCSP (Voluntary Classification Settlement Program)? [26:00]

Interview with auditor Best of Bella

Original Show Notes

In this episode of “Bella In Your Business”, Bella talks with Katrina Kadyszewski, a former state auditor with the State of Connecticut.

Katrina has over 16 years of experience working in a variety of financial positions. She started in the brokerage industry with a Series 7, 63 and 65 and life and health license, and then transitioned to audit work for the CT Department of Revenue Services. She then left to support small businesses in their efforts to get organized for expansion.

Katrina spent 3 of her almost 8 years with the CT Dept. of Revenue Services in the Business and Employment Tax Audit Unit, focused primarily on payroll tax issues. The last 5 years she has worked as a Corporation Tax auditor, traveling across the US auditing largely Fortune 500 companies.

Main Topics

Bella and Katrina first discuss a big controversy in the pet sitting industry, which is misclassification of employees as either independent contractors or employees. Katrina outlines some key indicators that auditors look for in making that determination:

  • Is there an actual contract between you and the contractor?
  • Are your payments to them regular in nature?
  • How much control do you have over them with regards to work hours, uniform, training, etc.?
  • Do they offer the same services to other companies through their own business?
  • Are you providing them all the tools, training, and supplies they need?
  • Basically, consider how loose is the relationship?

They also discuss why they think business owners are so apprehensive about audits, what documents a business owner should have at their disposal if they are being audited, and whether business owners should take their lawyer and accountant to the audit. Katrina also gives some insight into what triggers an audit.

Resources

There are resources out there to help small business owners. Katrina and Bella suggest a few, like the IRS’s  20-factor test to help you determine employee or independent contractor status and amnesty programs that exist to help encourage business owners to make the right switch.

Have you ever been audited? Want to hear about pet sitters who have been audited? I have interviewed a handful and reported about it all here.

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Switching ICs to Employees for Pet Sitters and Dog Walkers

Most Common Problems When Switching ICs to Employees

Switching from independent contractors (ICs) to employees can be a challenging process to execute no matter what industry you are in. It is especially tough for the pet sitting and dog walking industry because they are often small businesses, they have limited funds, and little advisement or support from experts.

Luckily for you, that is where I come in. In an earlier blog, I told you about the major shifts in our industry. One of them is businesses switching the classification of workers from ICs to employees in droves. Many are afraid to do it. They don’t know what will happen or how to do it. Stick around until the end and I will help get you through that.

What If All My Staff Leaves?

switching ICs to employees for pet sitters and dog walkers

The first thing many people are terrified about is that their staff will all leave them. Many think that if they tell their staff they are going to be getting taxes taken out and that they will now be able to dictate when people work that the staff will leave them. Perhaps they are true ICs already, running their own business, have many other clients of their own, and don’t want to give that up!

All of this is a valid concern. If your staff leaves, you are left with many clients and no one to help service them. You are only one person. There are certain ways to make sure that this transition happens perfectly and specific things you should not do.

 

What If My Clients Are Unhappy With The Shift?

The only problem that would come up with the clients is if their pet sitter changed. (See above) If your sitter decided to terminate the contract with you and the clients had to get new staff members, that is just about the only reason I see clients getting upset with your decision to switch from independent contractors to employees. In reality, they would have to find another company anyways, so time to step up the “why trust us” game.

 

What If I Have To Raise Rates?

switching from Independent contractors to employees for pet sitters and dog walkers

Ah! This is probably the biggest concern percolating in your head! Most likely, you will have to raise rates. There are countless people I have advised that had to do just this. Basically, they were paying too much (I will discuss below) and charging too little so naturally, they needed to shift their client base and raise their rates.

The numbers don’t lie and a lot of people start out with my pricing structure and strategy class. This class helps you understand what you need to charge and how to have a strategy that ties into your goals. There is a good chance you might have to raise your rates.

That is, unless you want to be a non-profit.  🙂

What If I Have To Lower Pay?

This sounds so scary and it is! What do you do if you already know you would like to pay more and now the numbers are showing you that in order to achieve your goals you need to pay even LESS.

Ahhh that is scary and almost incomprehensible.
I know.
But trust me, it can be done.

I helped one gal switch from ICs to employees. Her clients went down. Her staff went down. Her prices went up and her profit was higher than ever before. In the end, we need to remember that this is not a popularity contest.

What If I Have To Wait For VRSP?

The Voluntary Reclassification Settlement Program is through the US federal government. If you submit a form and pay a small fine they will grant you employee status and not look at your prior years.

Did you know that audits can happen up to two or three years later?!?! So even if you were to switch from ICs to employees today… it doesn’t mean in a year from now you couldn’t get a knock at your door asking to explain your ICs from 2 years ago!

Crazy huh?

We All Need To Be Leaders

With all these problems, it is easy to stick our head in the sand and play ostrich. But guess what? If we want to be the best leader of our life and business – we have to face this fact. Pretending it doesn’t exist isn’t going to get us anywhere and many, many, many states are cracking down and making it impossible to have ICs.

The benefits of having employees are that you can train them, you have more control, you won’t be scared of an audit, and YOU, the business owner, are protected because you are able to have all types of insurance. (Non-owned, worker’s compensation, general liability, etc)

As an established business, switching to employees is possible but you must have a plan.  You must know the steps you need to take and what it is going to cost you. You want to think about the big picture and know why you are doing it so it will help you get through the tough times. This is something that is tougher to accomplish the larger your company gets so if you are thinking about doing it, I would highly suggest that you do it sooner rather than later.

 

ICs to Employees webinar

Register Now – Tuesday May 21st @ 3pm

Ten Things You Need To Know About Being A Pet Sitting Employees VS. IC

Good help is hard to find, as any business owner knows. With the variety of web-based services which offer Independent Contractor (IC) opportunities for aspiring pet sitters and dog walkers, why would a pet lover choose to work for a traditional business as a pet sitting employee rather than working independently and possibly bringing home more cash?  

Becoming an employee of an established company offers lots benefits for folks who are interested in caring for pets. When considering how to proceed, it’s important that an individual consider several things. Below are the top 10 differences in working for an employer versus working for one’s self.

Ten Things You Need to Know About Being A Pet Sitting Employee VS. IC

pet sitting employee

1. Instant income

Possibly the most obvious benefit of working for someone else is the instant stream of work! Rather than posting a profile all over the internet, handing out business cards and hoping to meet people at the dog park, an established company already has visits lined up and ready to go for employees. There’s no need to hustle.

2. Overhead

All of the marketing and client retention is completed by the company, which takes time (and money!). If a client is unhappy, employees are still paid. If tools or supplies are needed, it’s covered. An IC is financially responsible for all things related to the care they provide during visits they are contracted to complete.

3. Insurance

Beyond covering overhead costs, a professional business will be insured and bonded by a reliable insurance company. Although some of the web-based services offer insurance, there have been several questionable situations where insurance refused to pay out – it can leave an IC open to liability.

4. Personal liability

When working under the umbrella of insurance and bonding provided by a corporation, employees are generally insulated from lawsuits claiming negligence or other civil suits; this is not the case when working as an IC.

5. Workers comp

Did you know many health insurance policies will not cover workplace injuries? Most professional pet care companies carry workers compensation insurance; this means, if an employee is injured while caring for a pet, there isn’t a reliance on private health insurance — or the employee’s personal bank account! Self-insurance for workers comp as an IC is available, but it can be very, very pricey.

6. Safety

With a professional company, clients are screened ahead of time for pet temperament, neighborhood safety and accuracy of information provided in advance of the first visit. Employees won’t go into a job blindly and just hope for the best.

7. Taxes

An employer covers roughly half of taxes owed by an individual, plus they file the employee’s portion automatically each quarter. An IC must pay the full amount of taxes on all monies earned at the end of the year – and that bill can be unexpectedly large.

8. Protocols

Most established companies have specific rules for how to handle uncomfortable and emergency situations. No need to make up a solution on the fly!

9. Education

Beyond having established protocols, many companies teach technical skills on how to best care for pets including body language, avoiding bites, etc.

10. There’s Always A Back-Up

Feeling sick? Have an emergency? By being employed by a company, there will be someone who can pick up the slack when you’re unable to perform your visits.  As an IC, you and your clients may be out of luck.

 

Ultimately, both approaches have their perks. It comes down to what’s most important to an individual when deciding how they would like to pursue a career with pets! By properly presenting the information above, an IC for an internet company may be persuaded to instead join a professional team.

pet sitting

Robin Brown is the owner and founder of Manhattan Mutt Company, LLC in Manhattan, Kansas. She is a Yankee-born, Southern-bred, Midwestern transplant. Her life revolves around her husband’s Army career, a sassy toddler and the dogs who inspired her to launch MMCo.

 

pet sitting beginners guide

pet sitting independent contractors

The Problems With Pet Sitting Independent Contractors

I have to admit that I am not a huge fan of hiring pet sitting independent contractors for your business. Personally, I think investing in employees is a much better decision.  If you have IC’s or are thinking about hiring IC’s, we’re going to draw some attention to some of the challenges there are with hiring pet sitting independent contractors.

The Problems With Hiring Pet Sitting Independent Contractorspet sitting independent contractors

Lack Of Control

To be quite honest, I have yet to meet a business owner who is not a control freak (myself included!). This is easily one of the biggest downfalls of hiring IC’s because you really can’t control what they do.

Seems weird right?

But it’s true.

With IC’s, training is only allowed by the client themselves, not by you or a manager. Yes you can offer suggestions, but you can’t train them on the important aspects of HOW to do pet sits. This could be detrimental in developing your company’s brand, because 10 different IC’s may do pet sits 10 different ways and they should! They are all representing their own business.

Check out this quote from the IRS website that gives a great summation as to what limits IC’s have:

“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

Strict Rules & Regulations

Many times I’ve seen businesses go through more headache and hassle with different government agencies by having IC’s! This goes hand in hand with my previous point that you as the business owner cannot control or manage what the IC does. This makes it very easy for you to inadvertently overstep your bounds, creating a potential problem. I have heard of a lot of business owners emailing instructions to their IC in writing, which is a big no-no!

I’ve found that business owners that have IC’s are frequently “on the defense” so to speak. They’re having to constantly look over their shoulder and avoid putting any communication with the IC in writing to cover themselves. I’ve actually spoken to business owners that have gotten a knock on their door for something they’ve done a year ago.

To me, no matter what benefits IC’s bring, it’s not worth the fear of getting in trouble. None of us, myself included, are legal experts or auditors, making it very easy for us to slip up and get ourselves in trouble or audited.

Insurance Complications

When you have employees, they are covered under your pet sitting insurance policy – plain and simple. This is not the case with IC’s. Sure, an insurance agency will allow them to be covered under your master policy, but then who is absorbing the cost? You are. Therefore, they would be classified as employees!

There is insurance for liability, if you are negligent on the job… but there is also workman’s compensation for if a worker is hurt on a job. Independent Contractors, by definition should have these insurance policies. Most do not.

In your client’s eyes, your IC’s represent your company. It’s really not a good look when a representative of your company is suing your client for an injury. Plus, there is the possibility they could go after you as well. Overall, it’s just a giant headache, and one that can be totally avoided by hiring employees rather than IC’s

While there are still pet sitting business owners that use IC’s, it’s not something I would recommend in today’s business world. If you’re looking to make “the switch,” from ICs to employees be sure to follow these crucial 6 steps and check out my Employee Quickstart Program.

Episode 29: What Type of Pet Sitter is Best for Rover Type Websites?

In this Episode Bella talks with Walt Galvin, an independent contractor working for Rover.  They discuss how sites like Rover can be a viable option for some pet sitters and walkers who are just starting out or want to keep it simple.

Walt Gavin, independent contractor with Rover.

Walt Galvin, independent contractor with Rover.

Some of the advantages include:

  • Not having to handle payments from clients
  • Saving  time and money but not having to handle marketing
  • Not having to deal with all kinds of administrative headaches and paperwork.
  • Ability to set your own work schedule

For Walt it has turned into a substantial retirement income and he points out that it is also a good option for those who don’t have the desire to hire other sitters and walkers as staff.  Walt also recommends that you pay close attention to the service agreements, particularly in regards to what insurance covers and you may need to purchase additional insurance to cover yourself.

Many of these online websites do not provide adequate coverage for the pet sitters. Only the clients.

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Katrina Kadyszewski

Episode 20: Interview with a Small Business State Auditor

Katrina KadyszewskiIn this episode of “Bella In Your Business”, Bella talks with Katrina Kadyszewski, a former state auditor with the State of Connecticut.  

Katrina has over 16 years experience working in a variety of financial positions. She started in the brokerage industry with a Series 7, 63 and 65 and life and health license, and then transitioned to audit work for the CT Department of Revenue Services before leaving to support small businesses in their efforts to get organized for expansion.

Katrina spent 3 of her almost 8 years with the CT Dept. of Revenue Services in the Business & Employment Tax Audit Unit, focused primarily on payroll tax issues. The last 5 years she worked as a Corporation Tax auditor, traveling across the US auditing largely Fortune 500 companies.

Bella and Katrina first discuss a big controversy in the pet sitting industry which is misclassification of employees as either independent contractors or employees.  Katrina outlines some key indicators that auditors look for in making that determination:

  • Is there an actual contract between you and the contractor?
  • Are your payments to them regular in nature?
  • How much control do you have over them with regards to work hours, uniform, training, etc.?
  • Do they offer the same services to other companies through their own business?
  • Are you providing them all the tools, training and supplies they need?
  • Basically, consider how loose is the relationship?

They also discuss why they think business owners are so apprehensive about audits, what documents a business owner should have at their disposal if they are being audited, and whether business owners should take their lawyer and accountant to the  audit. Katrina also gives some insight into what triggers an audit.

Some resources they discuss are the IRS’s  20-factor test to help you determine employee or independent contractor, and amnesty programs that exist to help encourage to make the right switch.

Have you ever been audited? Want to hear about pet sitters who have been audited? I have interviewed a handful and reported about it all here.

Subscribe To The Show:

Listen To The Show:

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What Every Pet Sitter Should Know Before They Have Employees Or Independent Contractors

 

The following is a list I have created inside my coaching group. It is a great reference guide that will really help put some major facts out there for you if you are considering independent contractors or employees. It is something that every business should read. This isn’t my opinion. It is based on actual data that is out there. I just gathered it all in one place for you.

I highly encourage you to contact me with your questions and I can help lead you in the right direction to get your answers. 
In the first half of 2014 numerous pet sitting companies allowed me a look into their business to help show the world what going through their audit was like. The following is a list for your quick reference. Below are more articles full of more valuable articles so you can’t say you didn’t know! 🙂

Audits Do Happen.

http://jumpconsulting.net/case-study-audit-60k-mistake-rattled-pet-sitting-businesses-structure/
—–> This case study shows how a “small” pet sitting company who was audited ended up costing her $60K that shook up her whole world. She had to switch from ICs to Employees and the damage was personal, business, and emotional. NOTE: That the same people who “advised” her on how to structure her ICs had no say in the matter when the State audited her. Nor, did they pay her penalties, fines, and back taxes.

 

How Having A Good CPA Can Help You Pass An Audit:

http://jumpconsulting.net/2014/04/21/case-study-pet-sitting-audit-team-helped-business-pass-flying-colors/
—–> This case study shows how a team of experts (CPA) helped this business owner pass her audit with flying colors. She had employees and her CPA took care of the rest. She did have to pay her CPA to speak and defend the company to the Auditors.

 

ICc Should Have a Workmans Compensation Policy On Themselves According To This Audit:

http://jumpconsulting.net/2014/04/03/case-study-pet-sitter-audit-independent-contractors-compliance/
—–> This case study the business’ ICs were found not to be in compliance because the individual ICs did not have a Workman’s Compensation policy on themselves. The fine was tiny, as the yearly business revenue was under $50K but had it been a bigger business, it could have been worse. They did change to employees.

If You Are Audited Once, Chances Are, You Will Be Audited Again.

—–> This pet sitter was audited twice. She passed with flying colors only because of her detailed records. They did find a tiny problem with home office deduction and mileage records but generally speaking, she passed!

Another Double Audit:

—–> This pet sitter was also audited twice by the State. The first time, she did everything they said to do. The second time, they faulted her for the changes that they told her to make. Crazy, huh? The pet sitter cites the federal administration that was in power at the time. This pet sitter did a LOT of research. Knew everything inside and out. But still, was slammed by the State. Be sure to read the ending of this study where she shows how her classification helped save her business! It will make you think!http://jumpconsulting.net/2014/03/27/case-study-pet-sitting-business-audit/

 

Audit Costing Over $25k!

—–> This audit cost this business owner over $25K!  Part of the expense was because she switched scheduling software companies and the old company never gave her the records. Ouch! It is a really interesting study that shows just how much the software program you choose could SAVE or HURT your hiney!

How The Money Is Collected Lead To ReClassification Here:

—-> Learn how this company was audited and changed to employees because they were found out of compliance. Their fault? The business collected the money from the client. Not the IC.
—–> Lessons learned from the pet sitting Audit Case Studies! A brief recap.

Did You Know?

The IRS program that will let you switch your ICs to Employees without the threat of an Audit EVER!

Here are 18 REAL REASONS why Employees are less of a legal headache than ICs with AUCTAL government factual back up!
Listen in as I interview an actual pet sitting business with ICs and Employees at the same time. I ask them the same questions and you can hear how they both operate differently!  *Great listen for those with ICs!*
Which costs more? ICs or Employees?
AND IF THAT ISN’T ENOUGH….. THE IRS HAS DEDICATED 14 MILLION DOLLARS to FINDING COMPANIES WHO ARE MISSCLASSIFING WORKERS : http://www.dol.gov/opa/media/press/opa/OPA20130661.htm

Happy Reading!
Bella =)
(PS) If you want help, email me at danielle@jumpconsulting.net or check out the Employee Quick Start Guide: http://jumpconsulting.net/services/employee-quick-start/
what-every-pet-sitter-should-know-before-they-have-employees-or-independent-contractors
Employee Quick Start

Why You Can’t Afford Not To Have Employees, From the Insurance Company’s Mouth

Every day you are using Independent Contractors in your business, you are taking a risk.

There. I said it and I really mean it. I know, I know, you are sick and tired of hearing this debate. But this is different.  Why? Dennis Stowers, insurance agent for pet sitters, from Mourer-Foster explained all the below to me, and approved this article. So this isn’t just me typing away. Are you ready?

Read more

Why You Can't Afford Not To Have Employees, From the Insurance Company's Mouth

Every day you are using Independent Contractors in your business, you are taking a risk.

There. I said it and I really mean it. I know, I know, you are sick and tired of hearing this debate. But this is different.  Why? Dennis Stowers, insurance agent for pet sitters, from Mourer-Foster explained all the below to me, and approved this article. So this isn’t just me typing away. Are you ready?

Read more