Short term rental - How to pay to un unlicensed subcontractor

[Aviv Peretz]

Hello everyone! 

I own 3 properties together with my parthner (LLC) in Joshua tree CA . On a weekly basis we pay to the cleaning crew (Zelle) and some other vendor and subcontractor without a lic to fix or improve out properties. I know its illegal to do it this way but its so hard to find a cleaning crew that have a Compney same with a subcontractor. Any advise about how to do it right ?

thank you!!!!!!! 

[John Underwood]

It is not illegal to pay a cleaner or handyman with no business license.

It's interesting that you thought you were doing something illegal and kept doing it though.

You just need to 1099 them for work over $600.

Zelle does not report to the IRS, but PayPal and Venmo do, so you don't need to do a 1099 for these payments.

[Aviv Peretz]

Thank you John! So they must to have a Compney in order to issue them 1099 right ? 

[Bruce Woodruff]

@John Underwood is right. You generally (depending on state) do not need to worry about small repairs (under $500-$600). But that is per job and you cannot split up jobs to avoid this (like some people do :-)

Cleaners do not come under this, and do not need to be licensed in any state that I've ever heard of....

You can easily find licensed Contractors for the larger projects, and you should! You are opening a huge can of worms when you try to get around this legality and leave yourself open to action from the city/county where the work was performed. Plus it just ain't right supporting these scabs instead of using licensed people who are trying to follow the law, get the required training and certifications.

[Paul Camuto]

What does it matter how you are paying? Not following the issue.

[Bruce Woodruff]

Quote from @Paul Camuto:

What does it matter how you are paying? Not following the issue.

He's using unlicensed contractors and wondering if there is a way to get around the law and pay them. Of course you can use and pay them easily, the problem is that it's illegal and wrong and when you get caught the ramifications can be severe for all involved....

[John Underwood]

Quote from @Aviv Peretz:

Thank you John! So they must to have a Compney in order to issue them 1099 right ? 

No. They do not have to have a company. They can be an individual. 

[Aviv Peretz]

Quote from @Bruce Woodruff:

@John Underwood is right. You generally (depending on state) do not need to worry about small repairs (under $500-$600). But that is per job and you cannot split up jobs to avoid this (like some people do :-)

Cleaners do not come under this, and do not need to be licensed in any state that I've ever heard of....

You can easily find licensed Contractors for the larger projects, and you should! You are opening a huge can of worms when you try to get around this legality and leave yourself open to action from the city/county where the work was performed. Plus it just ain't right supporting these scabs instead of using licensed people who are trying to follow the law, get the required training and certifications.

I agreed Bruce - something its hard when its a small repair and you need it asap. Thanks for your advise! 

[Aviv Peretz]

Quote from @John Underwood:

Quote from @Aviv Peretz:

Thank you John! So they must to have a Compney in order to issue them 1099 right ? 

No. They do not have to have a company. They can be an individual. 

I see. They don't need to fill up anything rights ? I just issue 1099 in the end of the job or in the end of the year ? 

[John D.]

They fill out a w9, so you can be sure you have their correct address and SSN, or EIN, or other Tax ID in your records, and then you issue the 1099 at the end of each year.

[Henry Lazerow]

Technically you should 1099 on $600+ but real life no one does for small jobs. Just have a paper trail so can write it off, zelle history etc. is fine. Unless you are doing hundreds of these a year the IRS is not going to fine you for not 1099 them and you can write it off regardless of if you 1099 them legally. 

[Mikayla Mitchell]

There’s a few questions here.

First, a cleaner doesn’t need to have a business license in order to work for you, if that’s the type of license you’re referring to. There’s no license they need in order to make paying them legal, it’s just on them to get it.

You can pay them directly and then if you pay them over $600 a year, you need to issue them a 1099. The 1099 can be issued under their first name, or whatever name you make the check out to. You can file those on Efile Magic for like $5. Just have all your contractors fill out a W9 so you have their info on file when you file their 1099. And if you don’t file the 1099, there’s really no way the IRS would find out anyways though. A 1099 is just a tax filing that reports that that person received freelancer/contractor funds and reports the amount to the IRS so that the payee doesn’t skip out on paying taxes.

Then when it comes to hiring someone who does maintenance on your properties, you don’t need them to be licensed in anything particular as long as they aren’t doing super specialized services that require a type of general contractor license (pretty sure, but since you’re also the owner, this also may not matter). However, even if you do, so many landlords don’t hire licensed people anyways on their properties and the person who is unlicensed is way more likely to get in trouble than you. No one is checking anything here.

Same situation goes here with the 1099 above. You can pay them however much, and if over $600, you “should” issue a 1099.

You’re pretty much fine.

[Bruce Woodruff]

Quote from @Mikayla Mitchell:

Then when it comes to hiring someone who does maintenance on your properties, you don’t need them to be licensed in anything particular as long as they aren’t doing super specialized services that require a type of general contractor license (pretty sure, but since you’re also the owner, this also may not matter). 

Not true, and bad advice. This is in California, a state I am very familiar with. You cannot contract for more than $500 worth of labor and materials on a project without a Contractors license. So if he hires a 'handyman' to run more than $500 worth of electrical, that person needs to be licensed. Same with plumbing or framing and the other trades.

And if the OP acts as an 'Owner/Builder' on larger projects, he takes on a LOT of risk working with unlicensed persons including but not limited to 1) Workers compensation liability 2) Contracting to persons without a license.

Is he likely to get caught? Maybe, Maybe not, but it's wrong, it's illegal, and it is bad business practice. And the state CSLB runs a LOT of stings.

https://www.contractorslicense...

[Mikayla Mitchell]

Quote from @Bruce Woodruff:

Quote from @Mikayla Mitchell:

Then when it comes to hiring someone who does maintenance on your properties, you don’t need them to be licensed in anything particular as long as they aren’t doing super specialized services that require a type of general contractor license (pretty sure, but since you’re also the owner, this also may not matter). 

Not true, and bad advice. This is in California, a state I am very familiar with. You cannot contract for more than $500 worth of labor and materials on a project without a Contractors license. So if he hires a 'handyman' to run more than $500 worth of electrical, that person needs to be licensed. Same with plumbing or framing and the other trades.

And if the OP acts as an 'Owner/Builder' on larger projects, he takes on a LOT of risk working with unlicensed persons including but not limited to 1) Workers compensation liability 2) Contracting to persons without a license.

Is he likely to get caught? Maybe, Maybe not, but it's wrong, it's illegal, and it is bad business practice. And the state CSLB runs a LOT of stings.

https://www.contractorslicense...

Ya the operative is if they aren’t doing large amounts of work and if doing more small scale handyman services sporadically. Misspoke here and def not good advice if you need someone doing bigger projects at a time and more specialized. But the OP has 3 properties with what I could, incorrectly possibly, assume there’s not a ton of work being done at a time, so under $500 each project. I grew up around my grandfather as a ghetto landlord and he never did anything by the book.. and I’m a bit of a rule breaker at heart. So bad advice? Maybe. But do I think there’s gonna be a sting op for someone doing such small scale projects on their own properties? Extremely unlikely, yet the risk is there. 

[Matthew Irish-Jones]

@John Underwood it’s illegal if they do not have their own insurance and business.

The DOL considers this person to be an employee not a 1099 worker and you will be liable.

[Bruce Woodruff]

Quote from @Matthew Irish-Jones:

The DOL considers this person to be an employee not a 1099 worker and you will be liable.

 Yes, and then there's that. Look, it's not that hard to do it right, not even worth the possible hassles...and as a licensed, legit guy who had jumped through all the hoops to be fair to my clients, my subs and my employees, I always felt cheated when these unlicensed hacks would take work away from my guys....

[John Underwood]

Hiring a house cleaner with no business entity is not illegal.  No one has been jailed for it. 

Please show me this law.

[Que Tran]

@Aviv Peretz

I used 2 seperate companies to clean. Both hired girls to clean. Both didn't clean well. Both would not answer my requests. So I hired a cleaning girl who cleaned for a friend. Private cleaning is amazing. She tells me when supplies are out, folds towels into cute shapes, and really cleans. Nothing illegal going on, other then an honest girl doing an honest days work. Since then, I've always given her name to other member of the HOA. I'm truly grateful I found her.

[Brian Tremaine]

If I need a fence repaired/replaced at a rental, a 50ft section will cost about $2500 today (!!). I will hire an experienced handyman who I know has done this before. If I need electrical work done or plumbing I hire a licensed contractor. I keep a paper trail for tax purposes but I don't issue 1099's. For cleaning people it's the same, not a formal business entity, but will pay by check and keep a paper trail.

[Aviv Peretz]

Quote from @John D.:

They fill out a w9, so you can be sure you have their correct address and SSN, or EIN, or other Tax ID in your records, and then you issue the 1099 at the end of each year.

 Thank you John it helps a lot!!! 

[Aviv Peretz]

Quote from @Henry Lazerow:

Technically you should 1099 on $600+ but real life no one does for small jobs. Just have a paper trail so can write it off, zelle history etc. is fine. Unless you are doing hundreds of these a year the IRS is not going to fine you for not 1099 them and you can write it off regardless of if you 1099 them legally. 

 Thanks Henry! 

[Bruce Woodruff]

Quote from @Brian Tremaine:

If I need a fence repaired/replaced at a rental, a 50ft section will cost about $2500 today (!!). I will hire an experienced handyman who I know has done this before. 

That's fine, a lot of people do it this way. And the odds of you facing any consequences are minimal. Not so for your 'handyman'. 

As long as you know that it's not legal in your state......if you're ok with that, then there's not much any of us can do about it.

[Aviv Peretz]

Quote from @Mikayla Mitchell:

There’s a few questions here.

First, a cleaner doesn’t need to have a business license in order to work for you, if that’s the type of license you’re referring to. There’s no license they need in order to make paying them legal, it’s just on them to get it.

You can pay them directly and then if you pay them over $600 a year, you need to issue them a 1099. The 1099 can be issued under their first name, or whatever name you make the check out to. You can file those on Efile Magic for like $5. Just have all your contractors fill out a W9 so you have their info on file when you file their 1099. And if you don’t file the 1099, there’s really no way the IRS would find out anyways though. A 1099 is just a tax filing that reports that that person received freelancer/contractor funds and reports the amount to the IRS so that the payee doesn’t skip out on paying taxes.

Then when it comes to hiring someone who does maintenance on your properties, you don’t need them to be licensed in anything particular as long as they aren’t doing super specialized services that require a type of general contractor license (pretty sure, but since you’re also the owner, this also may not matter). However, even if you do, so many landlords don’t hire licensed people anyways on their properties and the person who is unlicensed is way more likely to get in trouble than you. No one is checking anything here.

Same situation goes here with the 1099 above. You can pay them however much, and if over $600, you “should” issue a 1099.

You’re pretty much fine.

 Thank you Mikayla its superrrr helpful