How Hiring Cheap Labor Can Be Bad

4 Replies

Alright I am probably going to get a lot of people mad at me here. I have been reading alot of post about hiring a guy to do something "cheap". Which in general the "Cheapest is Rarely The Least Expensive" Imagine paying to do something twice. Hiring a day labor can frequently be considered having am employee. Do you have workers comp? If not in most states you have broken the law and made yourself a wide open target. Chances are that if you are trying to save a few bucks you dont have workers comp. Here is a few articles on the subject.

So now that you are scared, if you read the article how can you protect yourself. First I believe every business should have a small workers comp policy. Even if you take it on yourself you then have one, and forbid you should get hurt have some coverage. Secondly hiring licensed insured contractors. AND MOST IMPORTANT be named as additional insured on their policy, this stops their insurance company for suing you for negligence. This will not get you the cheapest price there is, but will protect you and your investments. 

I know a situation where a worker that was employed for 3 hours was hurt and it cost over $180,000. The guy didn't have it. He closed his company thinking liability was on the company. He was deemed negligent for not having workers comp and was personally sued, therefore costing him everything and forcing him into bankruptcy. 

Hiring a day worker is like taking a quit claim deed with no title search or insurance. 

I am not saying that you should negotiate with your contractor, nor I am saying you have to go broke on one, but understand what this can cost you. Once you know what workers comp insurance cost, you may reconsider what a fair wage for a contractor is. 

I am not a lawyer, nor insurance agent, and am not giving legal advice.

@Jeremy Tillotson    Well written and thought out article.  I completely agree with the concept that "free really isn't free".

@Jeremy Tillotson    Well written.  I know that a lot of flippers use handymen and day laborers instead of lic'd General Contractors.  It can be very risky, sometimes more expensive in the long run and often turns out inferior product.  

As you mentioned having to redo the same work again, because of inspectors calling something out, or a buyers home inspector's report, can cost even more than doing it right the first time. 

If I were to do a lipstick project, I may consider hiring a couple of lic'd subs as a homeowner.  But our projects are usually studs out rehabs and we definitely use General Contractors. 

The trick is finding a good, affordable contractor.  Not easy but worth the time investment. 

I know somebody who recently got a false claim that his worker got injured while working on the site, good thing before releasing the check, they practice a toolbox meeting every monday and let all employees sign a waiver where it states that they have been paid in full for the last week and did not get injured before the check was given. This could be a $300,000 suit waiting to happen, specially because they wont spend a dime suing you.

We pay around 20k (up to 50k/year payroll) to have work comp every year, together with GL and in my case, more than that because our company has extensive insurance coverage that gets layers and layers of protection for both clients and contractor. We also insure that our subs have them and issue us waiver as additional insured before they can even be considered as sub. Paperwork IS money, it costs, it protects. If you hire a handyman you need to have work comp and GL at the least. GL protects you from everything else, work comp only protects you from worker injuries.

Be careful on homedepot guys, they are wreckless, only asks for cash/hr, doesnt know what employment are always lazy. If you choose to go with handyman service, be sure they have at least GL and WC, I have heard from some states that they allow these kind of license. Imagine they worked for you and they make a false claim, and you didnt do the paperwork, lawyers will go after all your assets that you built for decades.

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