Hiring handyfolks off Craigslist risky? Protection?
Rental Property Investor · Hartford. CT · Member since 2018 · 178 posts · 54 votes
I regularly hire handymen off Craigslist and work with them on rehabs. I keep their total pay under $500 and have done an occasional i9. I would like to know how to protect myself as lot of these people are unlicensed handymen. I understand that I do not need a general contracting license to hire them as long as I don't allow them to sub out. Is there anything I can do to protect myself from liability ? I do have umbrella. I cannot LLC my homes because they are bank financed.
I am not looking for answers like "check all licenses and insurance" or "hire a general contractor" (expensive and they could have lapsed or fake info) because I do 80% of work myself and hire people when I need a second hand and am usually on the job with them ... Looking for creative ways to protect myself.
I don't trust Craigslist with anything...
Our biggest problem here is NYS Workmans comp etc. I have a contractor friend now being pursued by NYS for Workmans comp insurance premiums of close to $20k for undeclared/uninsured guys on the books. Then they discovered others NOT on the books.
Now if one ever gets injured it's another nightmare.
@Philip Johnson you really can't , you are basically hiring employees . Once one gets hurt , you will pay . Once one gets audited , you will be brought into the mess . There is an old saying penny wise dollar foolish
@Philip Johnson. The money you seem to be saving on the unlicensed, unproven 'handyman' is actually being paid in self-insurance against 'mayhem.' (Love that Allstate guy!) Like all insurance, pay now through the nose, or pay after the accident out the other end!
You can't LLC your house? The property isn't paying the workers, you are. What about an LLC to hire the handymen? It won't protect you completely, but it might slow down a suit against you by an upset employee.
Your umbrella policy will not protect you if workman's comp comes after you.
Rule to live by--There is no such thing as a 'free' lunch.
@Philip Johnson could you 1099 them and buy your own workers comp insurance? I dont know if that is an option, but I might be something you can do
You're trying to save money and have no risk.... that's not possible. You either have to hire people that are covered by their own insurance, or take the risk of not doing that.
I don't trust Craigslist with anything...
@Philip Johnson. The money you seem to be saving on the unlicensed, unproven 'handyman' is actually being paid in self-insurance against 'mayhem.' (Love that Allstate guy!) Like all insurance, pay now through the nose, or pay after the accident out the other end!
You can't LLC your house? The property isn't paying the workers, you are. What about an LLC to hire the handymen? It won't protect you completely, but it might slow down a suit against you by an upset employee.
Your umbrella policy will not protect you if workman's comp comes after you.
Rule to live by--There is no such thing as a 'free' lunch.
Thanks, it's $1000 a year to operate an llc in California so I am trying to look at other things first.
The allstate guy comes to mind lol.
LLC just for hiring handyman is a good idea though. Should provide at least the inside protection. I need no license to do that ?
@Philip Johnson could you 1099 them and buy your own workers comp insurance? I dont know if that is an option, but I might be something you can do
You're trying to save money and have no risk.... that's not possible. You either have to hire people that are covered by their own insurance, or take the risk of not doing that.
Thanks this sounds like the best idea so far I'll look into it.
I don't trust Craigslist with anything...
I've had only two bad experiences out of many at very discounted labor prices. This includes swinging by home Depot for the day laborors.
@Philip Johnson
Why would you put yourself/your propertie(s)/tenants at risk by hiring unlicensed uninsured Craigslist “wanna-be contractors”?
I am legit, licensed, insured, and would never advertise my for real business on Craigslist. I think you are making some poor choices Sir, to save a dollar or two.
@Philip Johnson
Why would you put yourself/your propertie(s)/tenants at risk by hiring unlicensed uninsured Craigslist “wanna-be contractors”?
I am legit, licensed, insured, and would never advertise my for real business on Craigslist. I think you are making some poor choices Sir, to save a dollar or two.
Because they are $15 an hour and a real contractor is $75 an hour.
Ok so I've done a ton of research and have considered the following.
-start my own sole proprietorship as an owner builder remodeler
-get workers comp for carpentry at $2750/year to protect myself.
-pay people with 1099 or hire them as an employee if necessary. Both ways I will be paying piecework.
Question is regarding 1099. I called the state fund workers comp people and they said workers comp is mandatory in all cases if you're hiring someone. They said 1099 people ARE covered under my potential policy.
But online other people say 1099 people are not covered.
Which one is which ? Am I required to check for insurances and licenses if I am 1099ing people or is that unnecessary if I have my own workers comp policy ?
Are there other strategies I could do? Looking for very cheap day laborer strategies, the kind you find at home Depot or craigslist
I have to agree with @Matt M. on this one. Hiring licensed contractors (even a Class C license in Virginia which is "handyman") provides you the most protection. As another licensed contractor, I'd love to tell you how many messes I clean up in houses from fly by night hammer swingers. It's great money for me but sad for the home owners. If you're worried about the cost of labor, it would seem to me like you need to adjust your numbers to compensate instead of trying to save money on the back end. Not to mention a contractor will most likely provide a better quality product which will yield a higher ARV.
I have to agree with @Matt M. on this one. Hiring licensed contractors (even a Class C license in Virginia which is "handyman") provides you the most protection. As another licensed contractor, I'd love to tell you how many messes I clean up in houses from fly by night hammer swingers. It's great money for me but sad for the home owners. If you're worried about the cost of labor, it would seem to me like you need to adjust your numbers to compensate instead of trying to save money on the back end. Not to mention a contractor will most likely provide a better quality product which will yield a higher ARV.
Thanks for chiming in.
I can't tell you how many craigslisters and home depot day laborers I've hired that have done the job for 75% less ($10-15/hr) and gotten similar results to "professional"work. In fact, I've had more issues with the "professionals." Other BP users on similar threads have used examples of getting quotes for $1000's of dollars with work completed by these folks at fractions. Seems like a trend is for other BP's to use unlicensed for handyman work, but to only use licensed for electrical, HVAC, roofing, and other higher risk of injury roles. However, any handyman is using a circular saw, router, and grinder, which can take a finger off in a hot second.
It looks like 1099'ing people is an option if I get WC insurance, but it causes a problem because they would not be covered under my policy, even though it is required by law.
So, I'll probably take out a workers compensation plan to cover my risk and try hiring people on as employees.
@Philip Johnson could you 1099 them and buy your own workers comp insurance? I dont know if that is an option, but I might be something you can do
You're trying to save money and have no risk.... that's not possible. You either have to hire people that are covered by their own insurance, or take the risk of not doing that.
Thanks Jason! After much research it looks like I'll probably get WC insurance and pay them as employees. Thanks!
Agree with @Matt M. and @Ben Sears as well.
Here's just a few of the problems you can encounter doing this that could cost you way more money in the future:
1. Workers do poor/incomplete work -> could result in additional costs to correct those mistakes, tenant complaints, damage to your property, damage to neighboring properties, fire, and even potential injury or death to your tenant. Saving $60/hr versus 5 million dollar lawsuit for catastrophic injury/ wrongful death suit . . .
2. Workers have a criminal record you are not aware of, and assault tenant or neighbors. . .you're liable.
3. You do major repairs using them without pulling permits . . .good luck with your local city inspector on that one.
4. You form a LLC and pay them through the company . . .likely, your local state will audit you for not paying SUTA even if you try the independent contractor route, because you don't have a legal written agreement with the said worker defining such a relationship. States audit LLCs all the time looking for this.
5. Worker gets injured. . .good luck paying their medical expenses and liability suit.
@Michael S.
Not to mention these guys not having their own general liability insurance when something goes wrong..
About 10 years ago 1 drywall screw turned into an $11k claim (1.5 years after I did the job) on my GL insurance. I did some drywall and there was a hidden water line behind some insulation, took 1.5 years for the tip of the drywall screw to rust off and start to leak.
Anything can happen, and this damage won’t Be covered by anyone’s insurance when they find out you hired nobody’s off craigslist.
I regularly hire handymen off Craigslist and work with them on rehabs. I keep their total pay under $500 and have done an occasional i9. I would like to know how to protect myself as lot of these people are unlicensed handymen. I understand that I do not need a general contracting license to hire them as long as I don't allow them to sub out. Is there anything I can do to protect myself from liability ? I do have umbrella. I cannot LLC my homes because they are bank financed.
I am not looking for answers like "check all licenses and insurance" or "hire a general contractor" (expensive and they could have lapsed or fake info) because I do 80% of work myself and hire people when I need a second hand and am usually on the job with them ... Looking for creative ways to protect myself.
Hey Philip,
I didn't have the time to read through previous comments, so I apologize in advance if people have already covered these topics!
For the issue with wanting an additional line of protection from hiring other people to work on your properties I would recommend starting an LLC to function as an operating company. You can pay the individuals through the LLC, and should there be issues that insurance doesn't cover then the liability falls first on the operating company LLC. I know many investors who use operating companies to collect rent, pay bills, cover property management and hire contractors. You only keep enough liquid assets in the company to cover the expenses, but should there be any legal action against the LLC, it wont be a big hit to you personally as you are only risking the assets that are in it rather than the entire asset/property.
As for the issues with protecting the assets/properties themselves I would recommend looking into the use of land trusts, as explained in this article. Transferring a property directly into an LLC can trigger the Due-on--Sales Clause; however, placing the property into a land trust that is assigned to an LLC is protected by the St Germain Act. In the end the structure looks like this: property > land trust > LLC. As an added benefit, you can also remove your name from public record for that property as described in this article.
Just some thoughts! Let me know if you have any more questions on either of these strategies. I use them and know many other investors who use them successfully - these strategies just opens up more possibilities.
This isn't legal advice, just my opinion as a real estate investor.
Hi Scott,
Wouldn't just forming a "Shell" LLC to pay unlicensed handymen open the Owner up to Piercing Challenge due to being "Thinly Capitalized/Under Capitalized"?
It seems like potential "Shark Bait" in a legitimate injury suit, especially if the owner has exposed assets.
Or can you just legally dissolve it without a bankruptcy and take it off the judicial table regarding piercing or being an "alter ego".
Scott Mac...
I regularly hire handymen off Craigslist and work with them on rehabs. I keep their total pay under $500 and have done an occasional i9. I would like to know how to protect myself as lot of these people are unlicensed handymen. I understand that I do not need a general contracting license to hire them as long as I don't allow them to sub out. Is there anything I can do to protect myself from liability ? I do have umbrella. I cannot LLC my homes because they are bank financed.
I am not looking for answers like "check all licenses and insurance" or "hire a general contractor" (expensive and they could have lapsed or fake info) because I do 80% of work myself and hire people when I need a second hand and am usually on the job with them ... Looking for creative ways to protect myself.
Hey Philip,
I didn't have the time to read through previous comments, so I apologize in advance if people have already covered these topics!
For the issue with wanting an additional line of protection from hiring other people to work on your properties I would recommend starting an LLC to function as an operating company. You can pay the individuals through the LLC, and should there be issues that insurance doesn't cover then the liability falls first on the operating company LLC. I know many investors who use operating companies to collect rent, pay bills, cover property management and hire contractors. You only keep enough liquid assets in the company to cover the expenses, but should there be any legal action against the LLC, it wont be a big hit to you personally as you are only risking the assets that are in it rather than the entire asset/property.
As for the issues with protecting the assets/properties themselves I would recommend looking into the use of land trusts, as explained in this article. Transferring a property directly into an LLC can trigger the Due-on--Sales Clause; however, placing the property into a land trust that is assigned to an LLC is protected by the St Germain Act. In the end the structure looks like this: property > land trust > LLC. As an added benefit, you can also remove your name from public record for that property as described in this article.
Just some thoughts! Let me know if you have any more questions on either of these strategies. I use them and know many other investors who use them successfully - these strategies just opens up more possibilities.
This isn't legal advice, just my opinion as a real estate investor.
OMG scott, best thing I've learned on BP so far! I gave up on an LLC because of the pay-off requirement. I'll be looking into creating land trusts now. One more thing on my to-do list :)
If I did have everything in the land trusts under an LLC, there would be much less worry about exposure to my properties!
Do you have temp agencies out there in CA? Here on the east coast the temp agencies hire out day laborers. A bit more expensive than craigslist but less than hiring your own guys. They are covered by the temp agencies workers comp, they come with required safety equipment. Worth looking in to.
@Philip Johnson my commercial liability has a section for uninsured subs. Basically as long as I report them with my payroll amounts and 1099 them they can be covered.
@Philip Johnson Thats a tough question. As other people have said in this thread, you really are playing with fire in my opinion. The challenge is there is a huge cost disparity between hiring a non-lisc vs a lisc person. And if you do a lot of work yourself then it makes it even more "Gray" in your view because you basically are the quality control of the job.
I think the challenge in my view is that as someone stated earlier, not the work or the license issue. But the liability that could sink you. If you are knowingly doing something that is illegal, which this could be argued it is. Then no umbrella or insurance will protect you. Same goes with using a corporation, the corporate veil will be pierced if you knowingly hired this type of person and there was an accident or theft or bodily injury.
Especially living in the country of California where it seems there are more lawyers then people (I grew up in LA and my brother is a lawyer) the potential downside to me is not worth it. One mistake or issue could cause all that you are trying to build crashing down and destroy it. I am more of a conservative because i used to use the "Chuck in a Truck" but when I saw what the law did to other people that unknowingly got stuck in the middle of some serious legal issues with this and how it destroyed all that they were building for them and their family I decided it was not worth it.
Again just my personal opinion but something I would think long and hard because when the music stops it could be a rough landing.
Hi Scott,
Wouldn't just forming a "Shell" LLC to pay unlicensed handymen open the Owner up to Piercing Challenge due to being "Thinly Capitalized/Under Capitalized"?
It seems like potential "Shark Bait" in a legitimate injury suit, especially if the owner has exposed assets.
Or can you just legally dissolve it without a bankruptcy and take it off the judicial table regarding piercing or being an "alter ego".
Scott Mac...
Yes, there are requirements in order to make sure the LLC is a legitimate company in the eyes of the law. You would establish it to function similarly to a property management company and ensure that it meets all the requirements to operate in that capacity. It would hold it's own account and the bookkeeping would need to be orderly to ensure there isn't comingling of funds (don't use it as a personal checkbook...) It wouldn't act simply as a pass-through entity, but it would limit your exposure on the front-end by adding an additional layer of defense between litigation and the assets. In reality it increases the litigation costs and draws it out, eating away at the motivation of the individual suing.
I know many people who own businesses and restaurants who end up using an additional layer of LLC: LLC1 is for the operations of the company, LLC2 is for the actual physical assets and LLC3 is for the [IP] and brand. This way if any one of those aspects of the company get involved in legal action, the others shouldn't be impacted as long as they are running it all correctly.
For anyone following this thread or who runs into it, uPDATE:
Temp agency in my area who carries General liability and workman's compensation insurance charges the base rate + 1.75 burden rate, so min. wage $12 employee is $21/hr billed to me. They handle everything and I write them a check, so if I have a $10,000 labor budget, 475 hours is available to me for $10,000.
If I go through State Fund in California, I just found out they do have short term coverage options for a 3-4 month period. If the carpentry classification is 1/3 of the full year amount of $2850, then a 3-4 month policy for me will be $1000. So, for $10,000 labor budget, I would have 750 labor hours available @ the $11/hr minimum for employers with less than 25 employees comes out to $13 with SS and dis. which is 692 labor hours available.
So, next step I will apply to the state fund and let everyone know how much their short-term policy is for this carpentry category 5304.