Hiring full time vs 1099 for construction help

9 Replies

I'm considering a full time employee to help with a renovation on a 1100sqft, 3 bed, 2 bath house I bought with a lot next to it on which I plan to build a new duplex in Fayetteville, NC. I can do all the work myself but it's a lot and another set of hands would be great to keep things on time.

What are the pros and cons of having a full time employee versus a contractor who I hire on a full time basis? Obviously health benefits and tax payments are factors. I want to be fair to the employee, have someone trustworthy who will stay around, and make sure that I'm doing things legally and ethically. I'm thinking the work will take slightly less than a year if that makes a difference.

Employees Come with a lot of hidden overhead. Workers compensation insurance, payroll taxes, benefits. Then on top of that your business end you'll probably need a EIN and then probably need the proper liability insurances and licenses on a local level to some degree. 

Probably not worth it to hire a full time employee to renovate 1 house, if you're flipping houses full time then I could maybe see it.

According to the SBA the total cost to an employer of a full time person is 1.25 to 1.4 times his salary.  https://www.sba.gov/blog/how-m...  The investors I know all hire subs or 1099 employees.  One thing to be watch out for is how you treat the contactor.  I don't mean things like treat him with respect, etc.  That's a given.  Its things like telling him when to show up and when to go home, telling him exactly what to do and in what order, supplying tools.  If you do then the labor board and the IRS could consider him an employee.  https://www.score.org/resource...  And then you can run into all sorts of problems like if he worked more than 40 hours did you pay him OT, do you have workman's comp, did you pay FICA and withholding taxes to the government.  

Not sure how much experience you have doing a greenfield project but 2 guys building an entire house is really big undertaking, even if you sub out the trades.

Best of luck.

@George W. This is honestly what I was thinking as well. I'm considering it because of the hiring crunch and I like just being fair. It would be a renovation and a new construction for a duplex with possible follow on. Someone suggested a temp agency which I didn't even think about and will pursue now. This is such a great forum! Thanks for the feedback.

@Jim Kalish this is good feedback. I've heard the restrictions and tricky distinction between employee and contractor. I try to keep things flexible enough to avoid Issues.

I've not done new construction but this 4th renovation and the duplex will be my 5th/6th door. I like the work and totally understand that I'm biting off a lot. I'll definitely how a few extra hands for some of the work but I was hoping to have a full timer to help out.

Travis,

The IRS, your Insurance company, and the State Workers Comp. board will all have "Tests" to determine who is a subcontractor and who is an employee.  The tests and determination could be different in each area.  If you are going to use Subs, review with your Attorney, CPA, and agent.  A lot of it boils down to who directs the work and how much control you have on how the work is done.  You may need to do things like:

1. Contracts with them

2. getting proposals from them

3. Paying by the project

4. Keeping proof of their Liability & Workers Comp. insurance

5. Keeping business card, advertisements, etc.

6. Record other companies/persons they have worked for

7. get copies of their contractors License (if required in your state)

If they are doing the same work as you, it may require more documentation than if they are an Electrician, Plumber, etc. that you hire for a specific part of the job.  

@John Mocker this is a much more detailed list than I've received. Thank you very much for the feedback. I'm going to check into a temp agency as well and I'm hoping there's a good balance there for some of the issues I'll have with an employee and not having the economy of scale of having multiple employees. Hopefully their costs aren't prohibitive.

Travis,

Another option you may have is to hire one contractor to act as the General Contractor.  Have them hire the labor for the project.  Make sure they have General Liability and Workers Comp. coverage.  I'm sure that the cost is more than hiring the employees/Subs yourself but it may be less than the Temp agency.  Talk to your agent, atty, & CPA before deciding.  There may be differences in the Workers Comp laws and tax code that would make one option better than others.  Good luck on your project.

@Travis Yeagley

Do you have the portfolio size to make it worthwhile to have employees?

If you have employees, you need to register for employment taxes, file payroll returns, issue W-2's, potentially provide benefits, pay payroll taxes, etc
The benefit for having employees is that the overall cost would be lower(you are paying a person in bulk) over having to pay for payments to a contractor over a year.
The other added benefit is that you have one reliable person as your go to instead of having to go through a third person to get work done for you(in which case he may have other work ahead of yours).

@Basit Siddiqi I'm mainly interested in the idea of having one person to go to and then just hire a few extra hands as needed. I don't have a big portfolio, just lots of work to do in the next 9-12 months. I like how you put it about paying someone in bulk versus multiple payouts. I don't have the size to achieve economy of scale for an extended time but I do for the next year.

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