hiring a mechanic, employ him or sub-contract?

[Tomas8]

Once I get an idea of what profits my business generates, I plan on upgrading to a space with room for an install bay instead of simply doing retail. I was planning on paying the mechanic based on the jobs he accomplishes, using a 60/40, 70/30, etc.. split on the labor, which is typically about $60/hr. So, it would effectively be commission based.

However, my friend has planted an idea in my head to sub-contract him out, thereby relieving me of unemployment taxes, medicare, etc.

Can anybody give me specific information on the pros/cons of this decision? I haven't researched sub-contracting so its all new to me.

Thanks,
Jimmy

[Dalen]

I would contract him if I were you. Your friend is correct, the only paperwork you need at year end for a contractor is a 1099 ... that takes 10 minutes to file.

Not really any pro to having an employee except controlling where he works and the tax deduction. But you have all the tax filings and the withholdings to figure.

[Tomas8]

I was researching and found..
http://www.ftmn.com/Employee.html

Its a checklist for deciding if someone is indeed a contractor. There's a couple areas where I think it could be sketchy. However, If i let him come and go as he pleases, only needing to be there when there's a task, I think it could be done.

Is the IRS very strict in this area? Any tips?

Thanks

[pps.llc]

Years ago, no one cared much.... Then in the mid eighties, enforcement became a bigger deal. Today, one has to be very careful.... Its like walking around with a target. But a lot of it is state related. Eg, once the state makes a decision, they may or may not share with the feds, if they do......

The cons are having the IRS come back in, and tell you he is an employee, and then hitting you for taxes and penalties. Then the state comes in and does the same, followed up by UI, and then after that, you may get hit with major fines for not having workmans comp.

There are a bunch of fed critiria, although the states are generally more strict as far as 1099 or W2 status.

In my state:
1. you do not want him working at your place of employment, at least not on a consistant basis.
2. He must have multiple customers
3. He must be under his own P&L, eg he can fail
4. You cannot control his work, eg time, where, what
5. You must contract with him as a business, eg hourly usually makes him an employee, but not always.
6. He must appear as a business entity, not as an individual.

There are more, but I think you get the idea.

There is some grey for sure, eg, some combinations are ok, eg he works at your place, but he runs his own business, otherwise, we would be in big trouble hiring sole proprietors, say a painter, plumber, or the like......

The safest is to run the plan past your state govt for a determination of status ahead of time.

Ron