I've recently started my own cleaning business and I am trying to find the best way to go about having the people that currently work for me to pay for their taxes.
I just started, therefore, I do not have much work for them to do, but they have completed a couple of hours for which I paid them for and kept record of the amount. My original plan was to give them a 1099 so that they can do their own taxes at the end of the year. Assuming that work will continued to come, their pay will increase and I would like to get some advise as to which way is a better way.
I recently opened my own business account and the bank offers free payroll and direct deposit and I was thinking that it may be better or easier if I can just treat them as employees vs. independent contractors. Also, what about insurance, liability insurance, would that make a difference if they are my employees or contractors.
Correct me if I am wrong, but if I do decide to withhold taxes and treat them as employees can I still send them 1099 at the end of the year for the money that I had paid them? I know this is a lot,but I need an advise.

Thanks!

Ok, you can't just decide which to do, they are either a 1099 worker ( not an employee but a independent contractor) or they are an employee.

next as an employee the only extra tax you pay wll be the 7.5 of the social security and the unemployment tax. The rest of the taxes are just their money you deposit into separate tax accounts and forward to the proper authority.

But as a contract worker, they can not get unemployment and they also have to pay the full amount of the self employed tax. So they will expect a much higher rate of pay, you can not pay them the same as you would an employee and expect them to work. Since they will need to save back at least 30 percent of their money for taxes. So ifyou were going to pay them 10 dollars a hour as a worker, you have to pay almost 13 dollars to give the same value in pay.

next the IRS has specific rules as to who can be or who can't be a 1099 worker In general a 1099 worker is not an employee, but are basically self employed. You have a lot less control over them,

I would say you are in serious trouble at this point not knowing this and not knowing all about how to properly hold taxes out.
You may consider using a temp agency to hire all the employees through, you pay a fee, but they do all of the background checks, they do all the taxes and some can even offer health benefits.

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Originally Posted by jterryva

I've recently started my own cleaning business and I am trying to find the best way to go about having the people that currently work for me to pay for their taxes.
I just started, therefore, I do not have much work for them to do, but they have completed a couple of hours for which I paid them for and kept record of the amount. My original plan was to give them a 1099 so that they can do their own taxes at the end of the year. Assuming that work will continued to come, their pay will increase and I would like to get some advise as to which way is a better way.
I recently opened my own business account and the bank offers free payroll and direct deposit and I was thinking that it may be better or easier if I can just treat them as employees vs. independent contractors. Also, what about insurance, liability insurance, would that make a difference if they are my employees or contractors.
Correct me if I am wrong, but if I do decide to withhold taxes and treat them as employees can I still send them 1099 at the end of the year for the money that I had paid them? I know this is a lot,but I need an advise.

Thanks!

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I appreciate your response. As I mentioned, as of now we do not have a lot of work so I will continued to pay them hourly as independent contractor and get them a 1099. I honestly think that I am paying them enough to classified them as independent contractors. I check with other companies that pay their employees $7 per hour to do maid services and I am paying my two employees $15 per hour.

You need to speak to a CPA, you may need to get a tax number etc. Also you need to file papers with the IRS and possibly other gov agencies on a regular basis. Check out www.sba.gov also for more information.

There are difinitive rules for determining whether someone is an independent contractor or an employee - simply having reduced hours is not enough to classify them as either.

How much control do you have over where/when they work for you, how much time they spend working, the quality of work? If you have a significant amount of control you could be considered an employer.

You should contact your local labor commission office for your state and they can issue you information on whether someone is an employee or independent contractor. This is not YOUR choice to make. The laws are clearly defined and if later they are determined to be employees they could ask for all sorts of extra money later if you fail to pay on time.

I'd play it safe and go through a temp agency.

If you pay an employee via a payroll check by withholding taxes; the tax forms you have to use are W-2's and everything becomes more involved; you are much more involved, in their lives than you would be if they were basic independent contractors; in which case the tax forms are 1099's. If you are going to treat them as employees you need to set up employee files, get their information and tax withholding forms filled out by them. Then there is unemployment taxes, social security taxes, tax deposit deadlines that you have to meet depending upon the amount of your payroll. Quarterly tax reports and deposits, year end payroll tax reports, W-2 typing, reconciliation of payroll accounts and a lot of good old tax return stuff too. There is now bookkeeping involved; gaining employees versus paying an independent contractor their part of the cleaning that you collected for. If you pay an independent contractor; you simply have an expense to write off at year end.
But other laws come in to play when using an independent contractor. They are NOT employees and therefore can take their lunch, come and go as they please, etc.
You should consider speaking with your CPA or Tax Consultant before making any decisions though.