So you’re in business, and the biz is design/build, or new construction, or tilesetting, or whatever. You have employees, payroll, an office, trucks, equipment, expenses, all of that.
You carry workers comp.
You pay yourself, right? Do you pay yourself a bunch, or just enough to satisfy the IRS requirements for business owners?
Does your WC cover you?
A high-performance single-family home builder shares tips from his early experience with two apartment buildings.
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Replies
I am subbing...mostly. Carry Lia. Ins.
Can't get WC ( my agent say's ferget it, I am sole prop).
I take all I get, and pay my bills...I am not incorp. anymore, my ex took that business..........
The other work I get, besides the main contractor I am working with, is cash, check..or now more and more barter. Barter is great, no filing of trade swapped..My wife introduced me to this community program...........it is cool. I fix a door, I get tickets to a show, or a meal at a great restaurant..........
Answer yer ?...yes, I pay myself..I have no employee's, nor will I. It's all I have to work with..why not pay myself? As far as Uncle Sam goes? I pay the least, and expect nothing from my investment in that which I reluctantly submit.
Gonna get some fan fodder for sure from someone..but, I am in a different situation than many "business" men...I ain't doing this to make a zillion $ and retire all fat and stuff, I like what I do. That's enough to cover the tangibles, and sometimes, the intangibles..when it's not enough..something always comes through. Mostly, in the nick of time.
Be on the edge, or get off..it's a thin line for all of us, but I enjoy the challange. If it was easy, I'd do something harder. Keeps me on my toes.
Spheramid Enterprises Architectural Woodworks
"I've..seen all good people turn thier heads, so, satisfied, I am on my way.."They kill prophets for profits"..And, that's...the truth.........phhatt
Our business is retail but I imagine it's not much different from other industries. We pay everyone else first - employees, suppliers, landlord, etc. We deduct the cost of our sales (materials) and payroll/sales taxes owed from the period, and the rest is profit. We are a partnership - we write ourselves a check and post it against the "owner's draw" account. Our Worker's Comp. only covers employees. Also, look out - you'll end up paying both the employee and the employer sides of Social Security taxes at tax time. Ouch.
"A completed home is a listed home."
Mine is a corp. I am an employee of the corp. As both, I am allowed to opt out of WC coverage. I pay self just enough wages to get by to save on FICA
before incorporating, I stll applyed the priciple of paying myself first, regularly, running the business like a business. But I could not get WC on myself that way.
In a preious incarnation , in CO, I had a corp and did cover my self with WC but I found out the hard way that they view injuries to owners very strictly - too much fraud happens in that dept. Same with unemployment coverage.
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they view injuries to owners very strictly - too much fraud happens in that dept. Same with unemployment coverage.
How can you get unemployment coverage for yourself? You just can't fire yourself and get unemployment benefit.
Here in Canada if you hire DW in your business they want you to pay E.I. (emploment insurance as oppose to unemployment insurance) but then you cannot fire DW and line her up for benefit. What a crock.
S-Corp here. I pay myself a salary, enough to satisfy everyone on the legal end. And the Corp rents a building from me and my wife for the shop so I reap some income that way without the deductions.
We are required as a Corp to carry Comp on all employees so I have comp too. I have paid myself the same salary I made (total of the two) teaching school. And the usual perks of company truck, cell phones,etc. DanT
In Colorado, when I closed things down aftere three years, and went back to work as an employee, I obviously laid myself off.
But then I went to the employment office to get leads on jobs to bring in the cash. they would not give me the job leads until I had an interview. I could not get the interview until I demonstrated that I was out of work. Long story short - it took two or three days of shuffling form one line to another to find and fill out all the forms to show that I was verifiably an EX employee with no compensation from my extinct corp. Then I was sudedenly eligible to apply for unemployment insurance. I told them i was not interested in the unemploymetn check, only in getting a job. Oh no you don't. You can't get help searching the job leads unless you are on the unemployment list so fill out the form buddy. Finally, I filled out the form and got a list of thre outfits in the area with contact numbers of who was looking for help in carpentry. Left the office at eleven and had a job by 2PM. This was ion the third daay of their runaround.The whole thing boiled down to this - the workers who were on the unemp list, already draweing or eligible to begin drawing checks are the ones they shuffled the jobs to. Their goal was to get people off the draw.
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
That explains why I CAN'T cover me for WC...here in KY. I have been turned down 3x? or more. General Lia. cost is 880 per annum at 1mil. per occ. not to exceed one claim per annum. Then it gets scary..
Spheramid Enterprises Architectural Woodworks
"I've..seen all good people turn thier heads, so, satisfied, I am on my way.."They kill prophets for profits"..And, that's...the truth.........phhatt
That's about what my liability was for the last several years, but the last two years I grew so much that it is up to around 2300 now, but I carry three million per with a high deductable
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
A business of the size you describe should be a corporation (or maybe an LLC). The IRS expects you to pay yourself a certain amount as wages, comparable to what others in your position make. Your accountant can tell you what that is (per my accountant, the type of work I do and the role I play requires me to pay myself what a journeyman carpenter makes). Pay yourself that much, and buy comp on yourself (because your health insurance is not likely to cover you for a work injury). Take the rest of the profit, if any, as a dividend, because you're the sole shareholder. The dividend is taxable income but you don't have to pay WC on it.
I'm an LLC for doing specs and real estate, but I'm a corporation for doing custom builds. In both cases, I take the sub-S election.
My guy advises me on the build-for-others side to pay myself $35K yearly. I'm not sure where he gets the number. It's what an OK carpenter will get here, but the good ones get double that. I want the number to be as small as possible, because the IRS and state treat compensation from owned business much less favorably than they treat my sub-S dividend income.
I cannot get my WC carrier to carry me, as owner. I cover myself with a very comprehensive package, which will handle a work-related injury.
Out here that figure is $27,800. Plenty of carpenters make more than that, but that's the number... not sure where she got it.
I'll admit ignorance on the IRS view of wages v. dividends. Is it a tax rate difference, or something else?
Here is how I was advised by my accountant and by the agent selling the WC. ( this is in Maine)
That I would be a fool not to opt out. WC will sell me WC coverage on self as employee and charge me for it, but as owner, they WILL make it woefully hard to colect on a claim. That I could take the same amt of money they would be charging me and set it aside for self-insurance, or buy a private policy at least as good as WC. that such a private policy could be deductable same as WC cost since it is in place of a standard , noirmal, and necess1ary business expense allowed as an option in this state. Keeping cash as self insured would be a taxable figure though, unless I found another way to set it aside, say in a SIMPLE IRA or a Roth IRA within all the peculiar quirks of each
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
New S corp here, with two officers and one employee.
Just visited with our insurance agent today. Have comp set up for the employee and are waiting on quotes for disability vs. comp for the officers. I'm guessing we will go with liability.
Hopefully this is not a hijack, but I have a question to throw out. Is there any ethical responsibility/selling point to customers/good sense legal protection for the officers to carry comp on ourselves? It's not in the cards for us to bring suit against the company/client so I really can't see any reasons to carry it for ourselves. Am I missing something.
Jon Blakemore
we're an s-corp.. when i was a sole prop... i was always the last one to be paid.. now .. i get paid the same time as everyone else
i'm covered by WC in the category of const.supervisor.. it's about 1/3 the rate of carps
Mike Smith Rhode Island : Design / Build / Repair / Restore
Mike,Have you considered a disability policy?My agents telling me that disability would be cheaper (we don't qualify for the const. supervisor rate yet) than comp PLUS is covers "work and play". If we got injured on the job health insurance would cover the medical bills and disability would cover the lost income.Does this sound right?
Jon Blakemore
If you have yourself covered for disability resulting from a work injury, that's a good thing. It's the issue I would have if I couldn't get comp on myself. I cut myself and needed stitches on my hand... working on my own house, midweek... and the admitting nurse went over and over the comp thing, like a broken record... really had to lean on them to take my private insurance card. I finally invited her over to my house to see the tools set up in the driveway, and to look at my pay studs, which had nothing to do with construction at the time. She declined the trip and signed me in.
jon... i had a disability policy when i was a sole prop.
i gave it up in that long recession we had from '87 to '95.. the premiums increased every 5 years... the waiting period was 90 days ( to keep the premium lower )
after i bought it and studied it for a couple of years , i decided to drop it..
since then i've changed my thinking.. i might have kept it and structured the cost into the business.. but at 60 years old, the premiums would be much higher, and my WC covers me for work related...Mike Smith Rhode Island : Design / Build / Repair / Restore
In Maine, a sole prop is not required to carry WC on himself. however the grey area is that a HO is the responsible party eventually if anyone is hurt on their property.Sure, it is not in your interest to be suing your customers if you cut a finger off cutting trim for the pet door on your chop box, even sometimes if the mangy mutt was jumping up on you as the cut began, cuasing the slip that mangled the digit.But suppose the HO hires a sole prop roofer, and he falls off the roof, breaks his neck and goes into a coma forever, more or less. There is the ethical issue. That roofer's widow may believe that the HO has her hubby covered on their ho insurance. her lawyer might think so too. The hospital taking care of him and looking for somebody with enough money to pay his caretaking bills might also be on the same track.Of course it is the HOs job to assure themselves that they are free of such entrapments by studying the contract language carefull for releases. I believe it is the contractor's duty to either place language there releasing the HO from any such responsibility or to have insurance that will cover ofr them all. some insurance underwriters request a copy of standard contracts in use by corps to help asign risk when writing policies.
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
Understood, but I'm not questioning whether we should hire subs that don't have comp. We will not be subbing to other for the most part so I'm not concerned about that issue.My question is should we as officers carry comp for legal protection of the HO or should we self insure or perhaps purchase a disability policy?Again, I don't see my business partner or I getting hurt on the job and going after the HO. I do wonder if it would be a point of contention with some Home owner's that we lack WC coverage for ourselves?
Jon Blakemore
That is the point I was adressing, though in a roundabout manner. Let me make it more personal for you.Suppose that somehow, a two by brace got knocked off on one of your jobs. could ahve been any of a number of reasons, even that the HO let his kids run through the site playiong football.
You show up with your clipboard in hand to meet somebody there. You step on a nail sticking out of the end of said brace. The pain makes you trip and you fall over. In the course of that fall, you knock the wall over that the brace was holding up. The wall falls over on you. as you throw you arm up to shield your face, still holding the clipboard, the falling wall drives it through your throat, killing you. Do you either have a WC policy with death benefits for your wife/partner or do you have a clause in your contract protecting yopur HO customer from any lawsuit your wife may choose to throw his way?
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
I knew I shouldn't have been carrying that clipboard!I appreciate your restatement, definetely some things to think about.We'll see what our insurance agent has to say next week when we meet again.
Jon Blakemore
Your WC should cover you. That is the greatest exposure you have, getting hurt on the job or on the way to or from the job.
Can't beat the lifetime medical of WC for that.
"I was glad that when everything finally hit the fan I was holed up in a little beer joint in Robstown, Texas called the El Gato Negro."
Or for the heart attack from OTJ stress...LOL
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
Good question, although corps (C and S) as well as LLC's (corp option) require the paying of salaries to employee's, including major shareholders.
Yes, as a sole you pay both sides of SE tax...but you deduct half above the line.
For those with good cash flows, you're right that organizing under an S-Corp can reduce salary and allow pass-through of excess earnings as dividends thus avoiding WC and FICA. But this leads me to my last point....
What is everybody doing for retirement?
I've head nothing about SEPs, SIMPLEs, profit sharing or 401(k)'s...or even IRA's. Or perhaps there's an expectationg for retirement cash-flows from rental properties. What are the plans for financial security once the work stops?
This must be part of 'paying yourself'
BruceM CFP
Sole Prop. Liability, no wc. I pay myself a salary. Predominantly static, but flexible if it has to be (i.e. a great month I might take a little more in a draw, one where all the AR are late I might take a little less).
"If you pick up a starving dog and make him prosperous, he will not bite you. This is the principal difference between a dog and a man." - Mark Twain
I'm an S Corp. I guess you'd say I pay myself "a bunch". Social Security threshold this year is $90,000. I can salary myself that much. Then I can put 25% of that salary into my SEP. All of us that are self employed need to discipline ourselves to put as much as we can into retirement. The only person that will take care of the old man that you will become is the young man you are today !
I billed out a little over $2 million last year. I also salary my daughter in college. She's a big help to my business, and her expenses become deductible for my business in this way.
As an S Corp., I'm personally going to pay the income tax for the Corporation anyway.
Greg