Another question I have is this. My husband is in a business relationship with a GC that we consider unclear. He works as a “sub-contractor” – he is a very skilled, high energy, ticketed journeyman carpenter with a couple of years cabinet making under his belt plus 10 – 15 years in all in this construction related business (possible bragging here – smart , handsome, (little joke)). So here is the deal. For three years he works for this guy – by the hour but as a sub not an employee. He has a truck many and much tools. He goes in and works at his jobs unsupervised, he leads other labourers (GC’s guys), he lets these guys use his tools when they do not have there own (most often), he deals with other subs, he builds – frames, finishes, installs windows, handrails, hardwood flooring, kitchens, bathrooms, even dabbles with the plumbing. He is a great PR guy – customers love him always – he solves the problems and keeps them happy while GC is running around with his head too full for his own good. So its been good in ways because we have small children and at the end of the day he is done – this has been the best thing. Plus no need to look for work ever.
So the disadvantages have come up in the money departement. We are making minimal dollars by the time we purchase and replace tools, pay for liability insurance, plus I have all of the paperwork as though we were self employed. Of course then there is no health insurance, no EI if the work runs out, no future plans for the company shared with this mere “subcontractor”, and no rewards for putting out the energy and skill – except for pay (which is good).
What is this relationship? Is it a usual one in this industry? Is it much of a way to make money? My husband keeps turning work away because it seemed like the money was there but every year end it really is not. I have encouraged him to take it up with this gentleman GP but husband says that he will just tell him to do his work on the side when he needs to – “just give me notice”. I gues its time to just do it – the work on the side. Its difficult because we know that this GP is always in a crunch and has more jobs than guys to do it. We are in a shortage of skilled guys in our area?
Whats the smart thing to do? How can I learn the business part so that he can get out ther and be a good builder.
Replies
Nicky,
This must be my lucky night, except you posted somewhere else first, but let me be the first (maybe) to welcome you to Tauntons University, Breaktime campus.
First click on the Business category Title on the left. After you have read all the pertinant posts on that menu, you'll see a "next 50" link at the bottom, click that and spend some time browsing the last 6 months or so of threads.
Then go to http://forums.jlconline.com/forums/index.php and peruse Estimating and Takeoff, Markup and Profit, and, Business Strategies.
Estimating & Takeoff has a library, check it out.
Paradigm360 has a forum.
Remember, behind every successful man, there stands a brilliant woman,
SamT
I'm guessing your husband is working for about the same wages as an employed carpenter, but is being treated as a sub and has many of the expenses of a sub without the higher rates a sub should have to cover overhead, etc. Might be time to raise prices.
For the IRS definition of employee vs. subcontractor, read here:
http://www.irs.gov/businesses/small/article/0,,id=115041,00.html
The (apparent) fact that your husband works for only one contractor makes it 99% likely that he is legally an employee, not a sub. The GC and your family may both be at risk for back taxes and penalties if the IRS looks into it.
"The (apparent) fact that your husband works for only one contractor makes it 99% likely that he is legally an employee, not a sub."
That in it'self is not enough, but a strong indication. I have gone long times with only 1 client. But this is not in construction. I get a spec and deliver a finished product and have my own office and equipment. The client has absolutely no control of how or went I generate that product.
The IRS had a an old "test" of 20 questions that I think is a little more helpfull that what they post now. But it is still not a simple pass/faill test.
http://www.peakconsultinginc.com/Articles/employee_vs_independent_contract.htm
But here are a couple of more that probably point to employee status.
"5. Does the business hire, supervise and pay the worker’s assistants? If so, this is a strong indication of employee status. Let the independent contractor pay his or her own assistants. "
"12. Does the business pay by the hour, week or month? This indicates employee status. See our comments at the end of this article on this issue. "
I agree with what everyone else said so far.
This 'relationship' is popular around my area and I think it's a bunch of sh!t. I went through it when I started out years ago. Now I have employees and subs and they all get taken care of and are appreciated for what they are.
Greg
Werner Building & Remodeling
Huntingdon PA
I dont live in the US, so am unfamiliar with your ways, but.......
That situation is one that means the GC gets everything his way, cheap, with minimal responsibilty.
I was in a similar situation until last year. I had most of my own gear ( with the exception of the big pricey stuff ), got sent all over town at my expense to finish jobs and handle "fiddly bits", ran jobs, organised subs when they turned up.............
But had the pleasure of being "self employed" on contract. All that meant was if the workload ever got slow, I was instantly out of a job with no obligations by the employer.
I figgured for all that I did on crappy money I would be better on my own and make more.
Now I am, and it is better.
Everything, 100% of it, depends on how you look at it.
DW
If hubby is working at the average hourly rate for a carpenter in your area, as a subcontractor, he is most likely making 20 to 30% less than he would as full time employee.
Just for grins, have him ask for a 40% increase in his hourly rate, and see if the GC wants to put him on payroll.
You know what is happening. Your family is getting used by a less tha ethical GC.
Find another GC, or as you are suggesting, kick start you own buisness.
Dave
We are making minimal dollars by the time we purchase and replace tools, pay for liability insurance, plus I have all of the paperwork as though we were self employed. Of course then there is no health insurance . . . except for pay (which is good).
Around my part of Texas, being a sub means making twice the hourly pay. Against that are having to pay all of the costs involved, which include tools, training, vehicles & insurance and the like.
I'm slightly concerned by your wording, you should not be filling out paper work "as if" you are self-employed, as sub, you are self-employed. That makes you subject to all of the compliance issues of being an employer. (One of the biggies here is that you owe for the "employer" side of payroll taxes--medicare & social security). Your municipality my require a buisness license for persons conducting business within the city limits, which may also require you to have a sales tax permit on file with your state (even if you make no tax exempt purchases). Being "too small to bother with" can be a comforting illusion until one's client/boss gets investigated or is drug through the discovery process.
Now, if I'm just misreading the words, never mind.
Your man is that GC's lead carpenter, plain and simple, and he is an employee, not a sub.
The GC your man works for is a cheapskate, and is on the wrong side of the law, IRS-wise and workers comp-wise.
A GC operating properly pays his lead carpenter an appropriate rate, contributes his employer share of FICA, pays the premium for workers comp, buys and maintains the tools, the work truck is the GC's and its operating expenses are paid for, he provides a cell phone for his lead, pays for a reasonable health plan, and offers a vacation and bonus package.
I certainly appreciate all of this information and perspective. For the record we are Canadian but it is safe to assume that the laws are similar. My hubby does make slightly more than he would as an employee (in wage) but yes we have considerable xtra expense - I think we come out behind. We have found with the occasional weekend work that people are happy to pay him 5 - 6 dollars more an hour for his time - we still charge no mark up for material on these jobs - I gues that means no profit, right??. I am going to learn as much as I can over the next months ahead and then I think it is time to move on. Hopefully we are okay at the legal end of things - the GC has expressed that his accountant says we are on the up and up, but yes, I am not so certain. This way is not supporting a very modest lifestyle and I gues that is the bottom line. What does a carpenter/skilled make as an employee?
Thanks so much - all of you,
Nicky
"What does a carpenter/skilled make as an employee?"
The way to answer that is to talk to some of the established, reputable contractors in your area and find out what your husband could make as a legitimate hourly employee with benefits. You might find that things got better financially if he went to work for one of his current boss's competitors.
There is frequent discussion here about wages for carpenter and the rates vary from ~$35 around Westchester County, NY, to half that in Dallas.
Hmm. Markup and profit. While you're over at jlc, look up the book by that name. I'm no student of Michael Stone, and I have some strong feelings which run averse to his decidedly utopian mathematical construct, but even at that, it's a pretty good book. What you will get out of it is not only how you define markup and profit and overhead, where they come from, how they apply to your business, you can find out one way of computing them.
I think the aspect of Stone I agree with the most is he does look at remodeling vs. new construction as totally different businesses. One is a commodity market, one is a service market. That I'm with 100%. That mentality is important in a business where it's very easy to look at the next guy who drives the same truck, uses the same tools, and comes home just as dirty. The way they do things behind the scenes - the books (your neck of the woods) - that's totally different. It may be of interest to you, but I take him like I take everyone with a sales pitch. You'll need a good filter to separate the message from the method of delivery."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
Why is he working as a sub for employee wages?? And if your husband is a sub, why is he running the G.C. show ( dealing with other subs, being a lead for the GC employees, etc). From your description of the situation, you guys are being taken advantage of!! BUT.......you are letting the GC take advantage of you.
Figure out what you want/need to make $/hr, and then start adding your overhead onto that ( auto, tools, taxes & lic. & ins fees, hlth ins, time spent doing paper work, hell even some vacation time, etc.) and then bill that as your hourly rate to the GC. I might even charge a different rate ( that means more) if I was "managing" his crew. If I was worth $15/hr as an employee, there is no way that I would work for less than $23/hr as a sub, and this number is just off the top of my head and is probably low!!!
Is work hard to find where you guys are located?? What about subbing for other GC? What about working as an employee?
Good luck
if he gets paid every friday the same amount ,does not give the general a receipt for work, does not do other jos ffor other people with bill he is probally not a sub according to revenue canada ( ask them ) also ask wcb I have been there on this one as a gc & dinged by them both .
I want to expand on what M2AKITA said: What about subbing for other GC?
This is a good idea for a number of reasons. I mostly sub out as a lead carpenter and am able to charge more because my services are being competed for by a number of GCs. It works out for them because they only use me when they need me. When schedule mishaps and slack periods hit a GC, a lot of money is spent keeping the talent on board. On the otherhand, I have as much or as little work as I choose because my network is large enough that down times just don't happen.
I would suggest doing the freelance gig as a stage toward doing your own contracting (if that is what you both want to do) because one learns a lot by being exposed to different GCs and different types of crews. It also puts one into contact with a lot more people who might come into play later.
Another reason the experience would be a stepping stone is because being freelance is a business, with scheduling, budgets and tax work requiring careful attention. I myself don't do much contracting because that work quadruples when you are a GC plus the fact that you are betting your income on estimates made with clients.
If the freelance thing turns out to be a hassle you don't like, then I would look for an employee situation where you clearly define how you will be compensated for expenses.
I can tell you that the arrangement that your husband has with his GC is likely illegal, it is also exceedingly common throughout North America. The contractors running their businesses in this manner know exactly what they are doing and they have no interest in adding your husband to the payroll nor will they adjust his wages to cover all of that overhead. The GC could potentially sub some work out to him though only things that are already being subcontracted, if your husband decides he is not happy with the current arrangement simply have him give his notice with no burnt bridges. Perhaps certain carpentry tasks such as decks, stairs, and cabinets might be subcontracted out now and your husband could position himself to bid on some of that work. If your husband leaves the GC will simply find someone else to take up the same position with the same pay & status it won't be difficult as many people in construction take this as a standard working relationship, illegal or not. My advice would be to save up 1 year's worth of living expenses and during that year pickup some clients of his own on the side as much as possible, than give striking out on his own a chance.
-Ray
Well, the kids are asleep, and the hubby - now the mama gets to put her head back into this business stuff. Thank you all for your perspectives - I have had many concerns validated and also have been given many new things to think about. I have comments to a couple of you and so will put them "to all".
The legal part - I had previously looked at in a book I have on taxes. The criteria information they give for employee vs. sub is great but it is not clear in the one particular book if all criteria have to be met or a couple only?? We have a G.S.T account, we have no employees and so pay nothing here, we carry liability insurance, we use our own van, trailer, and tools, and we do invoice however not by the job but every two weeks. WCB he pays and WCB told us that he should when we looked into this. My mom in law had a job/sub situation where RC came in and told her she was actually an employee and the issue was that she was using somebody elses space and computers (she teaches software training). Hence I thought the tools and truck thing helped set us apart in this way. Anyhow I had not been considering this legal aspect and so thanks to all for illuminating this issue. Are our accountants not supposed to be up on this info and so guide us or re direct us? And you know this guy deals with at least 2 -3 guys in this same manner. My hubby has been there the longest - three years and makes the most.
The economy here is excellent and the demand high for skilled carpenters. Three years and no breaks or lulls. However no money for holidays, health care - just enough to pay the bills. I have to give GC credit and say hubby is making $28. per hour. However, after expenses and taxes $30,000. per annual - I consider myself frugal and thrifty but this situation is not working very well for us. The odd side job has paid $35. per hour nobody even blinked. But....... maybe its only killing us because I am an at home mom. Maybe we just need to get a check on reality - one income can not support three at home. Before this GC was one that did not pay or changed the contract - added in work but never changed the pay. So we moved along and lost money and then hubby worked for a variety of GC's - big builder's (award winner types) who wanted him to work according to unit pricing (x dollars for casing one window) - well hubby is more of a quality guy and not so much a speed guy so that did not work so good either. So this seemed good untill now where the money does not appear to be there end of tax year. Our overhead is basic and now some bigger tools need replacement. We are definately not making a profit.
I will take the advice of the one who recommended I "talk to some of the reputable contractors in area to learn what hubby could make as an employee". Mostly I think we will gear up to go it alone. I have all faith in his skill and personal relations - I worry about the business end of things but think that we have what it takes just need the skills and knowledge. So - I will be here a lot , reading and asking questions. There is so much work here and I have no problem marketing hubby cuz he's good. Plus I have the advantage of networking always with moms as my kids are 1 and 3 - play groups , playgrounds, - here we come.
Plan is to learn like crazy and get ready to go in the spring. The job he was going to turn down in the early fall we are going to persue (its a two - three weeker) GC has always said "if the money is not good enough here feel free to do your own jobs - just give me notice" - his way of keeping us in our place I guess. And you know I really like this guy - just think he does not get the human resource part of things. I hope when we make it big we will take good care of subs and or employees and "appreciate them for what they are".
I like the advice from PaineB - all good ideas. Same with this last post. All of you.
Now I wonder if since I have exposed the dollars and cents you're all going to think I am out to lunch. But you know - I gues business is business and the company has to pay the bills plus make a profit. We are not. These are Canadian dollars that I speak of - is it relative a little, or not at all?
Dieselpig recommended reading last months remodel mag article "closed for Business" Is this still available on the shelf? If no then how do I get my hands on it. Also going to read "Mark up and profit" "contractors Legal aid kit" and "The E Myth" - none of which are available at the library, I wonder why?
My father thinks good builders can't make it - just the business guys that play hard ball and are not so worried about the mitres, materials, and quality. I beg to differ. Any rants to rave on this one?
Nicky
A. Hubby has to expand his base. If anything bad happens to the GC, your family is screwed. Expanding his base will also expand his oppertunities.
B. The GC may be a nice guy but, this is business not a church social. You are allowing him to take advantage of/ exploit your generousity. Until you realize that, regardless of what books you read or other research you do, you are going to be living check to check.
C. Are you getting paid for your work in managing the biz end of the company? If you don't calculate your value into the cost equation you're not giving the company a thorough evaluation and not arriving at the true cost of doing business. The companies that remain in biz for many years and consistantly demonstrate an abililty to perform and grow, charge and get paid for ALL their costs. If your husband isn't charging the clients for your time, then he is paying for you out of his pocket which means he's not making $35/hr Canadian. The fact that you two are married and live under the same roof is not a savings that should be passed on to the customer.
D. If client are not blinking when you submit a weekend price at $35/hr, raise your rates. Can you say 'What the market will bear"? Again, this is biz. You're not looking for friends, you're looking for work. Being friendly though and running a biz are not mutually exclusive.
E. What are you thinking in not charging a % on top of material cost? Think again.
F. You must have a line item for O&P. You don't have to show this line to the Client, but it must be there AND must be treated appropriately
G. I love the way you and your husband work as a team. You compliment each other's assets well. Got any sisters?
F.
Edited 8/16/2004 1:50 am ET by Frankie
For are American friends it might be clearer to let them in
on the abbreviations.... RC(revenue Canada)=IRA
G.S.T.=7% federal goods&service tax
Is the $28 including G.S.T.?
A $22-$23 a hr. employ would cost the GC $28 a hr. if he has not had
a serious hit with WC.
regards
Nicky,
While I don't have an issue with a stay at home mom and appreciate its benefits you might consider working part time for a while to save a little nest egg. Even during the first year.
I just think it is tough to weather the dry times you will hit during the first year or so and certainly think you should have some savings to back you incase of injury etc. Just my thoughts. I do think it is great that your husband has so much support. DanT