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Friday's Ask the Experts: Insurance for subcontractors

February 19, 2010
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Friday''s Ask the Experts question from a cleaning professional on the International Custodial Advisors Network(ICAN) "Ask the Experts" page: I need to be affordably insured and bonded. In trying to do so, I''m running into many technical brick walls. The insurance laws in Georgia have changed.
My cleaning company doesn''t intend to go the employee route, but instead use subcontractors. We call our simplifying of the business process, "employee responsibility."
However, subcontractors will be treated as employees for the most part, which will require a number of insurance requirements that makes starting the business unaffordable. Is there any way around this?
The answer
Whoa! Before you make another move, get on the Internal Revenue Service (IRS) website at http://www.irs.gov/businesses/small/article/0,,id=99921,00.html and read that page and all the related links, such as the one discussing self-employment and what constitutes an independent contractor.
Why? Because the IRS looks critically at misclassification of workers and has stiff penalties for the company caught doing so. When you say that your "subcontractors will be treated as employees for the most part," what you really mean is that they will not qualify as independent subcontractors, but are really, in the eyes of the IRS, employees.
One of the basic differences is that qualified subs are true independents. They are subject to self-employment tax, and may not be treated as employees, who you tell what to do, when to do it, how it will be done, and supply the equipment and means for accomplishing the result. Once you treat them as employees ... — Lynn E. Krafft, ICAN/ATEX editor
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