Some landscaping companies may rely on subcontractors if they need special expertise on a project. Working with subcontractors presents a new set of risks, though.
The IRS has strict rules about who is an independent contractor rather than an employee, Troy Sibelius of Buckner said. If landscapers have agreements with subcontractors that don’t meet those requirements, and a subcontractor is injured on the job, “the subcontractor can very easily come after them and claim that they were an employee of the landscape contractor, and they want them to pay for their workers’ compensation injuries.”
Here are some tips for protecting your business when working with subcontractors.
Get it in writing. Make sure you have a signed agreement with each of your subcontractors. “Don’t go out and hire them and say, ‘Here, I’ll give you $50 cash.’ They need to have a written agreement with them,” Sibelius said.
Talk to your insurer. Have a conversation with your insurance agent to make sure you have the right amount of coverage, and “absolutely make sure that the subs have their own workers’ compensation insurance.”
Pay the right person. It sounds simple, but Sibelius said one of the biggest things he sees is writing a check to an individual rather than a business. “If I hire a subcontractor, and I write a check directly to Joe Smith rather than to his company name,” that automatically does not meet one of the IRS guidelines for who is a true independent contractor.
Get help. The IRS notes that “there is no ‘magic’ or set number of factors that ‘makes’ the worker an employee or an independent contractor, and no one factor stands alone in making this determination.” The agency recommends that businesses that continually hire the same type of workers for particular services consider filing Form SS-8, which the IRS will review and provide an official determination of a contractor’s status.