It’s Labor Day! Usually we like to keep our communications pretty light around here. But something has been weighing on our hearts and since our ultimate goal is to make sure y’all are informed about various hardwood flooring and home renovation topics, today we’re going to write about a dirty little secret in the world of contracting. This is certainly a rampant issue in our specific trade, but not exclusive to flooring or Louisville or even Kentucky. This is a nationwide problem. What are we talking about? Employees versus “independent contractors”. Don’t glaze over on us now. This is SO important for you to be talking about with the companies working in your home or business, both for moral reasons and for practical/quality reasons.
First, let’s break down what we’re talking about here. Workers who receive money from any company, large or small, fall into two categories. The first is the one you’re probably most familiar with: an employee. Most people in the United States receive a paycheck from their employer, taxes are withheld from your check which are submitted to the various departments of revenue (Louisville Metro, Commonwealth of Kentucky, State of Indiana, the IRS etc), and at the end of the year you receive a W2. In addition to the taxes your employer is withholding on your behalf, your employer is paying additional taxes to employ you. They are paying half of your taxes for Medicare/Medicaid/Social Security, they are paying workers compensation insurance premiums in case you are hurt on the job, they are paying unemployment insurance premiums in case you are laid off, among other things. These little extras add up to quite a bit annually but they protect you, the employee. Because all these numbers are getting reported to the government, these employers are also careful to pay minimum wages and report those wages accurately. Employers can be audited for both wages and hour laws (making sure you’re getting overtime pay if you work a lot of hours, for example).
The second type of worker is an independent contractor. These folks aren’t considered employees of the person paying them. The person paying the contractor does not withhold any taxes nor are they paying any of these extras mentioned above. The independent contractor will pay double the Medicare/Medicaid/Social Security tax (‘self employment” tax) and at the end of the year the companies they’ve worked for will issue “1099” statements to the IRS with the amount of money that contractor was paid.
Now, Jacqueline, you’re probably thinking, what does any of this have to do with me and my hardwood floors? Plenty, actually. The IRS has pretty strict rules about who can be considered a contractor and who must be considered an employee. And a lot of home improvement contractors don’t understand and/or give a flip about those rules. They call everyone working for them an “independent contractor” even if those folks don’t meet the definition, effectively screwing over the tax man AND the person who is working so hard in your home. Not cool. These companies are able to charge less and make more money so their bids might be a lot lower than a company doing things the right way.
This becomes even more nefarious when we consider a lot of hard working people in our trades may not be legally permitted to work in the United States. We will leave the politics to the politicians, but hiding undocumented workers behind 1099s and fake social security numbers is considered by many to be a modern form of indentured servitude. It also drives wages down for citizens and legal residents who are trying to make an honest living and in some cases even takes jobs away from those legal workers. These undocumented folks are usually not being paid minimum wage and they have ZERO protection that other workers are entitled to in this country. If they are injured while working in your home they may be able to file a claim against YOU and your home owners insurance. Proper taxes that support our society aren't being paid. This is not good on many levels.
Where do you come in? Easy. Before hiring any company, you need to ask if the people who will be working in your home are W2 employees or 1099 contractors. There are valid reasons for a 1099 contractor. For example, sometimes we will subcontract with a trim carpenter who is going to do a much better job on complicated trim in your home. We don’t tell that guy how to do his job. We make sure he’s insured and background checked and give him the guidelines for the finished work he is to perform. But he isn’t our full-time employee. He has his own company and we’re just working with him temporarily for his expertise. But you want to make sure that is the case. Is the owner of the company you hired on site regularly and tell the workers what to do and how to do it? That doesn’t sound like an INDEPENDENT contractor. That sounds like an employee. And if the employer isn’t paying their workers appropriately, this hurts everyone except the greedy employer.
We are proud to be employers who pay our employees more than a living wage for this market. We make sure they have the legal protections required by the Commonwealth of Kentucky and the Federal Department of Labor. We are a small, family owned business, and we care very deeply about doing things “right”. We are often angered by those who choose to skirt the law and hurt the very workers who make their business possible and what’s worse they can afford to underbid us with their cheating.
This Labor Day, we implore you to think about your values. We bet they’re the same as ours because we’re here living and working in the neighborhoods of Louisville too: hardworking people doing skilled labor deserve a fair wage and respect from their employers and you as a taxpayer deserve to have everyone – especially successful businesses—paying their fair share. Don’t support employers with shady business practices. Let’s make sure everyone who works is getting paid appropriately!
Now carry on. Enjoy the last day at the pool and all those family reunions!