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W-2 is the right way to do business

Giving your employees benefits will benefit your company By John MacFarland

1 May, 2024

I can assure you that nearly 100% of Painting Companies that use subcontractors for painting services will not meet the criteria. Whereas subcontracting pressure washing, window glazing, or plaster repair as part of a painting project would likely pass the test.

Additionally, in 2024 the IRS will be hiring 20,000 new agents and has projections to generate $800 billion in revenue. This revenue will be generated from fines and the underpayment of taxes. At 15.3%, FICA tax from misrepresented “Employees” will be the lowest hanging fruit for the IRS.

If the fear of fines and punishments is not enough to sway your opinion on your operation model, hopefully, the benefits to clients, employees, and the overall culture of your business will be.  

Crew Leader Most business owners started on the brush and the biggest stress was if a client would appreciate your efforts, or work slowing down in the winter. Congratulations, you were successful, and will refer to the old days as carefree and fun. You are now carrying the serious pressure of supporting people financially and emotionally. The wants and needs of the workforce are different than 20 years ago. Work/life balance, benefits, and a sense of fulfillment have become equally as important, if not more important, than income alone. Your job as a business owner is to design SOPs that allow for increased efficiency while keeping prices competitive and profits in line. This can be done while providing high-value benefits to employees, it just takes some work on your end.

The kind of people you want to work with will not be the type of people comfortable filing for bankruptcy and since medical debt accounts for two-thirds of bankruptcy filings, access to medical Insurance needs to be part of your compensation package. Short-term/long-term disability is also an incredible benefit that we added several years ago. This has become the most valuable benefit for our staff, and I said “no” when the idea was originally pitched to me. In the few years since we began offering it, we have had staff use it for everything from a cancer scare, broken ankle, motorcycle accident, and a blood infection caught while salmon fishing that got out of control. All of these employees received 66% of their pay while recovering and the claims process was very simple. Our cost is one-fifth what it would have been if purchased privately by the employee. No one got behind on bills, drained savings, or lost a house, and THAT is great for morale. 

Retirement, tax liability, 401ks, and Roth IRAs are generally not areas of expertise for your average painter, but you do not want to hire the average painter. Your goal is to add dynamic people to your team and keep them. They want to be sure that they are joining a team worthy of their 40-hour-a-week time investment.

Having benefits in place is just the beginning. As the business owner, you have an obligation to your staff to ensure they are getting the most value from their employment. Two years ago, our financial advisor came to meet with a group of fairly young staff that had just become eligible for our 401k/Roth IRA plans. He was fighting skepticism from the room.
“How is this better than the latest Crypto investment and what’s the catch.” His response was simple: the company's match is an immediate 100% ROI before growth. It only took a simple chart to show compound interest beginning at 25 years old to sway the room. Without that education, our program would have surely gone underutilized.

The Team!

Other financial wellness benefits can be offered to employees at no cost to the employer. We strongly encourage our staff to utilize someone from our CPA firm for their tax returns. The firm has amended returns, reduced tax liability, and laid out personalized plans for the future, without costing the business a dime. They advise on increasing retirement contributions to reduce taxes and have successfully convinced our team that the do-it-yourself tax prep approach is costing them thousands of dollars. With just one quick email, we were able to get a loan officer from our bank to come in with bagels and coffee to put on a very quick 15-minute presentation on the benefits of home ownership vs. renting. He answered questions about down payment requirements, appraisals, and home inspections in a very laid-back environment and the team loved it. This education creates a culture of educated, confident, and financially stable employees and the value is incalculable. 

We also strongly encourage the utilization of split direct deposit from our payroll vendor and coach individuals on how to stop living paycheck to paycheck. We had a crew member who set his primary account to receive the first $2,000, and everything over that was automatically dumped into a secondary account that was held at an online bank paying 5% interest. Large paychecks from the summer flowed into the second account and after about a year and a half, he had more than enough for a downpayment on his first house and frankly was astonished at the account balance. In February he purchased a larger home, closer to our office, for his growing family. These are the success stories that are impossible to realize without the ability to assist and coach employees.

There may be a very small percentage of readers who can check off all of the legal requirements to utilize subcontractors and will continue to do so. I do wish you the best. If you are above board legally and you feel very strongly that that model is right for you, then you will likely succeed. What you will not realize is the overwhelming sense of accomplishment that can only be felt by really impacting lives. When you adopt the W-2 model, your workforce will consist of stable, happy, motivated people who think of you as more than a source of income. You will be invited to weddings, kids' birthdays, and housewarming parties, not because they feel obligated to invite their boss, but because they consider you part of their family. To me that is invaluable.


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Does your company own at least one AED/Automated External Defibrillator?


Did you attend any in-person paint industry events in 2023?


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