Ask HN: Hiring an Employee in a Low Income Sole Proprietorship
4 comments
It doesn't sound like you can afford an employee, even if the cost of payroll taxes and such were zero. You can barely cover a consult with a lawyer and accountant to understand the labor laws and get payroll set up. $200-300/month just doesn't justify that kind of paid help. If you wanted to invest some of your money to have him do something for you, it'd more realistically be as an independent contractor, not as an employee.
If you feel bad about having him do work on your side business un-compensated, and can't afford to compensate him what you feel he's worth, the only right thing to do may be to not have him work on your side business. Perhaps you can repay his volunteer efforts so far by helping him start his own business or project of some sort.
Careful with the volunteering thing either way. If someone's treated as an employee, and doing the work an employee would do, they are owed minimum wage, no matter what you each call the relationship. The IRS and state want their income and payroll taxes.
If you feel bad about having him do work on your side business un-compensated, and can't afford to compensate him what you feel he's worth, the only right thing to do may be to not have him work on your side business. Perhaps you can repay his volunteer efforts so far by helping him start his own business or project of some sort.
Careful with the volunteering thing either way. If someone's treated as an employee, and doing the work an employee would do, they are owed minimum wage, no matter what you each call the relationship. The IRS and state want their income and payroll taxes.
Hi Dan, thanks for the reply!.
Back in 2006 I ended up starting an LLC (nieve young man that I was), but didn't end up getting my business taxes done by an accountant until 2008, and I ended up shuttering the LLC aspect of the business shortly thereafter because of the automatic $800/yr that California charges in taxes for that privilege.
In mid-2010 I started the software business (first time I had gone that route, prior to this with the LLC it was mainly work creating websites for other local businesses which never amounted to much since our area just isn't very tech savvy and I didn't market myself online). This I can say was my first real success (in that I was able to create a mini-business that actually resulted in some profit at the end of the year) and I've been maintaining that ever since, but it hasn't really grown much over the past few years (though updates have been put out, I haven't developed as many of the new products I had ideas for, primarily because the day job eats up so much of my energy and pays the bills).
My goal though is to eventually build up that mini-business enough where I could provide a few local development jobs and maybe start building up that sort of industry locally, since our location doesn't really matter when we can market to the world at large :-). (Our county has the highest unemployment in California at about 25%).
As far as the lawyer/labor laws stuff, I do believe you're right there, though I was hoping a new service like Zen Payroll would allow me to not have to worry about those sorts of things and just worry about getting money to/from the employees.
You're also right that $200-$300/mo doesn't really justify paid help, to a degree, but since I have my day job and can't put a lot of energy into the software business, getting some help to build out those ideas for new products wouldn't be a bad idea.
Right now he's volunteering to gain experience, but as I've decided to do a few small contracting development jobs recently (mainly to earn some extra money for the business so I can give him something) I'm giving him some of that extra money and paying for the lunches we're having together as an additional thank you. So far I haven't given him enough to justify making him an independent contractor and doing any W-9 stuff, but I'd definitely like to do more for him if I can, I'm just looking to see what the best options might be.
Back in 2006 I ended up starting an LLC (nieve young man that I was), but didn't end up getting my business taxes done by an accountant until 2008, and I ended up shuttering the LLC aspect of the business shortly thereafter because of the automatic $800/yr that California charges in taxes for that privilege.
In mid-2010 I started the software business (first time I had gone that route, prior to this with the LLC it was mainly work creating websites for other local businesses which never amounted to much since our area just isn't very tech savvy and I didn't market myself online). This I can say was my first real success (in that I was able to create a mini-business that actually resulted in some profit at the end of the year) and I've been maintaining that ever since, but it hasn't really grown much over the past few years (though updates have been put out, I haven't developed as many of the new products I had ideas for, primarily because the day job eats up so much of my energy and pays the bills).
My goal though is to eventually build up that mini-business enough where I could provide a few local development jobs and maybe start building up that sort of industry locally, since our location doesn't really matter when we can market to the world at large :-). (Our county has the highest unemployment in California at about 25%).
As far as the lawyer/labor laws stuff, I do believe you're right there, though I was hoping a new service like Zen Payroll would allow me to not have to worry about those sorts of things and just worry about getting money to/from the employees.
You're also right that $200-$300/mo doesn't really justify paid help, to a degree, but since I have my day job and can't put a lot of energy into the software business, getting some help to build out those ideas for new products wouldn't be a bad idea.
Right now he's volunteering to gain experience, but as I've decided to do a few small contracting development jobs recently (mainly to earn some extra money for the business so I can give him something) I'm giving him some of that extra money and paying for the lunches we're having together as an additional thank you. So far I haven't given him enough to justify making him an independent contractor and doing any W-9 stuff, but I'd definitely like to do more for him if I can, I'm just looking to see what the best options might be.
As others have said, it would be a good idea to speak to a lawyer.
I know that the taxes and fees associated with becoming an LLC or corporation can seem steep, but if you plan to hire employees, it is an absolutely vital step. You said your business is a sole proprietorship, and that opens you, personally, up to all of the liability that your business incurs. In other words, if something goes awry and your business is sued, your home is on the line. And your risk for being sued increases as you take on employees/volunteers/interns/etc.
Look for a business law clinic at a local law school - they might charge a small fee but there's a good chance they will work for free. Your issues likely have a simple solution, and there's no reason to pay a lot in legal fees for that.
Good luck!
Look for a business law clinic at a local law school - they might charge a small fee but there's a good chance they will work for free. Your issues likely have a simple solution, and there's no reason to pay a lot in legal fees for that.
Good luck!
Thanks mountainair!
The LLC step (when I had done it before) was pretty straightforward over at http://www.legalzoom.com/ but it was a few hundred bucks and I did it for exactly the reasons you described...to get out of that open liability that the business could incur (I was younger, and thinking bigger about the growth my little company would have so I did a whole bunch of research to try and do the best thing I could do at the start). But I ended up shutting down the LLC because of the expense/benefit ratio wasn't working for me at the time and then stopped doing business really until I started up again in 2010 with the software business on a tiny scale.
If I did decide to take on a more employees/volunteers it would definitely be a route I'd want to take again.
We don't have any local law schools within a few hundred miles, but I think we do have one business law instructor here at the college who might allow me to pick his brain if I asked.
Thanks again for the feedback!
(Sorry for the delay in my reply...HN started giving me the "You're submitting too fast. Please slow down. Thanks" error when I tried to submit this reply and another one).
The LLC step (when I had done it before) was pretty straightforward over at http://www.legalzoom.com/ but it was a few hundred bucks and I did it for exactly the reasons you described...to get out of that open liability that the business could incur (I was younger, and thinking bigger about the growth my little company would have so I did a whole bunch of research to try and do the best thing I could do at the start). But I ended up shutting down the LLC because of the expense/benefit ratio wasn't working for me at the time and then stopped doing business really until I started up again in 2010 with the software business on a tiny scale.
If I did decide to take on a more employees/volunteers it would definitely be a route I'd want to take again.
We don't have any local law schools within a few hundred miles, but I think we do have one business law instructor here at the college who might allow me to pick his brain if I asked.
Thanks again for the feedback!
(Sorry for the delay in my reply...HN started giving me the "You're submitting too fast. Please slow down. Thanks" error when I tried to submit this reply and another one).
You need to talk to a lawyer, despite the expense.
Your "volunteer" sounds like an employee, and the situation sounds a lot like one of the abusive internship situations. In a nutshell, your volunteer is entitled to compensation for his work, and even if you never paid or don't actually pay him, the various federal governments will simply treat that as a timing difference. They'll want their taxes and FICA on the compensation, and failure to pay those amounts can lead to fines and penalties that easily exceed the amount of money you bring in from the business on an annual basis.
Your "volunteer" sounds like an employee, and the situation sounds a lot like one of the abusive internship situations. In a nutshell, your volunteer is entitled to compensation for his work, and even if you never paid or don't actually pay him, the various federal governments will simply treat that as a timing difference. They'll want their taxes and FICA on the compensation, and failure to pay those amounts can lead to fines and penalties that easily exceed the amount of money you bring in from the business on an annual basis.
Additionally, while you may think that "growing my business" at the least possible cost, eking out a bunch of "volunteer" hours from my past student is my goal, that is not the case either (and would certainly qualify as an abusive internship/volunteer situation to me).
I'm exploring the hiring and gathering feedback here because I'd like to do it right, but I'd also like to be able to afford it too.
If that's not realistic, which I'll determine from the responses I'm getting here, then I'd rather do the work for my software business myself and keep things simple (I like simple) and keep him out of that stuff and just focus on getting him hired at the local web development firm that could pay him a salary or encouraging him to branch out and try to find work elsewhere.
I'm exploring the hiring and gathering feedback here because I'd like to do it right, but I'd also like to be able to afford it too.
If that's not realistic, which I'll determine from the responses I'm getting here, then I'd rather do the work for my software business myself and keep things simple (I like simple) and keep him out of that stuff and just focus on getting him hired at the local web development firm that could pay him a salary or encouraging him to branch out and try to find work elsewhere.
He is a volunteer and not an employee.
And I wouldn't consider this an abusive internship situation.
What he's officially doing is getting some real-world experience which he actually needs and we've gone through the volunteer process here at my day job (a community college) to provide him with that volunteer coverage and he's coming 3 days a week and helping me out with little projects that I've been backlogged on and he's been having a good time doing that.
That is a volunteer situation and not an abusive internship at all.
However, we cannot hire him here at my day job (since we're a public institution, there's a lengthy hiring process even if we had a position available, which has it's own length budgeting and creation process). If he were taking 6 units or more, we could potentially hire him as a student worker, but since he finished his degree he's not looking to take any additional classes right now. And having unpaid volunteers is not unprecedented.
The money I paid to him as a thank you before was out of my own pocket for the volunteer work he had been doing for us here at the college since he wasn't getting paid for that work and I appreciate the assistance he's able to provide.
As I mentioned previously though, I'd like to do more for him so I'm exploring this option of possibly doing some sort of hiring if it's possible in my software business, and have him help out with those separate projects (outside of his normal volunteer role), since I cannot do anything more for him except have him volunteer at the moment. Primarily because I do want him to be paid and start building a career for himself.
However, I feel like you may think I'm taking advantage of a situation in a negative way and that's not how it is at all, in fact quite the opposite.
And I wouldn't consider this an abusive internship situation.
What he's officially doing is getting some real-world experience which he actually needs and we've gone through the volunteer process here at my day job (a community college) to provide him with that volunteer coverage and he's coming 3 days a week and helping me out with little projects that I've been backlogged on and he's been having a good time doing that.
That is a volunteer situation and not an abusive internship at all.
However, we cannot hire him here at my day job (since we're a public institution, there's a lengthy hiring process even if we had a position available, which has it's own length budgeting and creation process). If he were taking 6 units or more, we could potentially hire him as a student worker, but since he finished his degree he's not looking to take any additional classes right now. And having unpaid volunteers is not unprecedented.
The money I paid to him as a thank you before was out of my own pocket for the volunteer work he had been doing for us here at the college since he wasn't getting paid for that work and I appreciate the assistance he's able to provide.
As I mentioned previously though, I'd like to do more for him so I'm exploring this option of possibly doing some sort of hiring if it's possible in my software business, and have him help out with those separate projects (outside of his normal volunteer role), since I cannot do anything more for him except have him volunteer at the moment. Primarily because I do want him to be paid and start building a career for himself.
However, I feel like you may think I'm taking advantage of a situation in a negative way and that's not how it is at all, in fact quite the opposite.
You don't get to decide that, which is why gamblor956 said you need to talk to a lawyer. That lawyer will tell you if the relationship you've set up is an employment relationship as defined by labor law and the tax code, regardless of what you're currently calling it, and regardless of the student's intentions. Believe it or not, even if someone volunteers to do work for free, you may not be permitted to accept their labor for free. Minimum wage is legally mandated minimum compensation for work, and unpaid internships that involve doing any work for the benefit of the employer are illegal even if the student is willing to be unpaid.
The scope of work someone can do at an internship (or "volunteer opportunity") without being paid is very, very narrow. Based on what you've said so far, having him work on projects you are backlogged on and on your side business, this is not a legal unpaid volunteer situation. The relationship you two have has to meet _all_ of the following requirements to be exempt from paying him minimum wage, as established by the Supreme Court in Walling v. Portland Terminal Co. They continue to be the basic test used by the Department of Labor in deciding when unpaid student intern programs are legal or not:
1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment.
2. The internship experience is for the benefit of the intern.
3. The intern does not displace regular employees, but works under close supervision of existing staff.
4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded.
5. The intern is not necessarily entitled to a job at the conclusion of the internship.
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
The scope of work someone can do at an internship (or "volunteer opportunity") without being paid is very, very narrow. Based on what you've said so far, having him work on projects you are backlogged on and on your side business, this is not a legal unpaid volunteer situation. The relationship you two have has to meet _all_ of the following requirements to be exempt from paying him minimum wage, as established by the Supreme Court in Walling v. Portland Terminal Co. They continue to be the basic test used by the Department of Labor in deciding when unpaid student intern programs are legal or not:
1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment.
2. The internship experience is for the benefit of the intern.
3. The intern does not displace regular employees, but works under close supervision of existing staff.
4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded.
5. The intern is not necessarily entitled to a job at the conclusion of the internship.
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
Thanks again Dan!
First off let me clarify for the volunteer work he is doing at the college he is not working on any of my software business stuff during that time (he is strictly working on the college stuff).
The software business stuff I gave him separately as something he can try working on at home (kind of like a take home assignment). Fixing a minor bug in the software, adding an additional parameter, etc. And so far this has only been one time, but I did like his work and so I started this thread to see what options I should look into if I wanted to have him work with me officially.
Let me go over Department of Labor test you mentioned and see how that's going (this is strictly for his volunteer work at the college, not the one software business thing I had him do):
1. This one I wouldn't be 100% on, but I am training him throughout the process, most of the things I've given to him are akin to what could be given as a class project. They haven't been any of the major projects that I actually have to worry about, they've been little projects I would have had to say no to (examples include a website for a local veterans group, adding in some email sending functionality to an existing program, creating a web application to make a different automated process I already had in place easier to use).
2. I would definitely say this experience is going to be beneficial for him (right now his issue is not lack of capability, it's lack of experience and a willingness from an employer to "take a chance" on him).
3. The intern isn't displacing any regular employees (I've always been a department of one managing the college's online services, and while I'm not hovering over his shoulder every minute, which wouldn't be good for him, he does work closely with me under my supervision).
4. This one is a little weird, because of the "no immediate advantage" part and I'm not sure how to interpret that. I do know that on the days that he is on campus, since I have to spend a number of hours meeting with him and working with him as he goes about his work that my operations are impeded during that time so I'm not able to do my regular work as quickly.
5. The intern is definitely not entitled to a job at the conclusion of his volunteer work (and he knows that, but our goal is to build up his skills enough so that an employer will have an easier time hiring him).
6. The employer and the intern do understand that he is not entitled to wages for the time spent in the internship.
So aside from #1 and #4 which are a little more open to interpretation, I would say if we're just looking at the work he's doing for the college we're meeting the 1-6 criteria fairly well. Can I say it's 100%, no and that's not my job to worry about at work.
However, this whole discussion was sparked because I've had him try fixing a bug and adding some features to a small, free product I have (probably about an hour or two worth of work) at home and he did a pretty good job so I wanted to ask and see what options I have within my own means to pay him something and he could also help out the business.
I'm not trying to skirt around the legalities of the situation, if we're not in compliance with the law, then maybe we shouldn't have any volunteers (and historically we've only two prior to this that I know of). But I'm in no way trying to keep him as a volunteer forever. Our goal is to get him (and any of the students that attend the college) a job :-).
You seem to have the most experience in this area though, so from your comments I would say I should eliminate having him work on any what would be considered the "software business" on his own time unless some sort of formal relationship was in place in order to have everything completely legal and maybe even stop his ability to volunteer if, after you've clarified the interpretation of #1 and #4, it seems like we're not meeting the Department of Labor test.
First off let me clarify for the volunteer work he is doing at the college he is not working on any of my software business stuff during that time (he is strictly working on the college stuff).
The software business stuff I gave him separately as something he can try working on at home (kind of like a take home assignment). Fixing a minor bug in the software, adding an additional parameter, etc. And so far this has only been one time, but I did like his work and so I started this thread to see what options I should look into if I wanted to have him work with me officially.
Let me go over Department of Labor test you mentioned and see how that's going (this is strictly for his volunteer work at the college, not the one software business thing I had him do):
1. This one I wouldn't be 100% on, but I am training him throughout the process, most of the things I've given to him are akin to what could be given as a class project. They haven't been any of the major projects that I actually have to worry about, they've been little projects I would have had to say no to (examples include a website for a local veterans group, adding in some email sending functionality to an existing program, creating a web application to make a different automated process I already had in place easier to use).
2. I would definitely say this experience is going to be beneficial for him (right now his issue is not lack of capability, it's lack of experience and a willingness from an employer to "take a chance" on him).
3. The intern isn't displacing any regular employees (I've always been a department of one managing the college's online services, and while I'm not hovering over his shoulder every minute, which wouldn't be good for him, he does work closely with me under my supervision).
4. This one is a little weird, because of the "no immediate advantage" part and I'm not sure how to interpret that. I do know that on the days that he is on campus, since I have to spend a number of hours meeting with him and working with him as he goes about his work that my operations are impeded during that time so I'm not able to do my regular work as quickly.
5. The intern is definitely not entitled to a job at the conclusion of his volunteer work (and he knows that, but our goal is to build up his skills enough so that an employer will have an easier time hiring him).
6. The employer and the intern do understand that he is not entitled to wages for the time spent in the internship.
So aside from #1 and #4 which are a little more open to interpretation, I would say if we're just looking at the work he's doing for the college we're meeting the 1-6 criteria fairly well. Can I say it's 100%, no and that's not my job to worry about at work.
However, this whole discussion was sparked because I've had him try fixing a bug and adding some features to a small, free product I have (probably about an hour or two worth of work) at home and he did a pretty good job so I wanted to ask and see what options I have within my own means to pay him something and he could also help out the business.
I'm not trying to skirt around the legalities of the situation, if we're not in compliance with the law, then maybe we shouldn't have any volunteers (and historically we've only two prior to this that I know of). But I'm in no way trying to keep him as a volunteer forever. Our goal is to get him (and any of the students that attend the college) a job :-).
You seem to have the most experience in this area though, so from your comments I would say I should eliminate having him work on any what would be considered the "software business" on his own time unless some sort of formal relationship was in place in order to have everything completely legal and maybe even stop his ability to volunteer if, after you've clarified the interpretation of #1 and #4, it seems like we're not meeting the Department of Labor test.
> Should I start small and just pay him out of what I can afford right now, or should I bring in more of my own money and make it easier to give him at least a few hundred dollars in wages each month?
What about paying him what his work is worth?
What about paying him what his work is worth?
I know that sounds like an obvious question and the answer to that is obviously yes, but the business is not making enough to provide what I believe his work is worth right now (and to pay him above and beyond what's coming in would have to come out of my own pocket from my day job salary).
Also keep in mind that where we live programmers don't make nearly the same amount as they would in the Bay and technology-type jobs are pretty scarce. The only major local web development firm would probably hire him as an intern, with a bit more training, and start him off in the $11-$15/hr range (if they are even still looking for an intern). I know he could do well in a different city, but he's told me he'd like to stay local, which unfortunately affects his opportunities to get a position doing development work.
I fully agree with you though, I do want to pay him what he's worth because I know he has a lot of potential (and I've seen it more or less going to waste the past 3 years after he graduated, which is why I asked him to start volunteering with me so he could gain experience and I could also think of ways I could help him out). The only negative there is that I don't have enough money to truly do that (but by him starting off and helping me do more work in the business I'm pretty sure we can make the income go up, which would allow the business to pay him more as we grew).
I hope that helps to clarify things a bit.
Also keep in mind that where we live programmers don't make nearly the same amount as they would in the Bay and technology-type jobs are pretty scarce. The only major local web development firm would probably hire him as an intern, with a bit more training, and start him off in the $11-$15/hr range (if they are even still looking for an intern). I know he could do well in a different city, but he's told me he'd like to stay local, which unfortunately affects his opportunities to get a position doing development work.
I fully agree with you though, I do want to pay him what he's worth because I know he has a lot of potential (and I've seen it more or less going to waste the past 3 years after he graduated, which is why I asked him to start volunteering with me so he could gain experience and I could also think of ways I could help him out). The only negative there is that I don't have enough money to truly do that (but by him starting off and helping me do more work in the business I'm pretty sure we can make the income go up, which would allow the business to pay him more as we grew).
I hope that helps to clarify things a bit.
[deleted]
you could look at bidding out jobs on elance or some other sites and he could earn the money from that.
Hi sharemywin! That's another idea (I had thought about it before, but now that he's building up his skills to the point where he's comfortable building/working on things by himself, even though I'm still going to be available to assist if needed, it's something I can come back to and start encouraging him to try out :-).
Thanks!
Thanks!
Aside from my day job, I've been running a small software business (selling add-ons for a CMS) that maybe brings in about $200-$300 a month in income, which isn't much.
However, I'd like to grow the business and there's a past student of mine who's been helping me out for about 6 weeks now as a volunteer at my day job and now I've had him also start helping me with some bug fixes and new feature additions for the software I sell.
I'd like to hire him properly, and I'm sure I could use something like Zen Payroll to help out with the paperwork and other taxes that would be incurred to do so (Zen Payroll is relatively inexpensive, but I'm not sure how much the California/Federal taxes/fees might be), but I've never hired anyone before so it's kind of a scare thing (after the first hire it should be a lot easier :-). Would hiring that first person using Zen Payroll as easy as signing up and adding him in?
The conundrum I have though is, how can I hire someone, when the business itself isn't even making enough to provide a decent wage? With our current income, I'd really only be able to afford to pay him for a few hours a month (if I was solely relying on the business income).
Should I start small and just pay him out of what I can afford right now, or should I bring in more of my own money and make it easier to give him at least a few hundred dollars in wages each month?
Thanks for the help!