I have been asked to bid on interior trim work for a builder. I know who I’m bidding against very well. It is a rag tag band of gypsy carpenters. The main character has liability insurance only and classifies the people who work for him as sub contractors. He pays them all unreported(no 1099) under the table. So my questions are… can he really write these guys off as individual subs? Wouldn’t or shouldn’t his insurance company want proof of insurance from his subs? What is the builders liability in all this??? As he hasn’t a clue and when presenting my bid would it be unethical to mention any of this too him?
Sorry for so many questions or if this is unclear?
Replies
He pays them all unreported(no 1099) under the table. So my questions are... can he really write these guys off as individual subs? Wouldn't or shouldn't his insurance company want proof of insurance from his subs? What is the builders liability in all this??? As he hasn't a clue and when presenting my bid would it be unethical to mention any of this too him?
He cannot "write them off" as subs unless he 1099's them and collects valid proof of insurance.
His insurance has nothing to do with it. He does not show these subs on any documentation because he is paying them off the books.
If one of these gypsies gets hurt on the "builders" premises, he could be in ALOT of hot water.
He probably has every clue as to what he is doing. he is trying to save a nickel by skirting the law, and flirting with some very serious liabilities. He's taking his chances and probably doesn't give a crap whether you have insurance or not.
But it can't hurt to mention it.
Good guy to NOT work for in my book.
Eric
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It's Never Too Late To Become What You Might Have Been
The builder doesn't know .... of this I am absolutely sure.
sledge.. it always helps if you present your bid in person
then you can discuss what i s going on..
say you are reluctant to bid aginst other subs who are skirting or flaunting the employment laws
what state are you operating in ? i don't know how this other guy can NOT report the amounts paid .. how can he deduct the labor expense ? unless he is alos hiding income.. but that only works if the Builder is in cahoots, because the builder is going to 1099 the gypsy...
show your certificate of insurance and tell him the game the others are playing.. if the builder is legit, he can't work with those guys and he will welcome the info..
if he's not legit.. then you don't want to wrok for him eitherMike Smith Rhode Island : Design / Build / Repair / Restore
I have an inside track to both the builder and the gypsy.
I know the builder 1099's his current trimmer. I also know the trimmer 1099's no one. Let me tell all you above board honest guys. It's amazing what you all think should show up like a lighthouse beacon on a standard 1040 gets missed. This, I know, has been going on for at least 8 years.
I am incorporated in the great Peoples Republic of Maryland.
I know the pricing... he's not cheap. It's the quality that is really getting bad. 1/4" of caulk on baseboard corners really looks bad in a $975,000 house. But hey what would you expect from a 18 year old heroin addict that doesn't know the difference between base board or base guitar, who's training consisted of don't touch the saw blade while it's moving.
sledge.. well that explains why he can still play guitar !Mike Smith Rhode Island : Design / Build / Repair / Restore
and your builder hires this guy ... again and again ...
and expects you to bid against him?
Jeff Buck Construction
Artistry In Carpentry
Pittsburgh Pa
You have the right advice how to handle it.But for not understanding how guys can get away with this....I have been around the block enough times to get dizzy in this business and I can tell you it is way easy to skirt and skate on things lioke that.Suppose I am running a sub outfit for you. You require that I provide you with WC and CL sheets, right? So I do and I get the job.then I run a bunch of guys in there that will scare you but they do work well enough to satisfy you. I get paid, right? I pay them maybe 50% of what I charged you and they go get high and they are happy, especially because they are thinking that they have got 100% cash with no tax out right?So far everything is smooth and hunky dory. The grey area comes when I do my book-keeping. Whatever I do, I stand to have a 100% profit if I hide or make certain 'errors' in my paperwork.Fact is, I have a lifelong history of doing it all just right simply because I don't lie well and I know right up front that I would have a hard time remembering which story I told whom.but in all those years of payuing my subs, I have NEVER been audited or challenged over the numbers I claimed to have paid out to subs on my schedule C. My numbers for total paid out have not had to correspiond to the numbers rtalllied with the summary report on the 1099s because I can pay a corp as a sub and not 1099 them, or because a sub payout can be broken into some materials and some labour - legitimately.I suppose an IRS agent could dig deep enough aned find something on a guy like this, but the fact is that with out cause to proceed, they are not likely to look at one like that. Usually, it is when one of those guys working for him gets fired or pissed at him and runs to turmn him in that guys like this get the spotlight turned on them. I even tend to doubt that the Sledgehammer here could get much action by dropping a dime on him unless he has some way to verify what he knows. Picture yourself as an overworked IRS agent. Guy calls you to say that a sub he is bidding against is working people illegally. you start taking notes, "OH, UM Hum - you say you have heard that Joe Heroin is not recording 1099s on these guys, right? and you found this out in the process of bieding against him????".....<<<<<Now if you - the IRS agent - are not wondering if this guy on the phone stands to profit from getting the other sub in trouble or casting doubt on him, you aren't the brightest govt worker standing to collect early retirement>>>> so how likely are you to pursue this lead uhnless JoeHeroin has a name on a special list in your office? Remember you are already overworked...sledge, I don't mean to imply that your reason for questioning this guy is to get him in trouble and out of the way for you to make more profit. I'm just saying that this is how the IRS is likely to view it unless you are sqeaky clean and at the same time you have good basis to present them with this knowledge. I know half my competitors are doing grey area stuff, but I only know that by implication and rumour. I have no basis of factual knowledge. Since I don't do direct bidding, It doesn't bother me one way or another - except that the guys geting paid under tables are also scamming the system for benefits based on their "low income" There is quite an "underground" - or at least a 'crawlonyourbellyintheground' economy! It exists too easily in this country.
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Thanks for the response.
I'm not really looking to drop a dime on the guy, his life sucks and frankly I wouldn't want to live it. I really don't need the work... but I was asked and will skillfully decline.
I didn't understand the lack of checking in insurance because it costs me a bundle and I'd never consider cutting corners. I could do the job and make a good profit while saving the builder alittle money... Lord knows what current crack heads do with all that extra cash....;-)
Edited 2/22/2006 9:13 pm ET by sledgehammer
My numbers for total paid out have not had to correspiond to the numbers rtalllied with the summary report on the 1099s because I can pay a corp as a sub and not 1099 them,
That seems to be one that a lot of guys miss. A long time ago I did some installs for a very large company and they insisted that everyone who installed for them be Incorporated or an LLC. They also demanded that they be listed as " Additionally Insured".
My father explained the scam to me. But not before I had told them to go play a nice game of " Hide and go F### Themselves" for other reasons.
As has been discussed here many times your competitor is breaking a bunch of employment laws. You could drop a dime on him to the IRS and the state if you feel like it, and they would probably check him out.
As far as insurance goes, he and his insurer are assuming all liability for what his 'employees/subs' do since he has not assigned liability elsewhere by becoming an additional insured. I suppose it's conceivable that if something happened his insurance company would actually try to collect from his guys, but they're probably dirt poor anyway and it wouldn't be worth much.
The big issue to the builder and the owner of the property is the likely fact that he has no workers comp on his guys so therefore any liability would accrue to the owner. The builder should not put his clients in this position. Also, a guy who cuts corners like this in business is likely to cut corners on the project too.
You should either pass on this job (unless you think you're cheaper) or you should be prepared to explain all of this to the builder in order to justify the higher cost. This stuff happens to us small operators a lot, and I guess to the larger ones also.
Sledge, if he's paying un-documented cash, then he can't "write off" the expenses, because he doesn't have a reciept.
If he does write them off, and 1099 them, the Irs could later disallow the writeoff for lack of proof that the monies were paid.
If he does 1099 them, the insurance company will charge him a premium for all 1099 expenses that don't have proof of insurance.
The land owner is ultimately liable for all accidents that happen on his land. By signing contracts, other's may become more liable. The builder creates his own level of liability by agreeing to do the work and then hiring. If he signs subcontractor agreements, the subcontractors assume the liability. If they fail to meet legal requirements and fail to have the proper insurance, the builder and his insurance will most likely assume those liabilities.
The buck stops somewhere.
blue
"If he does write them off, and 1099 them, the Irs could later disallow the writeoff for lack of proof that the monies were paid."That's true, but only if they audit him and find that fact.
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The builder will 1099 the gypsy and his WC premium will go up to cover the work. This is assuming the builder is legit.
Eventually the gypsy may get caught.
We had a painter sub who we worked with for over 10 years and were always satisfied with his work. We 1099'd him for that time period and carried that amount on our WC insurance.
Last year we got a letter from the IRS saying that we should pay them for any work he did for us in the future. He owed them $56000. Needless to say this put him out of business. His employees, who I am sure were paid cash, are now working for other employers and he is working for cash here and there. He has to be struggling just to get by.
I don't feel too sorry for him.