Subcontracting?

I have a few questions regarding subcontracting for my building maintenance company.
My company is still fairly small (this is why i'm addressing this issue now).

My company subcontracts out small-medium sized Janitorial contracts. These accounts very from 1-5x a week.

Essentially what we do is we close a deal with a client. We receive keys & alarm codes. Then, we go ahead and walk the building with a couple of our subcontractors. Our subcontractors will give me an estimate to do the routine maintenance and we do a subcontractor agreement.

All of my subcontractors are either LLC's or Corporations. They all have :

- a few employees minimum
- their own general liability insurance
- WorkMans comp insurance
- their own equipment
- their own business licenses / certifications
- They all have other clients & advertise their companies to the public
- They bill me monthly
- They have control of how they complete the jobs
- They set the day and times they can do the work


I'm in Arizona, do I run any risk operating this way (as far as misclassification goes)? I do also have my own insurance, my own business license, my own LLC, etc.


I should note. We do offer other services such as carpet cleaning, window cleaning, and pressure washing . We also subcontract out these projects as well.

You should discuss this with a lawyer you've RETAINED to protect your business and assets.

Only someone who thoroughly understands your business can properly answer your questions.

Your arrangement depends on what your contract requires from you and your subcontractors.

You should also have your insurance agent review those contracts, again, after you've retained a lawyer.

Forget seeking FREE legal advice, that's very foolish in your situation.

Crext said:

do I run any risk operating this way (as far as misclassification goes)?

Click to expand...

I'd say your risk is seriously close to zero.

The criteria you listed is the classic definition of subcontractors (independent contractors) and you are wise to restrict yourself to using bona fide businesses.

Two suggestions if you aren't doing them already.

1 - Get certificates of insurance. A business' insurance agent is accustomed to routinely issuing them.

2 - Talk to your tax pro to see if you need to use I-9s and 1099s.

adjusterjack said:

I'd say your risk is seriously close to zero.

The criteria you listed is the classic definition of subcontractors (independent contractors) and you are wise to restrict yourself to using bona fide businesses.

Two suggestions if you aren't doing them already.

1 - Get certificates of insurance. A business' insurance agent is accustomed to routinely issuing them.

2 - Talk to your tax pro to see if you need to use I-9s and 1099s.

Click to expand...

Yes i already do require them to provide me.with certification of insurance/licenses.

Yes I do 1099 them and collect their w9s.

I also make them provide me with references of their current clientele, and materials indicating they are in business (biz card, brochure, etc)

Seems like you've done everything right, then.

Crext said:

do I run any risk operating this way (as far as misclassification goes)?

Click to expand...

Every business runs risks merely by existing. Not sure what you mean by "misclassification."

He wants to make sure he's not classifying someone as a contractor when they should be an employee.

Crext said:

I'm in Arizona, do I run any risk operating this way (as far as misclassification goes)? I do also have my own insurance, my own business license, my own LLC, etc.

Click to expand...

Under the new law, independent contractors may sign a Declaration of Independent Business Status ("DIBS"). The DIBS must be signed and dated by the contractor and contain express acknowledgments that the contractor:

Operates an independent business;
Is not entitled to unemployment benefits or any other right arising from an employment relationship;
Is responsible for all taxes owed on payments received from the contracting party; and
Is responsible for any registration, license, or other authorization necessary for the services rendered.
The DIBS must also state that the worker meets six of ten specific criteria that are commonly used to assess a worker's status. These factors include that the contractor is not insured under the contracting party's health or workers' compensation insurance coverage; that the contracting party expects the contractor to provide services for other parties; and that the contractor is not economically dependent on the services performed for or in connection with the contracting party. The DIBS creates a rebuttable presumption that the worker is an independent contractor if the worker's independent contractor status is ever challenged.

The use of the DIBS is optional, and the statute specifically states that choosing not to execute such a declaration cannot be evidence that an independent contractor relationship does not exist. In addition, the execution of the DIBS does not mean the worker can never be found to be an employee. It merely creates a rebuttable presumption to the contrary which the worker will have to overcome to establish employment status.

New Arizona Independent Contractor Law Now In Effect | Law and the Workplace


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Independent 1099 Contractors · Arizona Employment Attorney



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Answering 4 Key Questions Raised by Arizona's New Independent Contractor Law



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https://legalaidaz.com/employees-v-independent/



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https://www.azcommerce.com/media/125162/AZEE2013chptr6.pdf



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One might add that the Arizona statute is irrelevant when it comes to IRS requirements regarding independent contractors.