The task of Hiring contractors is tricky at best. There is much to consider when hiring your contractors.
First I consider the contractor’s license. Make sure your contractor is licensed properly in the state for which you are hiring. In Oregon, you go to the Construction Contractors Board to look up your contractor’s license, bond, and other insurance information.
If you do not find your contractor there, it doesn’t necessarily mean that yours isn’t licensed. You could be searching in the wrong license category. For example, when hiring a landscaper, that’s another category.
The next consideration is whether the contractor is working for you as an employee, or being employed under contract. There are several tests for this located on the IRS website. If I want to know something, I go to the top, and the Internal Revenue Service is the top authority on this question.
Determined on how you are hiring, you need your contractor to provide you with a form:
- W-9—independent contractor
- W-4—your employee
If the contractor is actually a corporation, then no form is needed. If not, you’ll be glad you got this form completed by the contractor, and that you filed it away until tax time. You will have to send out 1099’s at the end of the year for your independent contractor, and file w-2s for the employee. You’ll also have to pay money into the state, city, and IRS quarterly when you pay an employee. I’d recommend you hire someone to handle this, or get lots of good help.
The last thing to conquer is how you are paying the independent contractor. There are a few ways to set this up:
Hire the Independent Contractor on a time and materials basis. This means that the contractor is going to give you a bill for the number of hours worked and charge you for the materials used. So, if you are expecting the contractor to pick up the bathroom fixtures, for example, the contractor will send you copies of the receipts along with the bill for his/her work.
Hire the Independent Contractor by the job. This means that the contractor gives you a bid for the work, and you agree to it. I recommend getting 3 bids for every project, and working out the details with your favorite. Details can include how much down you pay, how often you pay, and of course how much you pay. Make sure you have every detail in a contract, which also describes who is paying for the materials. If there are some things that you want to pick out, as well as purchase, make sure this is spelled out in the contract. Many contracts have a stipulation for change orders. This means that the contractor will most likely charge you more when you change your mind on something or if your project runs into unexpected trouble.
Lastly, I’ll mention a partnership agreement. In this scenario, the contractor agrees to do all work upfront for no payment and agrees to wait for the payment to come from the profit. You might have a split in the profits of any percentage amount and is basically project based. You might also need to pay for materials if the contractor is unable to put up money for the materials. All materials go into the cost column, and the labor does not go into the cost column, unless you have to hire outside labor, say for an electrician. The net profit is therefore calculated as:
Sales Proceeds $$$$
– less purchase cost
– less supplies and materials
– less any other costs (such as the cost of finance.)