Employees, Taxes, and Insurance - Oh My!

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money as garbage

When I first started my business, it was just me. I would clean a few houses a day by myself and I was happy. Gradually, my schedule really started filling up. I just kept getting busier and busier.

One of my clients would always suggest I hire people every time I was there--and every time I responded, I would do so with the same lame excuses. I was afraid to hire people. I was fearful of relinquishing some control. I was nervous about bringing strangers into my clients' homes. Would they be able to clean up to my standards? Would I be able to trust them? How much could I afford to pay them, and still pocket enough money for myself and to put into the business? This is, after all, my livelihood.

I knew that in order to grow my business, I needed to take the next step. I needed to loosen my tight reins and bring some Divas onboard. So I did.

Luckily, I started with some friends, and friends of friends who I knew I could trust and rely upon. Through that, I found my Managing Diva, Jessica.

I know: the fact that we share the same name is an ongoing comedy show. Anyway, she's a true gem, everything I could want or ask for in an employee. She's hard working, OCD (an Obsessive Cleaning Diva), efficient, thorough, trustworthy, and reliable--but most of all, she represents the Cleaning Diva brand and has an impeccable work ethic. She's an exceptional team player, but also has strong leadership skills. I know she cares about the business and our clients, not just her job. Jessica's sister, Carrie, is a Cleaning Diva too. She's also a loyal, good worker. But that's not always the case with everyone I hire.

A whole new set of rules applies to your business once you start hiring staff. That was especially true when my 'who you know' resources tapped out and I needed to find help through other resources--i.e. posting help wanted ads on Craigslist.

For starters, if you don't personally know, or know someone who can vouch for your potential hire, you need to put on your investigator hat and poke around.

Truly read their employment application, which you should always have applicants fill out. If they don't fill one out, how interested in the job can they be, or should you be in them? Check out their job history and experience and how it relates to the position you need to fill. Question job-hopping habits, and certainly call all of their references listed. Ask questions. Verify their eligibility. I weigh heavily on trust, due to the nature of my business, so I don't hesitate to do background checks on anyone I'm considering hiring. There are various companies you can do this through online for a small fee.

Hiring people means you have to pay them. What?! I know: it's ludicrous. LOL.

Figure out what salary or hourly wage you can afford to pay out before you make an offer to someone. Don't forget to factor in all the extras, like employment taxes and workers' compensation as well as business insurance and bonding (if it applies). Dare I mention health care expenses, if you choose to offer health benefits. I currently don't, but plan to in the future. It's not an expense I can afford right now, nor is it one small businesses with fewer than 50 employees are required to offer under the Affordable Care Act for 2015.

Healthcare aside, which can roughly tack on another 20 percent to your workforce overhead, one of your biggest costs when it comes to bringing people aboard is your payroll taxes and expenses. Here in New Jersey, that equates to paying out an additional 10 to 12 percent on top of wages. So, if you have an employee who is making $30,000 a year, you can expect to pay an additional $3,000 to $4,000 in taxes and fees. The breakdown of that 10 to 12 percent is: 7.65 percent in Social Security (6.2 percent) and Medicare (1.45 percent), and three to four percent goes to federal and state unemployment insurance taxes (depending on your state).

But that's not all. Yes--there's more money to be paid out. This category is what I like to call Protection Pennies, and includes workers' compensation, business insurance, and bonding. It all protects you, your employees, and your clients--a true protection trifecta! Workers' comp is mandatory in most states, and mainly based off of a classification code system identifying the occupational risk. Check your state's policies. In NJ, the rates are state mandated and policies are sold by insurance companies. So my cost is calculated based on the classification of "janitorial services" (job description of employees), my claims history (I have none), and payroll. That calculates to about another four percent out of pocket, or about a $2,000-a-year price tag in workers' comp. According to WorkersCompensationShop.com, NJ is the seventh most expensive state for workers' compensation coverage in the country. Yippee!

Every so often potential clients ask me if I'm insured and bonded. The answer is yes, and no. Yes--I do have liability insurance for The Cleaning Diva. No, I am not bonded. In some cases, both of these Protection Penny expenses are industry-specific and are optional. I've had insurance for years, even before I hired Divas, for my own sanity. It protects my business and pays for expenses if any of my clients accidentally incur any injuries (bodily, personal or advertising) or if there is any property damage as a result of our services (knock on wood), as well as contractual liability. It costs me about $1,100 a year. I think it's a necessity for any contractual services business, whether you have a staff or not.

Getting bonded is a bit more trivial, and if you have trustworthy employees, don't run a business where you handle expensive items or lots of cash, or aren't a construction contractor, then you may not need it. I checked the "do not need" box on being bonded. For now, anyway. As I hire more help, and expand The Cleaning Diva, I may find it more appealing to acquire. Some independent contractors are required to be bonded by local laws and are labeled 'better for hire,' so inquire within your region to see if you're one of them, and to check on rates.

Being bonded translates in a couple of ways. You secure a surety bond with a bonding company for clients to get paid from in the event they file a claim against your business if something gets stolen or damaged, etc., or a job is left incomplete, unsatisfactory, or if permits aren't granted. You also can get your employees bonded, which means you hire a bonding company to hold insurance on your employees. In this case the company does an extensive background check on them to deem them insurable, meaning they won't steal. If your bonded employee does so, the bonding company owes you a payout.

I invest in a personal bond with my clients and current employees. I make a promise to fix or replace any household items that we damage during cleaning, and have insurance to back it up. Thankfully, it's usually just a picture frame or tchotchke--although the other day I had to replace a baby canopy worth $125 after the vacuum sucked it up, and I may have to pay for a client's side view car mirror I bumped off while bringing up her garbage pail from the street. Oy vey! At any rate, my Divas always alert me when accidents happen, and I trust them unequivocally. We've earned our clients' trust too. It's all part of The Cleaning Diva's bonding process. It's priceless, compared to the estimated $10,000 in fees I'll be shelling out next year!
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