Cleaning Business Life

CBL Episode#77-Avoiding Disaster: Can you make a 1099's Sign a Non-Compete for Your Cleaning Business?

• Shannon Miller and Kimberly Gonzales • Season 2024 • Episode 77

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What are the true costs of misclassifying employees as independent contractors? Join Shannon Miller and Jamie Runco from Above All Cleaning in Northern California as they break down the nightmare scenarios that can arise from 1099 misclassification. From staggering fines starting at $10,000 to the risk of going bankrupt, they share their personal experiences and emphasize the importance of due diligence and compliance with employment laws. Jamie opens up about her initial mistakes and highlights the necessity of hiring insured contractors to avoid costly errors.

Discover the wealth of support within the cleaning business community and the significance of networking to foster success. We shed light on the fine line between W-2 employees and 1099 contractors, and the benefits of consulting labor law attorneys for crafting non-compete agreements. Stay informed about tax laws and state-specific regulations to ensure your business remains compliant. This episode is packed with practical advice for hiring, onboarding, and maintaining clear communication with your team, serving as an essential guide for running a legally sound and thriving cleaning business.

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Speaker 1:

Boarding in progress. Welcome everyone. My name is Shannon Miller and I am your host of Cleaning Business Life. And today I am joined here with Miss Jamie Runco of Above All Cleaning in Northern California, arizona. Yeah has graciously volunteered to be my co-host while Kimberly is laying with her puppy saga. I love you, kim with her puppy saga. And today we're talking about can you make a 1099 sign and non-compete?

Speaker 1:

I see this question a lot in the groups about 1099s. I can tell you from experience, from what I have dealt with indirectly on a more personal level because I've spoken to people there's nothing worse than misclassifying a 1099 and getting popped. It's a $10,000 fine. It's to start, yeah, to start. That's just off the bat. And there's penalties and interest and it's discretionary. They decide whatever it is. There's no like scale. It says you did this, this and this, so you have to pay this. It's whatever the person decides. It's arbitrary. So you just they just decide whatever it is. And on top of it, if you go to your attorney, your attorney is going to be like pay it, because it'll be even worse Cause, if it goes to the state court because the state wants their cut for the unemployment and all the social services. Then it gets even uglier and it becomes this spiraling event that takes a long time to recover from. So you want to make sure that you are crystal clear that you are not misclassifying your 1099s when they should be W-2s, and there's a whole process for this. But you want to make sure that you're not trying to do something you shouldn't do when they should be W-2s and there's a whole process for this. But you wanna make sure that you're not trying to do something you shouldn't do.

Speaker 1:

And a lot of people were like I'm gonna have my 1099, sign it, and I'll fight you. If I see the posts in the Facebook, I'll fight you every single time on it because I don't want others to believe that it is okay to do this with their business. Cause, when you it's like the tiktok videos right, how many crazy videos don't cleaning toilets, right, they put 52 chemicals in there I'm like, oh my gosh, that could be like a whole mustard gas thing and chemical pneumonia, right, and you shouldn't. You could hurt yourself, you could hurt others, it could burn the floor, the toilet could fall through the apartment floor. I mean there's a lot of things that can go wrong. All for these TikTok videos and you.

Speaker 1:

So you take this information and it should just be at face value. It shouldn't be like is this real, is this not real? When you get anything from anybody, do your research, do your own due diligence, make sure that the decisions you make are conscious enough they're not going to harm you or others. So I have to say that's a big fat. No, you cannot make a 1099 sign a non-compete. What's your thought on that, miss Jamie?

Speaker 2:

Absolutely not. I got, I had no idea about any of this 1099. Like, what is that? What's the difference between? I had no idea. So I was going around illegally and I had. You know, hey, do you want to come over here and do a couple jobs with me? Well, I started as I grew me. Well, I started as I grew, I learned it's against the law and about all the fines that can incur. So now I am just you can't do it. Um, I went ahead and um, I didn't. I don't do 1099s and if I do, it is a company that is insured. Um, because they are their own company.

Speaker 1:

Um and um they have some of the liability. It don't hire someone who is a 1099, who has no insurance, and then they they break that $1,500 shower door and the homeowner's like looking at you, man, I'm looking at you to do this right or overspray on their marble countertops, you know.

Speaker 2:

Then you're talking 40, 50 thousand dollars. You know, um, what happens? Yes, yeah, it does. And so new? My answer is absolutely not. I concur there's a reason why they have those and I don't know, do they have them there? Not that we're tattletellers, but they sure do have it on the radio stations here for fraud. You're frauding, you're not paying fair, you're not hire somebody. You're either going to have to have them 1099, with their own insurance, their own products, their own everything. You can suggest how they do stuff, but with w2s, you, you have to decide what you want to do. I didn't want to go to the 1099 route, I wanted the W2 route. So I pay in to work comp to make this happen. You know it's not cheap, no, it's not and it's, but it's the price I pay to run a legitimate business. The price I pay to run a legitimate business and, um, you should be charging enough to be able to, you know, uh, be able to pay that.

Speaker 1:

Right, Right, I, I agree 1000%. And, um, it is. It's awful to see misinformation being given out in a public forum such as Facebook and there are a lot of people who are like, well, what's the big deal? And I'm like it is a big deal. If you're caught, you're going to be praying to the tax gods and the penalty gods. It's an unpleasant experience.

Speaker 2:

Yeah, and it can bankrupt you. What's the big deal is, yeah, it can. It's not trying to be a know-it-all and or whatever it. It's trying to protect you as the business owner, as the person that may own your own house, and, um, they'll cut they, they don't care, they don't, they do not care. Your bank accounts will get wiped, your, your house, you know, just, it's gonna go, it's gonna steamroll, and we don't want that to happen. Right, we don't want that to happen to you and it's, it's not that bad it's. If you can't afford it, then then you need to up your prices. You need to up your prices and and I I see it all the time in these and some Facebook groups that are just you're they're misclassifying W-2s and 1099s, and I will, unlike you, I will argue it that what you're doing is just absolutely not right. So you know, sometimes they get they're silent, you know, but yeah, non-competes. You know, um, but yeah, non-competes, I used to have them, but I can't even actually have them for w-2s any longer.

Speaker 1:

I think the compliance date from the ftc is, I want to say, september. Um, and you, you have to and you're obligated legally to notify your W-2s of the non-compete status and how they're not allowed to have it. So it's an education process. I'm looking through here and I believe it's the 19th of September or it's September 4th. I'm looking for the date. I don't remember.

Speaker 1:

But they've made it mandatory that you cannot have non-competes for W-2s. You obviously could never have them for 1099s and hold on. I didn't put this on airplane mode and I don't want it to ring while we're talking. So make sure that you're educating yourself. If you go to the ftcgov news events, presses, releases it talks about, or you can just Google it FTC announces rule banning non-competes. And I actually kind of when I had W-2s it kept people in line, that's why I did it. Sometimes it would hold up in court, sometimes it wouldn't, and there's a process to still keep your clients from purging your cleaning tax. There's this whole dynamic that has to happen. That we can do my contract, yeah, and then we can discuss another podcast. But for your own legality and your own peace of mind, just know that you can never make a 1099 sign and non-compete.

Speaker 1:

And what? What people do is they? They have their 1099s, wear uniforms. They're out there training their 1099s. Oh, here's a kit. Oh, you don't need insurance. I'm going to get my extra insurance. And it's actually I'm believing from the chatter that I'm hearing is the extra insurance that they use as a blanket is actually not going to be offered anymore for people who have 1099s working for them. You can have your own business insurance, but that extra insurance won't cover for injury or anything, and I don't think that it should have ever anyway, because your 1099s should carry their own insurance if they're legit, right.

Speaker 2:

Yes.

Speaker 1:

So make sure that you're in compliance with the non-compete and, as I reiterated, there is a way to get around some of the wording. And I'm not saying to cheat the system, I'm just saying that if you have a genuine 1099, you need a vendor agreement. It won't stop the purging. That's what everyone talks about. I don't want them purging my clients. I personally give them. If they're interested and they've made a match and they've been with me a while, they have to be vetted. They want to buy that client from me. I'm all for it. It's just yes. People will fight me on this and say, oh my God, I can't believe that you're selling your income, but I believe in good karma and that another client will come my way. But if they make a match and they want to grow their client base which is what they're supposed to be doing when they're 1099s and they want to buy them off me, I will sell them to them.

Speaker 1:

That way I'm not having the conflict of you purged my client, you owe me and it's not cheap and there's a formula to it and I won't share it here. But you there, there's that option. You could have them sign a vendor agreement that says I'm here to do a specific thing for you and they tell you what that price is and you can give them a tiered price for a suggestion. There's a lot of things to work around, mutually collaborating together. I hope that kind of makes sense. Does that make sense, Jamie?

Speaker 2:

Yeah, no, it does, Absolutely, absolutely.

Speaker 1:

It says 120 days from the publication in the federal register. So I believe that September. I don't know why September comes.

Speaker 2:

I'm skimming, I feel like it was in June or July.

Speaker 1:

There was one part that had to be done by June and then there was another compliance check date that had to be done by September, and I think that was the notification to your W-2s. So educate your cleaning techs when you hire them, if you have W-2s, so they understand that they cannot be made to sign a non-compete and what a non-compete is If you have 1099s, you never could have had them sign a non-compete and your life will just be made easier. We need to start becoming business owners that do the right thing.

Speaker 2:

Oftentimes we see these really big corporate entities haven't I think I may have an old non-compete somewhere's here, but anyways, what is it? Oh, this is what my old non-compete says. It's about an employment agreement and it's number four on the agreement, uh, the termination of this agreement. Employee expert expressively agrees not to engage or participate directly or indirectly in any business located in Humboldt County known as a very large County.

Speaker 2:

It's huge. It's probably 200 miles each direction North, southeast, west Well, not West because then you'll end up in the ocean and at this that is in competition with me, my business for at least one year, right? That's what a non-compete is, so, and that's you're basically telling them that you cannot compete with you, you can't open up your own business, you can't have your own clients, which rightfully so, I agree.

Speaker 1:

Go get your own clients.

Speaker 2:

Yeah, go get your own people. I would hope that people have more opportunities. Integrity, there you go, integrity to not do it.

Speaker 1:

When I um, I'm not shy about where I came from. I um, I come from the jewelry industry. It was a silversmith by trade. The economy tanks. I didn't. I wasn't prepared, because the first time the economy tanked I was in college and I was already poor. I didn't know any different, right.

Speaker 2:

Right.

Speaker 1:

And the last one came. I was not prepared, I did not see all the bells and whistles and I had to shutter my business and I live in Northern Arizona and I did not want to leave. So I got hired on by Mary Mays. This is my actual origin story and I believe they hired me. I want to say it was probably like $10 an hour and this is like in 2007, 2008, maybe 2009. I don't remember it all kind of blends in and it's. It was a learning curve, like trying to learn how to clean. I was like I didn't want to leave. I would have worked for anybody. I didn't care. I was a silversmith by trade. I you know all of the little details. I had more business experience than the actual new owners of the merry-maids that I worked at and I helped walk them through certain situations and I shouldn't have had to do it because I just simply had more business experience. I've had businesses for a long, long time.

Speaker 1:

So there's this dynamic that happens where you think that you're entitled to something that you're not. It's all about integrity. So when I left merry maids, I didn't take any clients with me, I went and got my own and it actually wasn't that difficult for me to get those first 47 of them. It just was like you know how do I invent the wheel. There wasn't a lot of things going on. There was no books, there was no internet, there was no Facebook groups to try to figure out. It was just me trying to figure out how to make this work as I grew and went along. So make sure that you have integrity and that you're not taking someone else's clients. And if you want someone's clients, come to an agreement. It's an opportunity to make money. Absolutely Don't be like the corporate entities who make tons of billions of dollars off the backs of others and give the workers nothing. This is where we've lost the American spirit, where you could come to America and make it right out of us somehow.

Speaker 2:

Yeah, no, I I love. I, like I said, networking here is just I love it. I love all my cleaning business owners out here. I want to see nothing but the best for them and I want to see them succeed. And if I'm not able to take on somebody, that's what? Because Humboldt County is huge, the county that I live in. It's such a huge I mean we drive more than the average person in cities. I let them. Hey, I got this call, I'm going to refer them to you. There's enough for everybody to go around. There is there, really is. It might not feel like it. I see it all the time about how can we compete with people charging blah, blah, blah an hour, and it's you don't.

Speaker 1:

You don't. You're not in competition with anybody. It shouldn't even be on your radar.

Speaker 2:

You just keep on going, right? Hey, you know, maybe we should all start charging around the same price. So that way we're forcing the consumer, your client, to pay our prices. So, if anything, I encourage price increases, but, like I said, there's enough to go around and I want to see nothing but the best for all, whether it's here or across the world.

Speaker 1:

Right.

Speaker 2:

People succeed in this business because it's a great business to be in. It's a great flexible you can. It's great learning. I don't know. It's a great business to be in. There's a lot of money to be made and, yeah, don't ever give up.

Speaker 1:

All the way to the bank. Yeah, yes.

Speaker 2:

There's great money to be made, and not just for the business owner, but for your employees, or 1099s us, right? It don't?

Speaker 1:

No, it doesn't, and so that's why you need to define if you're going to have W-2s or 1099s and I've seen a lot of hybrid models where they have partial 1099s and partial W-2s.

Speaker 1:

Just make sure that you differentiate the two and that there's different rules that apply to them and that you're clear. There's nothing worse than speaking to somebody and this happens a lot where they worked for a cleaning company and they actually thought they were a w-2 and then stuff goes down and they get fired. So then they go down to the unemployment office or online I think you can go online now, finally, and um file there, and then they then you get a call from the state and they're like I want to see the last three years records and you need to have it 30 days from now. And you're like oh, okay, you're right. So it's. Don't put yourself in that position and make sure that you're clear. They understand what they, what the position is that they hold in your company and abide by those rules. Don't overstep to get yourself in trouble, so that you don't have a lot of issues with whatever's going down.

Speaker 2:

Right and that's something I never understood whenever it, if they're hiring, um, don't they have to sign a 1099, right, don't they have to they're supposed to fill out paperwork.

Speaker 1:

The problem is, when we were talking about the process of hiring, they're like I'm gonna get around to it. They either haven't made it digital or they haven't done it the old fashioned way with pen and paper. There needs to be some sort of orientation that you spend 30 minutes on, or you give them the stack of paper and you pay them for 30 minutes of their time and then they give you the stack of paper back and you review and make sure that you have, I don't know, emergency contact, your um, your i-9, or you know your w um, w-9 or whatever it is, that you need proof of your car insurance, um, those types of things, ready to go so that you're so if something, if the relationship deteriorates or they don't work out, then you're not like stuff cold in the bag. Right, because I believe it's still 600. This is still a $600 limit before it has to be reported, right? Unless they've changed it, I don't know, right, right.

Speaker 2:

Me and my accountant was just talking about this the other day. She asked me where some of these checks they were teller checks. She was reconciling my books for me and I said she goes, I was like four of them and I'm like, well, I'm trying to sit there and think and I was like you know, sometimes there's people that come on and I, they either work out or they don't, and anything under $600 does not have to be recorded, right that that?

Speaker 1:

for now. It doesn't mean that. Yeah, exactly, they change all that stuff all the time.

Speaker 2:

If you're running a business, you always got to keep up on your rules or your laws specific in your state. You know California is completely different than running, and even Arizona or Texas or Kansas, wherever Check your laws with your states Right.

Speaker 1:

Like, for example you don't need workman's comp in Texas.

Speaker 1:

I think it's the only state in the union, so to speak, that does not require it, but there are certain things you have to do, like no one goes over a four foot ladder. You need to have safety meetings, you need to do these things and no one gets injured and causes harm to your business, right? Creating that nest egg, that legacy. There's the sales tax. I mean, I can't tell you how many times you have to have the sales tax conversation. Those of you in New Jersey know that you have to pay sales tax on every transaction. It's just learning the things, educating yourself.

Speaker 1:

Don't wait for an entity to go. You owe me 5,024 and 18 cents, right. What's this for? Well, you've been running your business since 2018. We figured this is how much you owe us. Let me see all your records and you're like well, this got lost in a fly. I don't have those records. Well, this got this. My computer crashed and so you have. It's arbitrary. You just go by what they say. Okay, I have to pay the five thousand twenty four dollars and eighteen cents, right? So it's just, it's crazy. Don't.

Speaker 2:

Don't put yourself in that position yeah, don't harm yourself, or or be completely organized and just be able to whip it out right. Here's the file, yeah, yeah, don't, don't, don't, don't move like I did and, and okay, make sure you give them copies and not originals, because those guys lose paper, oh my gosh.

Speaker 1:

Or if you have to send in something to an entity, send it Certified. It's required because they lose stuff all the time and they go. You didn't mail it and you're like yes, I did.

Speaker 2:

Yes, I did Right. Here it says so oh yes, yes, yes, yes.

Speaker 1:

So here it says so oh yes, yes, yes yes, so make sure that you're following what the new rules are I'm looking for. It says April 23rd. So today the Federal Trade Commission issued a final rule to promote competition by banning non-competes nationwide, protecting the fundamental freedom of workers to change jobs, increasing innovation and fostering new business formation. Ding, ding, ding. Non-compete clauses keep wages low, suppress new ideas, rob the American economy of dynamicism. Having a reiteration, including from the more than 8,500 new startups that would be created once a year for non-competes or bans, the FTC's final rule to ban non-competes will ensure Americans have the freedom to pursue a new job, start a new business or bring new idea to market.

Speaker 1:

So this is a bigger picture thing. So don't be upset that there's no more non-competes. Just make sure that you follow the rules so you don't get dinged. No more non-competes. Just make sure that you follow the rules so you don't get dinged. It's like I know, as we get closer to the end of the year, lots of people going to ask about that new report that we have to file. That's featured inside the the maids network what's that called? It's um having a brain fart?

Speaker 1:

well, I really wish I had an extra form that we have to fill out this year, and it is called Please do tell, because I don't have my phone right here on me.

Speaker 1:

Okay so when you go in it's under featured and it says Of course not going because I don't have the full screen. It says featured. I don't know why it's not. There's a it's form, 809 or something like that. I can't remember what the exact name is it, but people were asking about it and what's it. In regards to um, there's an extra oh, it's the boi reporting and how to complete the report. So I gave the link and it says learn more about the beneficial ownership information reporting requirements. It's an extra form to make sure that you're complying with all of your stuff.

Speaker 1:

So just make sure you cross your T's and dot your I's so you don't get your butt rings later on and come to me in a panic because I am not an attorney. I just am a cleaning business or a doctor or a doctor. I try, you know, I just try to give you the best advice that I know. I always encourage you to take everything at face value for me and obviously do your own research. I don't want to give misinformation. I do my own due diligence to try to make sure that what I'm giving you is legit.

Speaker 2:

You can only give a generalization and then you need they need to take it from there and do their own. You're right, right, it's not. You know, here you go on. You know you're not going to look up your laws for you if you're in New Jersey.

Speaker 1:

You should know, if you're operating a house cleaning business or a short-term rental business, that you were required to pay sales tax. Don't let them give you a letter three years down the road and they go. You owe us this, plus penalties and interest which, by the way, penalties and interests are always negotiable. Hardcore been audited many times. You can get to a certain point in the conversation. You're like oh yeah, I can negotiate this. So I'm not, I'm not guaranteeing it. I probably shouldn't just threw that on my butt, but it's, everything is negotiable and everything is work at work. What is what is it?

Speaker 1:

marie for real work aboutable. Marie, if you're ever listening to this, I'm sorry, that's that's what we have to say about the 1099s. Please, if you're going to decide what to do, pick one or the other. When you're more advanced, you can have a hybrid and and understand what the dynamics are. If you have questions, if misclassification, go to the FTC. Go to misclassification on Google or DuckDuckGo or whatever you're using.

Speaker 1:

Tons and tons of information comes up about this topic so you can make sure that you are advising yourself. And then please don't tell me I hate this the insurance agencies, you guys out there who give insurance, are telling business owners these are not owners themselves that it's okay to have them sign this non-compete. You should actually go to an attorney who specializes in labor laws. Yes, Don't get yourself in trouble. Don't take advice from an insurance person on a non-insurance related question. Go to an attorney. That's how I, you know. Pay the 350 bucks or whatever. Have them script out something for you and in labor law for your state. Don't have someone who is an international company who also has clients in the Philippines, when those rules are different for you. So make sure you have you do your own due diligence and that you're finding someone who can work with you so that you can get yourself out on the right foot. Yes, yes, definitely. Well, it was good to see everyone. Miss Jamie, thank you so much for stepping in, Really appreciate it, oh absolutely Thanks for having me.

Speaker 2:

This was fun.

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Jamie Runco

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Shannon Miller

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