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Sub-contracting…Painter’s Dirty Little Secret

When you hire a painting company, you might assume that the guys giving you an estimate will be coming out to apply the paint.  That would be pretty naive in todays market.  Most people also probably assume that the painters that show up to paint their home are actual employees of the company that they have hired.  This too is fairly naïve.  Most painting contractors that run multiple crews will typically call their painters “my guys” or “our painters”, but this does NOT mean that they are actual employees.  In fact, the majority of painting companies (I would guess over 65%) refer to their painters as employees, but actually hand out 1099s to everyone at the end of the year. I was just talking to my health insurance provider yesterday about a company keeping over 50 painters busy in the field.  I asked how many employees they had on health insurance, he said 10.  If you know anything about health insurance policies, you know that a company has to have over 50% participation to get a policy.  This is fairly common practice in the painting industry.

So, you might be asking: what’s the big deal?  Why does this matter?  Well, many companies fill their busy time with subcontractors; in painting this is common.  Unless you hire Joe and his buddy, Bob (and even Bob, Joe’s painter, might still be 1099), you can almost assume that the company only has sub-contractors.  Due to the high demand of painting in the summer, it is hard to keep guys busy all winter.  

Why are Subcontractors bad?

Companies that run a sub model (versus an employee model), have little control over these workers.  According to the US Government, if you are subcontracting work, you can’t tell them what time to be on the job, how to do the job, or supply any tools for the job.  The contractor must also be able to work for other people.  If they receive a majority of their income from that main company, they can be liable for payroll taxes and fines…big fines!  This is where I believe the employee, or the subcontractor, really loses.  As an employer, I am responsible for 50% of the employee’s taxes.  If you hire subcontractors, they will be paying those taxes.  On top of that, the sub-contractor may not be covered by any workman’s compensation insurance.  As the owner, I am not required to cover myself with workman’s comp insurance; which is fine, as I don’t do any of the painting.  BUT, if a subcontractor/employee is in this scenario, they will be painting at your home, and may not have any coverage, opening you up to huge liability.  The painting contractor may be able to supply you with a workman’s compensation policy, but that does not cover any of their subcontractors…only employees. 

Then there are the problems on the job site.  Last year we lost one of our project managers to one of the biggest painting companies in Denver.  They run a subcontractor model.  Our current project manager runs into our previous project manager on occasion.  An extensive amount of his frustration and time is spent chasing down subcontractors that damage property and operate however they want. On top of this, I hear consistent stories from painter friends of mine across the country that are managing subcontractors. They tell me that the contractors do sub-par work, create havoc for homeowners, and are out of control.  Can you find a company that has good subcontractors?  Sure, but it is hard to get consistent work out of guys that have get nothing from the company’s success. 

The Advantage

The advantage of running the subcontractor model is that it is cheaper.  Less insurance. Less taxes.  Less equipment to buy.  And then there is time.  Less time to manage (because they simply don’t), less time on payroll, and none of the typical HR activities.  The only advantage to you, the homeowner, is that you may get a lower cost.  But, at the end of the day you might not.  

Advantages of Employees      

Investing into an employee-based system is how we have chosen to operate, and I believe you can see the results by the high satisfaction our customers have with us.  A quick look at our Google reviews will show you almost 100 five-star reviews, and most of those were earned this year as we have had an internal initiative to gather them.  Our team is incentivized to get them.  Due to running an employee model, we can tell our team when to be at the job site, how to complete the work, and what products and tools to use; which is very important due to our lifetime warranty that we provide our customers.  On a different note, our customers benefit by a very consistent schedule due to our employee model.  Hiring subcontractors can be unpredictable.  If a higher paying job comes up, they might just push yours back, or simply refuse to do it at all. 

So, the next time you are hiring either a painting contractor, or any contractor for that matter, you might want to ask if the workers are 1099 subcontractors, or if they are real W2 employees. 

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