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In any business hiring and managing employees is a difficult and challenging process. It is also a legal and bookkeeping nightmare and can cost a lot in terms of bureaucracy and record-keeping.
You may be tempted, for good reason, to hire independent contractors.
Let’s address the nuts and bolts of hiring property management contractors versus employees.
Less Paperwork and Accounting
Hiring guidelines are far less stringent. With independent contractors, you aren’t extending an offer of employment and therefore do not have to establish the right to work; it is assumed.
You will not have to keep extensive records like social security numbers, drivers license information, or passport copies.
No Taxes or Retirement
You will also not have to withhold taxes or even put them on your payroll. In fact, independent contractors are responsible for paying their own taxes and the only requirement you have is reporting what you pay them over the course of any given year. Check IRS rules for specifics.
With independent contractors, you will not have to administer their 401k or other types of retirement programs, whereas with employees, you most certainly will. There is high cost associated with the administration and record-keeping of such retirement plans.
Additionally, you do not have to provide disability insurance or unemployment benefits insurance for independent contractors; of course, these are added costs with additional overhead for program administration for employees.
The Downside to Hiring Independent Contractors
There are some pitfalls to hiring independent contractors.
Firstly, while you do not have to provide insurance for various risks, it may be in your best interests to do so. For example, if an independent contractor works on your behalf in a customer’s office and injures himself or somebody else, you and your business may be sued; at the very least, the costs of defending yourself in court could be prohibitive.
If you have thorough business insurance, you may find that your risks of said issues are passed to the insurance company and they are more likely to settle a claim before it ever gets to court.
Another pitfall with hiring independent contractors is that you cannot dictate with as much detail as you can with an employee the working parameters.
Things such as work times, work days, and work apparel are not under your purview. If, at any time, you are not satisfied with how an independent contractor represents your company, you can simply fire (or not rehire) him and call it a day.
You cannot do this as easily with an employee, even in “at will” states such as California. Sometimes, it takes weeks and even months to terminate an employee, who can simply choose to sue you for wrongful termination and tie you (and your funds) up in court for months or even years.
Employee vs. Contractor
In the case of property management, your choice for hiring employees versus independent contractors is fairly simple: Run the numbers and see what works best for your situation. For landscaping services, it may be much more feasible for you to hire an outside company that to hire internally; there simply isn’t enough work on a weekly basis to hire an employee and hiring a part-time staffer may just not make sense given the level of effort required to place him on the payroll.
On the other hand, it may be a no-brainer to set up something with an independent contractor to come by once every week or two and perform the tasks necessary to keep your property looking beautiful.
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FAQs for Property Management Contractors
What do property management companies pay their contractors?
In most cases a property management company will pay 10-15% less to a contractor compared to what the contractor would have received from a one off job. This is understandable because the value in working with a property manager is they can provide a higher volume of projects.
Once a relationship has been established a contractor can have one client (the property manager) and have hundreds of rentals that could potentially need work in the near future. The property manager in many instances is adding a markup to their client for their time on whatever the contractor charges them.
Property management looking for contractors
To identify a property management company looking for contractors the first thing you’ll want to do is create a list of possible companies to outreach to. Time is money though so we’d recommend hiring someone to do the data mining for you.
You can reach out on a service such as fiverr.com and enter “data mining” into the search bar. Then hire the person to find property management companies in your area including the contact information.
Next, understand that the pain points for a PM are that they don’t want to chase down contractors to finish work. They want someone who is insured, reliable, and does good work. That’s it. When you reach out to property managers make sure you get those three points across.
How do property management companies hire contractors?
This really depends on the property management company. Some will go to Craigslist, Home Advisor, or Porch.com and others will go to local real estate meetups to get referrals. A great place to find work as a contractor is to make a relationship with people at tool rental locations. The desk associates speak with hundreds of landlords and even property managers who are smaller or perhaps doing DIY projects on their own home.
A great tactic would be to get involved with the associations where property managers hang out. NARPM.com is a great place to start and they have a directory of members too.