7 ms·

Ask HN: Hiring an Employee in a Low Income Sole Proprietorship

5 points by orware 13y ago

Maybe the community can help educate me on this question I've had for a while. Aside from my day job, I've been running a small software business (selling add-ons for a CMS) that maybe brings in about $200-$300 a month in income, which isn't much. However, I'd like to grow the business and there's a past student of mine who's been helping me out for about 6 weeks now as a volunteer at my day job and now I've had him also start helping me with some bug fixes and new feature additions for the software I sell. I'd like to hire him properly, and I'm sure I could use something like Zen Payroll to help out with the paperwork and other taxes that would be incurred to do so (Zen Payroll is relatively inexpensive, but I'm not sure how much the California/Federal taxes/fees might be), but I've never hired anyone before so it's kind of a scare thing (after the first hire it should be a lot easier :-). Would hiring that first person using Zen Payroll as easy as signing up and adding him in? The conundrum I have though is, how can I hire someone, when the business itself isn't even making enough to provide a decent wage? With our current income, I'd really only be able to afford to pay him for a few hours a month (if I was solely relying on the business income). Should I start small and just pay him out of what I can afford right now, or should I bring in more of my own money and make it easier to give him at least a few hundred dollars in wages each month? Thanks for the help!

dangrossman 13y ago
It doesn't sound like you can afford an employee, even if the cost of payroll taxes and such were zero. You can barely cover a consult with a lawyer and accountant to understand the labor laws and get payroll set up. $200-300/month just doesn't justify that kind of paid help. If you wanted to invest some of your money to have him do something for you, it'd more realistically be as an independent contractor, not as an employee. If you feel bad about having him do work on your side business un-compensated, and can't afford to compensate him what you feel he's worth, the only right thing to do may be to not have him work on your side business. Perhaps you can repay his volunteer efforts so far by helping him start his own business or project of some sort. Careful with the volunteering thing either way. If someone's treated as an employee, and doing the work an employee would do, they are owed minimum wage, no matter what you each call the relationship. The IRS and state want their income and payroll taxes.
- orware 13y ago
  Hi Dan, thanks for the reply!. Back in 2006 I ended up starting an LLC (nieve young man that I was), but didn't end up getting my business taxes done by an accountant until 2008, and I ended up shuttering the LLC aspect of the business shortly thereafter because of the automatic $800/yr that California charges in taxes for that privilege. In mid-2010 I started the software business (first time I had gone that route, prior to this with the LLC it was mainly work creating websites for other local businesses which never amounted to much since our area just isn't very tech savvy and I didn't market myself online). This I can say was my first real success (in that I was able to create a mini-business that actually resulted in some profit at the end of the year) and I've been maintaining that ever since, but it hasn't really grown much over the past few years (though updates have been put out, I haven't developed as many of the new products I had ideas for, primarily because the day job eats up so much of my energy and pays the bills). My goal though is to eventually build up that mini-business enough where I could provide a few local development jobs and maybe start building up that sort of industry locally, since our location doesn't really matter when we can market to the world at large :-). (Our county has the highest unemployment in California at about 25%). As far as the lawyer/labor laws stuff, I do believe you're right there, though I was hoping a new service like Zen Payroll would allow me to not have to worry about those sorts of things and just worry about getting money to/from the employees. You're also right that $200-$300/mo doesn't really justify paid help, to a degree, but since I have my day job and can't put a lot of energy into the software business, getting some help to build out those ideas for new products wouldn't be a bad idea. Right now he's volunteering to gain experience, but as I've decided to do a few small contracting development jobs recently (mainly to earn some extra money for the business so I can give him something) I'm giving him some of that extra money and paying for the lunches we're having together as an additional thank you. So far I haven't given him enough to justify making him an independent contractor and doing any W-9 stuff, but I'd definitely like to do more for him if I can, I'm just looking to see what the best options might be.
  - gamblor956 13y ago
    You need to talk to a lawyer, despite the expense. Your "volunteer" sounds like an employee, and the situation sounds a lot like one of the abusive internship situations. In a nutshell, your volunteer is entitled to compensation for his work, and even if you never paid or don't actually pay him, the various federal governments will simply treat that as a timing difference. They'll want their taxes and FICA on the compensation, and failure to pay those amounts can lead to fines and penalties that easily exceed the amount of money you bring in from the business on an annual basis.
amirouche 13y ago
> Should I start small and just pay him out of what I can afford right now, or should I bring in more of my own money and make it easier to give him at least a few hundred dollars in wages each month? What about paying him what his work is worth?
- orware 13y ago
  I know that sounds like an obvious question and the answer to that is obviously yes, but the business is not making enough to provide what I believe his work is worth right now (and to pay him above and beyond what's coming in would have to come out of my own pocket from my day job salary). Also keep in mind that where we live programmers don't make nearly the same amount as they would in the Bay and technology-type jobs are pretty scarce. The only major local web development firm would probably hire him as an intern, with a bit more training, and start him off in the $11-$15/hr range (if they are even still looking for an intern). I know he could do well in a different city, but he's told me he'd like to stay local, which unfortunately affects his opportunities to get a position doing development work. I fully agree with you though, I do want to pay him what he's worth because I know he has a lot of potential (and I've seen it more or less going to waste the past 3 years after he graduated, which is why I asked him to start volunteering with me so he could gain experience and I could also think of ways I could help him out). The only negative there is that I don't have enough money to truly do that (but by him starting off and helping me do more work in the business I'm pretty sure we can make the income go up, which would allow the business to pay him more as we grew). I hope that helps to clarify things a bit.
deleted 13y ago
[deleted]
sharemywin 13y ago
you could look at bidding out jobs on elance or some other sites and he could earn the money from that.
- orware 13y ago
  Hi sharemywin! That's another idea (I had thought about it before, but now that he's building up his skills to the point where he's comfortable building/working on things by himself, even though I'm still going to be available to assist if needed, it's something I can come back to and start encouraging him to try out :-). Thanks!

5 points by orware 13y ago

dangrossman 13y ago

It doesn't sound like you can afford an employee, even if the cost of payroll taxes and such were zero. You can barely cover a consult with a lawyer and accountant to understand the labor laws and get payroll set up. $200-300/month just doesn't justify that kind of paid help. If you wanted to invest some of your money to have him do something for you, it'd more realistically be as an independent contractor, not as an employee. If you feel bad about having him do work on your side business un-compensated, and can't afford to compensate him what you feel he's worth, the only right thing to do may be to not have him work on your side business. Perhaps you can repay his volunteer efforts so far by helping him start his own business or project of some sort. Careful with the volunteering thing either way. If someone's treated as an employee, and doing the work an employee would do, they are owed minimum wage, no matter what you each call the relationship. The IRS and state want their income and payroll taxes.

orware 13y ago
Hi Dan, thanks for the reply!. Back in 2006 I ended up starting an LLC (nieve young man that I was), but didn't end up getting my business taxes done by an accountant until 2008, and I ended up shuttering the LLC aspect of the business shortly thereafter because of the automatic $800/yr that California charges in taxes for that privilege. In mid-2010 I started the software business (first time I had gone that route, prior to this with the LLC it was mainly work creating websites for other local businesses which never amounted to much since our area just isn't very tech savvy and I didn't market myself online). This I can say was my first real success (in that I was able to create a mini-business that actually resulted in some profit at the end of the year) and I've been maintaining that ever since, but it hasn't really grown much over the past few years (though updates have been put out, I haven't developed as many of the new products I had ideas for, primarily because the day job eats up so much of my energy and pays the bills). My goal though is to eventually build up that mini-business enough where I could provide a few local development jobs and maybe start building up that sort of industry locally, since our location doesn't really matter when we can market to the world at large :-). (Our county has the highest unemployment in California at about 25%). As far as the lawyer/labor laws stuff, I do believe you're right there, though I was hoping a new service like Zen Payroll would allow me to not have to worry about those sorts of things and just worry about getting money to/from the employees. You're also right that $200-$300/mo doesn't really justify paid help, to a degree, but since I have my day job and can't put a lot of energy into the software business, getting some help to build out those ideas for new products wouldn't be a bad idea. Right now he's volunteering to gain experience, but as I've decided to do a few small contracting development jobs recently (mainly to earn some extra money for the business so I can give him something) I'm giving him some of that extra money and paying for the lunches we're having together as an additional thank you. So far I haven't given him enough to justify making him an independent contractor and doing any W-9 stuff, but I'd definitely like to do more for him if I can, I'm just looking to see what the best options might be.
- gamblor956 13y ago
  You need to talk to a lawyer, despite the expense. Your "volunteer" sounds like an employee, and the situation sounds a lot like one of the abusive internship situations. In a nutshell, your volunteer is entitled to compensation for his work, and even if you never paid or don't actually pay him, the various federal governments will simply treat that as a timing difference. They'll want their taxes and FICA on the compensation, and failure to pay those amounts can lead to fines and penalties that easily exceed the amount of money you bring in from the business on an annual basis.

amirouche 13y ago

> Should I start small and just pay him out of what I can afford right now, or should I bring in more of my own money and make it easier to give him at least a few hundred dollars in wages each month? What about paying him what his work is worth?

orware 13y ago
I know that sounds like an obvious question and the answer to that is obviously yes, but the business is not making enough to provide what I believe his work is worth right now (and to pay him above and beyond what's coming in would have to come out of my own pocket from my day job salary). Also keep in mind that where we live programmers don't make nearly the same amount as they would in the Bay and technology-type jobs are pretty scarce. The only major local web development firm would probably hire him as an intern, with a bit more training, and start him off in the $11-$15/hr range (if they are even still looking for an intern). I know he could do well in a different city, but he's told me he'd like to stay local, which unfortunately affects his opportunities to get a position doing development work. I fully agree with you though, I do want to pay him what he's worth because I know he has a lot of potential (and I've seen it more or less going to waste the past 3 years after he graduated, which is why I asked him to start volunteering with me so he could gain experience and I could also think of ways I could help him out). The only negative there is that I don't have enough money to truly do that (but by him starting off and helping me do more work in the business I'm pretty sure we can make the income go up, which would allow the business to pay him more as we grew). I hope that helps to clarify things a bit.

deleted 13y ago

[deleted]

sharemywin 13y ago

you could look at bidding out jobs on elance or some other sites and he could earn the money from that.

orware 13y ago
Hi sharemywin! That's another idea (I had thought about it before, but now that he's building up his skills to the point where he's comfortable building/working on things by himself, even though I'm still going to be available to assist if needed, it's something I can come back to and start encouraging him to try out :-). Thanks!