I am going to start making cakes and a friend of mine want's to help, she has worked in a bakery before in a grocery store and would be a big help since my work sechulde would limit me she could do the work while am at my other job so we could get orders out. But how should I pay her by the hour or job. remember we are just starting up pay will go up as orders increase. thanks
how much to pay helper
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You have to discuss this with your friend.
She can call herself a self-employed subcontractor in which case she pays the workers comp and other payments. You can pay her by the job, even a set fee instead of an hourly rate.
Or you can call her an employee, but then you are on the hook to pay her and her payroll taxes even if you lose money. Not paying an employee on time is a good way to get into deep doo-doo with the IRS.
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Are you sure she knows she's only going to be a helper and not a partner though?
Yes of course the self-employed taxes are higher.
But a startup business will have such irregular cash flow that the commitment to pay an employee even a variable number of hours per week will be difficult. Once you hire an employee, you MUST pay those wages and those employer deductions on time...even if you yourself go home with a hole in your pocket as a result. Should you fail to do so, then your employee can report you to your state labour department as well as your tax collectors. BIG trouble.
And NO "the pay will go up as orders increase" is NOT the way to discuss this. For an employee the hourly rate stays the same, what goes up is the number of hours worked. Once that employee gets to whatever your state defines as "full time" then additional employer expenses may kick in. YOU better find out what those would be.
So whichever way you do it, get it on paper and both sign two copies--one for each.
Edited by BakingIrene - 1/20/13 at 7:03am
Also be aware that if you hire her as an independent contractor but treat her as an employee (see the common law rules in the link below) you will be held liable for the relevant employment taxes anyway.
Thank you ever so much Jason for posting this extremely important link. And all the useful and improtant documents that link from it.
Can this please go into the "stickies" for "how to hire" so we can point it out in future?