Unless you have a very small vacation rental business (e.g., renting out just one home) or you can’t devote yourself to the business as a full-time job, you’ll likely need to hire staff to handle maintenance, cleaning, and other rental property-related work as well as someone to help you handle customer booking and guest needs and requests.
If you have a sizable vacation rental business, and perhaps even if you don’t, you may want to or have to hire additional outside staff beyond whomever you may have working for you in-house. These outside staff are generally classed by the IRS as 1099 employees because under IRS rules you must issue them 1099 tax forms rather than W2’s.
The following are some key considerations concerning whether and to what extent it would make more sense for you to hire in-house or 1099.
Some Basic Definitions
“In-house” staff workers are employed by your own organization. They are regular employees who come in every day or on a strict schedule you set and who have to follow your rules for how to do their work, dress code, etc. They will file their taxes on W2 forms.
An office secretary or a full-time maintenance handyman working directly for you would typically be W2 workers. 1099 hires are independent contractors over whose work schedule and methods you have less control because they technically work for someone else – themselves, another company, or a staffing agency.
Plumbers, electricians, workers from a cleaning service, or temporary workers you find through a temp agency would all fall under the category of 1099 hires.
Pros and Cons of Hiring In-House Vs. 1099
- You set the terms of their pay
- You control completely when and how they do their work
- As regular wage or salary employees, their availability for work when you want it done is reliable (if they want to keep their job)
- Your legal responsibilities for them and related burdens are higher: most notably, you have to handle payroll taxes and income tax withholding and provide benefits (health care, retirement, etc.) and overtime pay
- Less flexibility in terms of work hours
- Limited capacity to do all the work you may need. Unless you are quite wealthy, having on a regular wage or salary basis all the people you need for things like cleaning service or extra work during your busy season may be cost-prohibitive
- Training: Any staff who don’t know how to do a particular job right will have to be trained, and that means extra time and energy on your part
- Limited responsibilities: you obviously will have to abide by the terms of any contracts or agreements you make with 1099 hires, but you won’t have to worry about payroll taxes, withholding, benefits, or overtime pay. This saves you time and money
- Greater flexibility: you can hire them on a strictly as-needed basis, for one-time jobs or to help during busy seasons, and you can hire and fire them more easily.
- Greater specialization and efficiency: Most of us don’t try to do our own plumbing or electrical work or major construction for a good reason – other people know how to do the work better than we do. That’s why we hire independent contractors for those kinds of jobs. The same is true of many occasional maintenance people – landscapers, painters, or A/C repair technicians, for example. Any training needed will be provided by other people. And even fairly simple jobs that you or in-house staff could do reasonably well on your own, like cleaning, can often be more efficiently handled by people who do that one activity as their one job. These are all good candidates for 1099 hires.
- You have less of a say in what to pay them. In the case of W2 employees, you make the payment offer, which they can take or leave. In the case of 1099 hires, it’s the other way around. Some independent contractors for some jobs may be able to haggle with you on price, but they have more leverage than you, especially if they’re doing a big and expensive job like building renovation.
- They have more control over when and how they work. You can’t always get that painter you want in the exact time window you’d prefer. They determine when they’re available, and if you don’t like it, you’ll have to find somebody else. They also ultimately determine their own work methods. Good independent contractors may sometimes defer to your wishes for aspects of how a job is done, but only to the point that they think is reasonable. If you’ve ever had to work with construction contractors, you probably understand immediately. It’s much easier for independent contractors to just “walk” if they don’t like what you’re asking of them.
Another Crucial Consideration
Misdesignation of workers for tax and benefits purposes can result in significant government penalties. Many businesses have hired staff workers as 1099 employees when they should have been classified as regular W2 employees, either through ignorance of the workers’ proper legal status or deliberately, in order to save money (since you don’t have to cover payroll taxes, benefits, etc. for 1099 people).
The problem of misdesignation has become so common that the Department of Labor has in recent years begun to crack down on the practice, imposing fines and holding offending companies liable for income taxes that should have been withheld, overtime pay, workers’ compensation and unemployment insurance costs, and the cost of benefits to which W2 employees are entitled under US law. There can be further fines and liabilities under some state laws.
One common point of confusion is that many people think of 1099 forms as relating only to individuals, whereas outside companies and staff agencies who supply workers for you fall under the 1099 category as well. Individual contractors are not just individuals.
Bottom line, be sure you know which of your employees are W2 and which are 1099 and act accordingly!
So What Should You Do?
After weighing the pros and cons, list out everything you’ll likely need outside help for (cleaning staff, A/C technicians, extra help during busy seasons, etc.) and prepare to line up service providers. For some regular year-round tasks, like cleaning and regular A/C maintenance, you’ll want to set things up right away.
Lining up extra help for busy seasons can wait till closer to those seasons, but make sure to have those seasonal staff people all lined up before the season starts. List out, too, all your employees according to their W2 or 1099 status and make sure everyone’s tax status has been properly assigned. Now get to it!