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Should I hire contract cleaners or W-2 employees for my cleaning business?

April 15, 2023 in Business

As your maid service grows, one of the most important decisions you’ll make is who to hire to execute your cleaning services. After all, your services are the bread and butter of your business — it’s an important step. You have two options when it comes to hiring: contract cleaners and W-2 employees. In this article, we’re breaking down what exactly employees vs. contract cleaners are, the main pros and cons, and the financial implications each one brings. 

Before we dive in, please note: This article is written to help you grow your cleaning business but is not intended to be taken as legal advice. Always consult with legal and financial professionals when it comes to hiring for your maid service.

What are contract cleaners?

Contract cleaners are self-employed individuals or companies that offer their services to businesses for a fee. Basically, you pay them an agreed-upon amount for their services, and they’re responsible for paying their taxes and expenses. In the United States, you might also hear contractors called “1099 employees”, though they’re not actually employees of the company they’re doing services for. Contractors in the cleaning industry often work independently and provide their own equipment and supplies.

The benefits of contract cleaners

Let’s say you own a small cleaning business offering commercial and residential clients services. Your business is relatively new, and you don’t have a lot of regular clients yet. Your cleaning needs vary depending on the clients you serve, and you need flexibility in your staffing. In this case, hiring contract cleaners would be more beneficial for your business. Here’s why:

Cost savings: As a new business, you may not have a large budget to hire full-time employees. Contract cleaners can offer cost savings because they work on a project-by-project basis, and you only pay them for the hours they work. You don’t have to worry about paying benefits, taxes, or workers’ compensation insurance.

Flexibility: Contract cleaners offer flexibility because you can adjust your staffing needs depending on your workload. For instance, you can hire more contract cleaners to help with the workload if you have more clients in one month, and then for a slower month, you can hire fewer. 

Niche expertise: Some contract cleaners specialize in certain types of cleaning services, such as carpet cleaning, window cleaning, or deep cleaning. You can benefit from their specialized expertise by hiring contract cleaners without investing in training your employees.

Less administrative burden: When you hire contract cleaners, you don’t have to worry about administrative tasks like payroll processing, tax withholding, or providing benefits. The contract cleaner is responsible for handling their own taxes and benefits, which can save you time and hassle.

Less liability: You’re not responsible for providing benefits such as health insurance, retirement plans, or vacation pay to contract cleaners. Now, this doesn’t mean you should neglect to have insurance coverage for your business. We have an article covering all things insurance here if you want to learn more.

The cons of hiring contract cleaners

While all those pros may sound enticing, there are some downsides to hiring contract cleaners. Here are some cons to be aware of:

Lack of control: When you hire contract cleaners, you have limited control over their work schedule, products used, training, and sometimes, the quality of work performed. Similarly, the same contract cleaner may not be available each time you need cleaning services, making it difficult to maintain consistency in the quality of the services. This can lead to inconsistencies in the quality of work performed, which can negatively impact your business’s reputation and lead to client dissatisfaction.

Limited availability: Contract cleaners may not always be available when you need them. If you have a large project that requires a significant amount of cleaning, you may need a team of cleaners to work on it for an extended period. Contract cleaners may only be available for short-term projects, which can disrupt your workflow.

Higher costs: While contract cleaners can offer cost savings for small businesses, they may not be cost-effective for larger businesses. Contract cleaners charge a premium for their services because they must cover their taxes, benefits, and administrative costs. In the long run, hiring full-time employees may be more cost effective for larger businesses.

Limited loyalty: Contract cleaners are not committed to your business like W-2 employees (hopefully) are. They may work for your competitors or leave your business for other opportunities, which can lead to a loss of valuable knowledge and experience.

All in all, hiring contract cleaners may not be as beneficial for larger cleaning businesses that require a high level of consistency, quality, and control over their cleaning services. W-2 employees could be more beneficial, which brings us to the next section:

Source: Towfiqu Barbhuiya at UnSplash

What are W-2 employees?

W-2 employees are individuals you hire to work directly for your business. You’re responsible for providing them with equipment, supplies, and a workspace to perform their job. You pay them a salary or hourly wage, and they’re responsible for paying their taxes.

The benefits of hiring W-2 employees

Let’s say you own a medium to large cleaning business that regularly serves commercial and residential clients. You have a steady stream of work and require high consistency and quality in your cleaning services. You need staff members who can work consistently and commit to your business for a longer period of time.

In this case, you may want to consider hiring W-2 employees for your business. Here’s why:

More control: When you hire a W-2 employee, you have more control over their work schedule, the products they use, and the quality of work they perform. You can also create an in-house training program to ensure that your employees are performing at a high level and offer incentives to motivate them to give the best possible service. Head to this article to learn more about a consistent training program: Create a training program for your cleaning staff.

Built-in consistency: W-2 employees offer consistency in the quality of work performed. You can train your employees to perform tasks consistently, ensuring that the quality of work remains high.

Lower costs: While W-2 employees may have higher upfront costs, they can be more cost-effective in the long run, depending on the structure of your maid service. W-2 employees do not charge a premium for their services because you are responsible for their taxes, benefits, and administrative costs. 

Loyalty: W-2 employees are committed to your business in the long run. If you have a great company culture, your employees will be less likely to work for your competitors or leave your business for other opportunities. This can help you retain valuable knowledge and experience in your cleaning services.

The Cons of Hiring W-2 Employees

There are some downsides to hiring W-2 employees. Here is a couple to be aware of:

Upfront costs: W-2 employees come with higher upfront costs than contract cleaners. As an employer, you are responsible for their taxes, benefits, and administrative costs, regardless of how much work they perform. If you don’t have a steady stream of work or business capital, it may be difficult to justify the high costs associated with hiring a W-2 employee.

Administrative burden: Hiring W-2 employees comes with a significant administrative burden. You need to comply with various state and federal laws, including tax withholdings, unemployment insurance, and workers’ compensation insurance. If you don’t have the resources to manage these administrative tasks, it can be challenging to hire and manage W-2 employees effectively.

Overall, hiring a W-2 employee may not be more beneficial for small cleaning businesses that require staff members who can work on an as-needed basis. In this case, hiring contract cleaners may be a more effective option because they offer more flexibility, lower costs, and a lower administrative burden.

Source: Cytonn Photography at UnSplash

How to handle wages

The decision to pay workers an hourly or a percentage wage will depend on your specific business needs and your workers’ preferences. Here’s a 1,000-foot breakdown to help you make a decision.

Hourly versus percentage

First, let’s consider the pros and cons of each:

  • Percentage wages can be more motivating for workers, as they have the potential to earn more money based on the number and size of jobs they complete. On the other hand, if you don’t have a system for quality-checking in place, this could lead to poor quality cleans that have been rushed through.
  • Percentage wages can be more cost-effective since labor costs are directly tied to revenue generated. Basically, fewer cleans you have in a day means fewer labor expenses, while hourly employees must be paid the same amount no matter how many cleans were completed.
  • Hourly wages ensure your cleaners earn a living no matter how busy the day is. Percentage wages may lead to inconsistent earnings for workers, as their pay is tied to the number and size of jobs completed.
  • Hourly wages can mean higher quality cleaning because cleaners might feel less rushed in their workday. 

Paying an hourly wage

Hourly wages are the most common form of payment for both contract cleaners and W-2 employees in the cleaning industry. When paying an hourly wage, you simply pay your workers a set rate for each hour they work. 

Here’s how to pay an hourly wage:

  1. Calculate the hourly rate: The first step in paying an hourly wage is to determine the appropriate rate for your cleaners or employees. You’ll need to take into account factors such as the complexity of the job, the level of experience and skill required, and the local market rates.
  2. Set clear expectations: Make sure that you and your workers are on the same page about the expectations for their work, including the number of hours they are expected to work, the specific tasks they are expected to perform, and any quality standards they need to meet.
  3. Track hours accurately: It’s important to track the hours your workers spend on the job. This will help you ensure that you are paying them the correct amount for their work and will help you manage your labor costs effectively.
  4. Pay on time: You should pay your workers on a regular schedule, such as weekly or biweekly. This will help you maintain good relationships with your workers and help keep on top of bookkeeping.

Paying percentage wages

Instead of paying cleaners an hourly rate, you pay them a percentage of the total amount charged for each job they complete. For example, you might pay a cleaner 30% of the total fee charged to a client for a specific cleaning job. The percentage you choose to pay will depend on the overall pricing structure of your services. Want to learn more about creating a pricing system for your cleaning business? Check out this article next.

Source: Kelly Sikkema at UnSplash

What are the tax implications of hiring contract cleaners vs. employees?

The main tax differences between paying contract cleaners and hiring a W-2 employee in the United States include payroll taxes, self-employment taxes, benefits, and reporting requirements. It’s always important to consult with a tax professional to understand the tax implications of each option and ensure that you’re in compliance with all tax laws and regulations. In the meantime, here are the main tax differences to note:

Payroll taxes: As an employer of a W-2 employee, you’re required to withhold payroll taxes, which include Social Security and Medicare taxes, from the employee’s wages. You’re also responsible for paying the employer’s share of these taxes. On the other hand, when you hire a contract cleaner, you’re not responsible for withholding or paying payroll taxes on their behalf.

Self-employment taxes: Contract cleaners are considered self-employed individuals, which means they’re responsible for paying self-employment taxes, which include Social Security and Medicare taxes, on their net earnings. They’re required to file a Schedule C with their personal tax return and pay self-employment taxes accordingly. W-2 employees, on the other hand, do not have to pay self-employment taxes.

Benefits: As an employer of a W-2 employee, you’re required to provide certain benefits, such as workers’ compensation insurance, unemployment insurance, and paid time off. These benefits can be costly for employers. In contrast, contract cleaners are responsible for their own benefits, such as health insurance and retirement plans.

Reporting requirements: As an employer of a W-2 employee, you’re required to file Form W-2 with the Social Security Administration (SSA) and provide a copy to the employee each year. You’re also required to file Form W-3, which summarizes all the W-2 forms you issued to your employees. When you hire a contract cleaner, you’re not required to file any forms with the SSA.

Wrapping Up

Choosing between contract cleaners and W-2 employees can be daunting for any cleaning business owner. Ultimately, the decision will depend on your unique business needs and circumstances. Consider the size of your business, the type of cleaning services you offer, and the demand for your services. Then, determine the amount you can afford to pay for cleaning services. And finally, decide how much control you want over the work schedules, products used, and quality of work performed by the cleaners.

We hope this article helped in your decision to hire contract cleaners or W-2 employees. Our helpful hiring content doesn’t end here. For all things hiring and training in your cleaning business, check out our magazine articles on the topic right here.

Your next step

If you found this article helpful for your maid service, you may also like:

ZenMaid is the simple scheduling software that will help you save 30+ hours in your cleaning business every week. Join thousands of other cleaning business owners who now have time to take a nap, spend time with their family and take vacations! Start your free 14-day trial today to discover how many hours you can get back in your week.

ZenMaid

Amar is the founder and CEO of ZenMaid Software, Inc. He started and ran Fast Friendly Spotless, a maid service in Orange County, CA. With the help of customized software to automate work he successfully operated the service in under 30 minutes per day. He created ZenMaid scheduling software to help other maid service owners do the same.

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