Still undecided or unsure how to hire for your cleaning business? Should you do w2 employees or 1099 independent contractors.
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Still undecided or unsure how to hire for your cleaning business? Should you do w2 employees or 1099 independent contractors. In this webinar, we discuss with Cleaning Coach Debbie Sardone all the advantages and disadvantages of each type of contract.
I've personally done both, I've spoken to hundreds of cleaning entrepreneurs about this, and I think together with Debbie Sardone, we will help you make a wise decision a clear direction for your business.
All right, guys. Thank you. It's a pleasure to have you today with this hot topic, 1099 versus W2 workers. Today, we have Debbie Sardone, a great friend and coach that I've met for a couple of years now and that
has helped my business tremendously and all of us in the cleaning business to grow and thrive in our companies. So I'm always grateful for her help, her mentorship. And she had some time today to share with us about this specific topic. And well, Debbie, thank you for coming. It's a pleasure to see you here today...
Debbie Sardone:
Thank you. I'm so honored to be here. Always happy to. We still see your screen, I guess you know that, but we're still looking at your screen.
Juan Chaparro:
Okay. Yeah.
Debbie Sardone:
I didn't know if you knew that, but yes, I'm so happy to be here. Always honored and love working with Juan. He's built a great business with Pipehire. He's one of our mop-free millionaires. He and Karen have built a phenomenal business.
Juan Chaparro:
Thank you. Yeah. Thank you. It's been a pleasure. All right, so let's get started here. I want talk about some definitions, the pros and cons of these different type of models. I want to talk about this event in Dallas, CBF event this next April and some Q&A. It's very important that you guys have questions pre-written if you want, that helps us as speed up the process as well.
Juan Chaparro:
All right. So definitions, this is very ... You know, Debbie, a lot of people think they have contractors or they think they have employees and they mingle and commingle or confuse these terms a lot and I see that happening across the board. So I researched here and I wanted to put here what's the definition of the independent contractor, and then we'll look at the employee definition. So the independent contractor is the self-employed. They set their own hours, they use their own tools. They might sometimes clean for more people, not just your company. We're not supposed to hold taxes from them and their paychecks. And they do their own taxes and they provide their own benefits. Normally, the form that we use is 1099 to report their earnings. So the independent contractor is really independent and supposedly we cannot train them. We cannot tell them what to do, where to go. We cannot set schedule for them. We cannot put uniforms on them. There's a lot of more things that the IRS considers a real independent contractor. And that's where a lot of people get this confusion.
Juan Chaparro:
Let's look at the employee definition and then we'll talk with Debbie exactly on this. So an employee is hired by your business under an employment agreement to work for you in a certain schedule. You will hold taxes from their wages. You train them to get a specific result, which is, this is what I like the most from the employee model. We pay their employment taxes for them, or a portion of them. Typically, 7.5%, if I'm not wrong. We like to provide benefits. We have more control over them and we say where they go when and how the job is done. That is the employee.
Juan Chaparro:
Here's a chart, but I want to hear about Debbie's first. Debbie, I know you've coached hundreds of people in both situations. Why don't you share more about your opinion on really 1099 versus W2 pros and cons, and like to hear what you have for the audience today.
Debbie Sardone:
Absolutely. Thank you. Thank you so much. Juan, the truth is the IRS is cracking down on businesses who misclassify their employees, right? So that's really the big problem is so many times people think they are complying with the laws because they've made a few adjustments to their business model. And if you misclassify an employee and you designate them as a 1099 subcontractor, and the IRS disagrees with you when they do an audit, if they do an audit. In all likelihood, most people who have classified their house cleaners for their company as 1099, in most cases, you would lose the audit and this could result in thousands of dollars in fines and back taxes owed, which could literally put someone out of business.
Debbie Sardone:
So it's not so much about the pros and the cons of using 1099 workers. The real question is, am I doing it legally? Because right now there are cleaning companies that have people they've designated as 1099 and then there are others who have people that are W2 or employee. So the real question is, am I taking a huge risk because they are literally misclassified? In most cases, if you're a residential cleaning company and the people who work for you, who clean houses day in and day out, in most cases, you don't qualify as 1099. And so I looked this up today just to double check and make sure not too much has changed, but it's actually gotten stricter, not lighter.
Juan Chaparro:
Oh, wow.
Debbie Sardone:
It's harder to classify someone legally as a 1099. Now here's the thing, a small company can fly under the radar for a lot of years and never get caught, right?
Juan Chaparro:
Yeah.
Debbie Sardone:
I was one of those companies years ago. I didn't even know what the laws were when I started cleaning houses and started hiring workers. And I made them 1099 because I didn't even know how to hold out withholding taxes and payroll and all that. So a lot of cleaning companies are doing this by accident because they don't know. Some of them are just afraid to make them employees because they don't know what the ramifications and the liability is. But at the end of the day, if the IRS disagrees with you, that they are really employees and not 1099 miscellaneous subcontractors, then you have a giant target on your back as you grow your company.
Debbie Sardone:
Like I said, Juan, you can fly under the radar and get away with a lot when you're a tiny company and nobody is noticing you. But if you want to grow your business, the bigger you grow, the bigger the target is on your back because you're more likely to have a disgruntled employee leave and report you. You're more likely to have a nasty competitor find out that you're doing things under the table or under the radar and try to get you in trouble. So it's more about when my business is bigger, I have more to lose by not being in compliance.
Debbie Sardone:
There's three factors that the IRS says you have to consider in order to be considered truly a company that uses independent contractors or 1099 workers. The behavior, the financial piece and the whole type of the relationship. And so not much has changed in the last 25-30 years since I converted to employees versus contractors. Not much has changed other than it's even stricter and it's harder to comply with the rules. And the IRS doesn't allow you to have some of the rules that you're complying with and others you're not. They say, if you're out of compliance in any of the rules, you're out. They're not contractors. It's not like, well, mostly. So we can't say, “Well, but I don't train them and I don't give them equipment.” But do you control their work environment? Do you control their schedule? Do they work exclusively for you?
Debbie Sardone:
Here's one of the qualifiers and here's how the IRS ... And they're cracking down. They're stricter than they used to be because they want their tax revenue. They want their tax revenue, right? And so they're stricter than they've ever been before. But one of the key factors they look at is this person that you're classifying as an independent contractor, do they have their own cleaning business? Meaning, they've got a name for their company and their own EIN. Probably not. Do they have other clients they clean for? Maybe in some cases, yes. But do they literally have a business? They say they're behaving like an employee if you work them full time and they work for you full time and they don't have other clients, you are it. You're an employer and they are an employee, even if they carry their own supplies. If you're the one that bids the job and tells them how much they will be paid for the job versus them going and bidding the job and telling you what they will charge you for the job, right?
Debbie Sardone:
So the IRS gives examples on their website. If you're a cleaning company, as an example, and you hire a handyman to come fix your glass door, he's an independent contractor, right? He told you how much it will be. And he told you what tools he's going to use. You didn't tell him how much you will pay him to fix your door. And you didn't tell him what tools he will use to fix your door. So he's an independent contractor.
Juan Chaparro:
Correct.
Debbie Sardone:
Same thing with your bookkeeper. If a bookkeeper does your books, then they're an independent contractor unless they work for you full time, 40 hours a week and they have no other clients, right?
Juan Chaparro:
Mm-hmm (affirmative).
Debbie Sardone:
Then that's an employee. And so the IRS makes the same distinction. It's, like they say, if it looks like a duck and acts like a duck and walks like a duck and quack like a duck, it's a duck. So if you fill the contractor's schedule and you train them and you tell them when to be and where to be, and you are their only client, they don't really have a business, that's your employee. Here's one of the qualifications is if they're a true contractor, they have their own business and they have their own level of risk. For instance, if the client refuses to pay, they're absorbing the risk. They don't get paid. Well, that's not the case with us, right? In a cleaning company, if this employee worked hard all day in cleaning that house, they're getting paid.
Juan Chaparro:
Yep.
Debbie Sardone:
And if the customer refuses to pay because they're too picky or they think we damaged something and they won't pay, we're the ones that lose the profit, not the contractor. And so the IRS says, there's no profit risk, that's an employee. We can't pick and choose and say, “But I don't train them.” Right?
Juan Chaparro:
Yeah.
Debbie Sardone:
Most cleaning companies train that person they're calling a contractor. If you train them, they're an employee. And so there's so many factors that it would be so hard to comply. Here's the big one that I think gets us all, besides the fact that they have to have their own company and their own EIN, Federal Employers Identification Number, which most of them don't, here's the big one that gets us. The IRS says, for them to be classified as a contractor, they're doing work for you that's not a part of your business work. So when I hire a bookkeeper, that's not what I do as a business. I don't do bookkeeping, I do house cleaning. Right?
Juan Chaparro:
Correct.
Debbie Sardone:
So they're an independent contractor because they're just helping me with different services I need as I run my house cleaning business. But the people who work for me who are actually doing the house cleaning, that is what we do.
Juan Chaparro:
That is your core business.
Debbie Sardone:
That is my core business. And so when I hire people to go clean houses to do my core business, they're not contractors according to the IRS.
Juan Chaparro:
Totally.
Debbie Sardone:
And that's really tough, Juan. That's so hard for business owners that are scared and nervous and worried about, “Well, how do I fix this? What do I do? Because I'm walking around with a big target on my back.” And I will say the solution is easier than most people think. It's not nearly as hard as you think. And the IRS even has a program where you can kind of like start with a baseline and be forgiven for the past. They actually have a program for that, oddly enough, because of so many people. Or you can just sign up with a payroll service and just pick a date in the future that, I have employees as of January 1, or I have employees as of April 1st, right? You can pick a date in the future and decide you have employees.
Debbie Sardone:
And it's so easy to have employees. I mean, you don't really have to change the things that you like about your contractor relationship if you're paying a commission and you're following the laws in your state. There are so many things you get to still do and still be compliant and not walk around with that big target on your back.
Juan Chaparro:
Yes, I agree. And years ago that you started coaching us, we were running with 1099s. And just the fact of thinking that we had all these possible back taxes on our back, in our mind, that was mind. It was just stressing out.
Debbie Sardone:
It's terrifying and it makes-
Juan Chaparro:
It's terrifying because you-
Debbie Sardone:
You can't sleep at night ...
Juan Chaparro:
No.
Debbie Sardone:
... when you're worried that you're going to be found out, right?
Juan Chaparro:
No.
Debbie Sardone:
Once I found out that there were so many rules that I would have to follow in order to classify mine legally as 1099, I knew I couldn't. I knew I couldn't. And I couldn't sleep because I knew my business was always on the verge of being found out.
Juan Chaparro:
Correct.
Debbie Sardone:
And so I do remember when you first came through the CBF program. I knew you and Karen had really a big vision for growing a big business, which you have, and it wasn't that painful, was it, to transition?
Juan Chaparro:
I mean, back then really felt like a huge transition and completely ... Or business at risk, but years ago now, this has been probably five years already, six years. Now that I see it from the other side, it's like we are always thinking that it's cheaper to run with 1099s that we don't have to commit so much to them, that they're really relationship is just very simple. But in reality, we were paying more out of our revenue for cost of good sold. We were paying around 65% out to those contractors and not getting their full schedule, their full attention to work exclusively for us. So we were over paying for labor and the things that really changed for W2 employees was that we had now somebody dedicated 40 hours a week for our business. And we can say when they go, where, how to do the job. And for us, that control was ... And having to pay less out of our profit. That was the big change for us.
Debbie Sardone:
Exactly. And when we started working together, one of the things I pointed out ... Now, obviously, you have to fix a lot of systems in your business that are broken for anything to work, whether it's independent contractors and my business is still broken or employees, and my business is still broken. We still have to fix things in our business to run smoothly.
Debbie Sardone:
But one of the things I pointed out, which you just described is you can't get employee loyalty with independent contractors because by nature, they have a right and permission to go out and be your competitor. So you bring them on board. They're not really legally an independent contractor. You run them through training, you help them get better and better at the job. They actually finally do a good job and stop getting complaints. And now, you're getting great reviews and everybody loves them, and you've just trained your next competitor. Because as an independent contractor, they're supposed to have other clients and they will get other clients. And then all of a sudden they're telling you, “Oh Juan, I can't work Fridays anymore. I've got another client of my own.” You've just trained your next competitor. It's impossible to create and build long term employee loyalty with independent contractors. I'm not going to say impossible. I'm going to say not likely. Not likely with independent contractors.
Juan Chaparro:
Yeah. I think in this specific business, house cleaning. I mean, there's so much that goes into onboarding, training. So much that really ... I mean, if you're going to spend all this time and this money working and onboarding people, I mean, you want to get 100% of their loyalty, their full schedule. Because I mean, just to get two, three days out of somebody really to clean your houses is not worth it. And for us, that was one of the biggest game changers is like, we don't want anybody to say, “Sorry, I cannot go to this job today because I have my own job.”
Debbie Sardone:
Exactly.
Juan Chaparro:
And you cannot do anything. It's like, “Okay, just go to your job. I'll cancel my job.” And that was one of the things that really changed us completely. So it's been six years since then, so ...
Debbie Sardone:
Yes. And you guys have built a business well over a million dollars because you fixed all those little pieces in your business that was kind of working against you. I know it seems scary. So some of the people on here today, and somebody else said, “You know, I'm already going through this right now.” Rebecca says, “I'm going through this right now.” It does seem scary at first, but I will tell you, it's just like sitting in a movie theater watching a scary movie, right?
Juan Chaparro:
Mm-hmm (affirmative).
Debbie Sardone:
Your heart starts pounding, you're scared out of your mind. But the minute they turn on the lights, you're like, “Ugh, no monsters.” You get up, walk out. Right? And you get in your car and you go home. It's the same thing with this. Transitioning to really becoming legally compliant so that you're not always looking over your shoulder, wondering when you're going to get found out and when it's going to put you out of business. It's not that hard, especially nowadays. One, there are so many great software programs to make it easy. Like Gusto is an app to do your payroll. There are payroll services. We use QuickBooks payroll. I mean, it's really not that hard.
Juan Chaparro:
No.
Debbie Sardone:
And you just raise your prices enough to where you're covering the payroll taxes and your labor burden. On average, and this is just an average across the country, you're out of pocket expense that maybe people aren't used to spending for payroll taxes and workers' comp, on average, it's about 21% of the wage. So you figure every $100 in wages, you'll pay about $21 in payroll taxes and workers' comp. Now, that's average. Some parts of the country workers' comp is higher. It's going to push that up to 24. But you just learn how to price your jobs accordingly to compensate for the extra cost of having employees, but the benefits far outweigh.
Debbie Sardone:
So when you have contractors one, you can't offer benefits. You cannot make them full time. That would definitely violate. You can't give them paid vacation, you can't give them any benefits. It's impossible to create that bond and that employee loyalty that we create with our companies now.
Juan Chaparro:
Definitely. I always say that the retention of clients is really a byproduct of retention of our employees. If at the core of our business, we cannot provide these benefits and these good things as an employee, it's very hard to keep the people loyal to the company.
Debbie Sardone:
Exactly.
Juan Chaparro:
I mean, I don't know of a case that ... Or there is very few cases that 1099s could work technically, but in particularly in the cleaning business, it's really hard because we have to put these peoples in the customer's houses and there's a lot of risk that we cannot take when we don't run all the proper documentation and it's just too hard to run this business now make it a 1099.
Juan Chaparro:
Now, let me ask you. There's these companies that are ... They call themselves like a referral agencies. They see the company name and then the bottom says, a cleaning referral agency. I don't know if you're familiar with those, Debbie, that they just-
Debbie Sardone:
Very, very, yes.
Juan Chaparro:
I heard of them. I'm not really familiar with them. Why don't you mind sharing? How's different that than for the company like mind that was really hiring contractors and running them as an employee?
Debbie Sardone:
The referral agency model pretty much is mostly happening in California where people really struggle with the out of control workers' comp rates. And so a lot of people, out of sheer desperation, launched the referral agency model to avoid workers' comp.
Juan Chaparro:
Okay.
Debbie Sardone:
I would say probably in most cases, if the IRS investigated, the individual companies using the referral agency model would probably lose the argument with the IRS. The IRS is very powerful and they want their money and they want it now and they want their 10% penalties plus, plus, plus.
Juan Chaparro:
And they have the key to your bank account.
Debbie Sardone:
They have the key. One phone call and they freeze your assets. One phone call and they freeze your bank accounts. Trust me, I know. When my business was in trouble, I had my bank accounts frozen. You literally can't get in and get a dime out of your own account. It's terrifying, the power they have. So I would say that is a movement that it was mostly started in California out of sheer desperation over the absurd insurance comp rates.
Debbie Sardone:
Now, if I were in California, I would probably try it at a sheer desperation. But if you're not in California, there's really no reason to take that risk. It's still very difficult to prove to the IRS that you're following all of the points, not just most of the points that classify them as contractors. It's very hard. And the workers' comp rates have come down in California. They're still higher than they should be, but they have come down. And if you do the business correctly and you're charging adequately, you can have employees in California. It's a little harder. Yes, that state has made it more difficult. There's a few more states that have made it difficult, but yes, you can have employees and still succeed at the highest levels. We have mop-free millionaires all over the country. Some are in California, some are in Washington state, another very difficult state to do business in. Oregon, Oregon, very, very strict, difficult rules for business owners, but it is possible.
Juan Chaparro:
Cool. Thank you. I didn't know that started in California.
Debbie Sardone:
The popularity of it, I would say. I mean, I can't tell you where it originated. That is where I first heard about it and then it began to kind of pop up and it was mostly in California. And I get it. Hey, I understand their pain, but it's still very risky.
Juan Chaparro:
Yeah. Yeah. I mean, so many businesses moved out of California to Texas and other states just trying to really operate a business and there'll be pain in just taxes.
Debbie Sardone:
Tax to death. Yeah.
Juan Chaparro:
Cool. So we can see in this chart that I'm sharing here with you guys, there's obviously some points that are important to keep in mind here that W2 is typically ... I like this one really, on the short term, long term results, they are more focused and dedicated in the long run. I mean, if we really want to grow a cleaning business, we need them set up for the long run. Not like for just couple of months to get our jobs done.
Juan Chaparro:
So in reality, keep this in mind, things that really shouldn't make or should make you switch is, you know, you're going to spend less on payroll, you're going to provide benefits, you're not going to have the IRS on top of you, trying to see what you're doing. You're going to have people that are thinking long term that they want to be employees because that's something that most people sometimes don't think about is there's people out there that want to be employees, they want to have the benefits, they want to be part of a company, they want to belong to a culture of a company. And there's other people that don't want that. They just want to run their own cleaning business.
Juan Chaparro:
And I had back then, lots of people that started, learned the business, go out, start their own company and I will see them on Yelp eventually starting their own cleaning business. And as Debbie said, you're training your next competitor. And so I don't see really a reason or a case for 1099 in the cleaning business. I mean, we're not Uber or Lyft. This is really a different type of business.
Juan Chaparro:
Let's look at the next slide here. I think that was Debbie your opinion. This is more of the same thing. Yeah, we've already discussed this. Okay. Debbie, I know you are running here in April, your event on the 7th, 8 and 10. I put in the topics here that are coming up in the event. Why don't you share more of about exactly what's going to happen in this weekend in Dallas? I'm excited.
Debbie Sardone:
Absolutely. So it's just less than a month away, about 35 days from now. And of course, you'll get to meet Juan in the flesh. Juan and Karen will probably be there and he will be one of our table sponsors with Pipehire. We adore them because they're helping to solve one of the biggest problems in the industry with some great HR tools and background. And you'll meet other vendors there as well that you will absolutely love to connect with. But for three full days, Juan, we'll be focused intensely on how to 10X your team. Because right now, with the labor shortage and the labor crisis that we face in this country, people are desperate to find ways to add staff and keep staff, right? So many people are adding staff to replace the last one who quit and then hiring another person to replace the last one who quit. And that doesn't help you grow.
Debbie Sardone:
This is probably one of the greatest cleaning business booms I've ever been in, in all the years that I've been in business. I cannot believe how much business is coming in the door. We can't even keep up with the leads at my office in Dallas and we've got three people on sales. And so this conference, April 7th, 8th, and 9th is three full days, residential cleaning business only. So it's not all the other service businesses out there. It's specific to the residential industry. You're going to hear from our coaches. They'll be on stage speaking on topics that relate to how to attract and hire those A players, because anybody can hire a C player, right? That's easy. We've been doing that for years. How to go from no shows to career cleaners, right?
Juan Chaparro:
Yeah.
Debbie Sardone:
So many people are getting the wrong people in the door and they offer them a job and they no show Monday. How to master that employee journey, so critical. How to build a self-managing team. We have so many employees or contractors that we end up that need so much supervision and management and it wrecks our quality of life as a business owner. And then how to create employee processes fit for a VIP. And then how to build a sticky workforce and stop hiring those quitters. That is just a nightmare. And then how to simplify, systemize, and sync your training. Sync your training because the owner doesn't have time to be out there training the new person because they're always replacing the last one who quit. So how to really simplify and systemize and sync your training so that it can run smooth as glass. While you're still building your empire, you're not out there inside another house, training another employee. And so three full days, Juan.
Debbie Sardone:
We have coupon codes. So if you go to cbflive.com. You don't have to use that whole long string there. It's just cbflive.com. Somebody can type www.cbflive.com in the chat and it'll be clickable. And then if you guys will use coupon code LUCKY175, you'll get $175 off your registration. So coupon code LUCKY175 to take $175 off and come spend three full days. If you're thinking, “Oh, I can't get away from my business. I have to clean houses.” You are the perfect person that belongs at CBF Live. Move those jobs, cancel those jobs, move them to next week, whatever you have to do. Be there April 7th, 9th, and 9th and you'll get to meet the wonder Karen and Juan. I can't wait to meet you. All of our coaches will be there to help you. And there should be about 400 highly excited, driven cleaning business owners at that event. So guys, don't be left out. Don't be left out.
Juan Chaparro:
Definitely. I think all these points hit right on the heart. There is so much going on in the labor market that, I mean, every point of this is like very important. I'm right now working on improving my training program, my system because it's really kind of the last piece that brings everything together. Because hiring is one thing, onboarding, but training is really, I think the hardest piece of that recruiting process.
Debbie Sardone:
It's critical. It's critical. If we don't get it right, we handicap what potentially could have been a great employee. If we don't get the training right. And if it isn't automated and systemized and you're not using a proven process for training, what ends up happening is training drags on two, three, even four weeks. That's costing you a fortune. It's so expensive to train somebody if you don't have a systemized process. So systemizing your training is a critical piece. It'll be a rinse and repeat for you guys, but you'll love it.
Juan Chaparro:
Yes. I calculated about $1,500 to $2,000. That's what it costs us to hire somebody, train this person, get them out the door. I tell my HR manager, every time you're giving the chance to a person you're betting $2,000 cash on this person. And I say it's critical that we pick the right people and then the training then it's another component that is just makes this all work. So thank you Debbie.
Debbie Sardone:
That's an excellent point. That's an excellent point. I'm glad you put a number behind that, Juan.
Juan Chaparro:
Yeah.
Debbie Sardone:
Because people don't realize how much money they're losing by number one, not attracting the right A players. They just settle for whoever. Number two, not training them correctly and onboarding them correctly. Cost us a fortune. So yeah, come to CBF Live and let's have an amazing three-day training event.
Juan Chaparro:
Definitely. I have here some questions from the audience. First one that I see here is, “Can we have an independent kind contractors sign a non-compete?”
Debbie Sardone:
Yes. Obviously, independent contractors can be required to not steal your customers, right?
Juan Chaparro:
Yeah.
Debbie Sardone:
But the problem is they're probably not real independent contractors. They probably aren't. But yes, they can sign contracts. Now, they don't sign employment contracts of course, but they can sign a contract not to steal your customers. Absolutely. And I would require that they do that. The problem with that is a really nice, sweet person that's an independent contractor, they don't have to steal your customers. As an independent contractor, they get to say yes when the neighbor reaches them as they're on their way to the car from cleaning the customer that you just sent them to and they get to hand the neighbor a card when they should be handing your card. There's no violation there.
Juan Chaparro:
Definitely. And they start to build their own schedule and their own client base.
Debbie Sardone:
They build their own schedule. And now, you just trained your next competitor. Most people, if you'll take an honest look at your schedule, your independent contractors don't generally last two years because they either go off on their own and become your next competitor or they quit for other reasons.
Juan Chaparro:
Definitely. Here's another question. It says, “The issue I'm having is getting my staff switch over to a W2. They see the money shortage with taxes taken out. Any suggestions on a positive spin for my holdouts?”
Debbie Sardone:
Excellent question, Rebecca. No such thing as a positive spin. People know when they're being schnookered. So here's the problem. It has to benefit them for you to make changes in your company. You can't make a change in your company that hurts them financially. I know this is painful to hear, but this will solve your problem. They cannot make less money because you want to be compliant. And they're not going to, they're going to say, “Well, forget it. I quit.” Or, “Gee, I don't want to go 1099.” So you have a couple of options. Option number one, which we teach this in the whole CBF formula. And of course, we teach you how to transition when you join CBF, which is what Karen and Juan joined about five years ago, we teach you how to strategically and delicately transition from 1099 to W2. I know because I had to do it. 30 years ago, I had to do it. It was killing my business and it was preventing me from growing. But one approach is you grandfather them in. You kind of don't mess with them, especially if you're paying like 65% commission, how do you compete with that? Right?
Juan Chaparro:
Yeah. No way.
Debbie Sardone:
So one solution is you grandfather them in and all new hires are built off your new model of W2 employees. That's one way. It's like a bandaid or duct tape, right? Duct tape is good in the short. In the long term, it's not great, but that's one way. The other way is make it worth it. Now, there's like a two-hour module we teach on, on how to make it worth it in terms of benefits and higher pay and all this stuff. So you have to make it worth it for them to be excited about it. Otherwise, they're going to resent you for taking away money that they had in their paycheck. I know you and I know logically, “Hey, I'm paying your taxes.” But when it comes to paying their rent and paying their car payment, all they can feel is, “I don't have as much money in the bank. Thank you very much.” So you have to make it worth it to them.
Juan Chaparro:
You know, a lot of these workers, they do not see value sometimes in the payroll taxes that we're sending to the government.
Debbie Sardone:
Correct.
Juan Chaparro:
And they don't think-
Debbie Sardone:
They don't care.
Juan Chaparro:
They don't care and they don't think that in April next year, they're going to usually get a refund.
Debbie Sardone:
Exactly.
Juan Chaparro:
They're thinking short term. My rent this month, my bills this month. But one of the benefits that my employees mentioned is like, “Hey, in April, we always get money back from the government.” And I say, you know, “That's great.” Before that, we have to give them their 1099 and says like, “Here you have [crosstalk 00:42:13].”
Debbie Sardone:
And they owed. They owed.
Juan Chaparro:
They have to pay the government now. And so you have to explain this transition. When we did the transition, we mentioned that we lost probably 30%, 40% of the staff at that moment, but we're focused on finding new people. This was five years ago, very different environment, but we were able to start replacing those people that left with employees. Eventually everyone became an employee and the ones that are independent contractors left because we were not assigning them enough jobs as our employees. Because an employee is committed to giving you a full time, 40 hours. So you're going to obviously provide a full-time job to a full-time person. So you're committed with them as well to give them enough work so they can make a good paycheck. I see that as a relationship that has to work for both. And we're both committed to providing work and you provide me a labor and that relationship has to be clear in order to work.
Debbie Sardone:
And it's scary for people watching this thinking, “Oh no, I can't afford to lose 30% to 40% of my workforce.” But you got to remember, Juan had a whole bunch of part-timers, right?
Juan Chaparro:
Yeah.
Debbie Sardone:
So the people he lost weren't working that much anyway. Right? So you got to remember that. The cost to your business of having too many people who don't do enough work is expensive in terms of time and effort and lost profits. But the other thing is you don't have to rip the bandaid off all at once overnight. The other thing is you can grandfather in your best workers that have a full schedule, so you don't run them off until you make changes that appeal to them. So don't be afraid to make this change with the new staff and grandfather in the existing staff and let them weed themselves out, as they always do.
Juan Chaparro:
Yeah.
Debbie Sardone:
But you don't have to rip the bandaid off overnight.
Juan Chaparro:
Perfect. Here's another question. “If the client is unhappy with the way the independent contractor cleaned, what do I do? Can I ask them to go back and re-clean?”
Debbie Sardone:
Absolutely. Whether they're classified as an independent contractor or an employee, you can require that if the job is unsatisfactory, I will send you back on your own time. Obviously, that's easier to do as a contractor. It's a little harder to do as an employee, but there are ways to make sure that works and that you are compliant in your state for what you do and what you don't do in that regard.
Juan Chaparro:
Awesome. Perfect. Let me see if there's anything here. No, I don't have any more questions. Debbie, do you have anything else you want to wrap up with? Any final words, advice?
Debbie Sardone:
Yeah. Those were great questions. I want to remind people that the fear of the changes we need to make for us to get to the next level in business is usually worse than the reality. So don't forget that. The fear is usually worse than the reality. These changes aren't nearly as hard as you think. They're never as expensive as you think and the payoff long term always outweighs the fear or the pain in the short term. If you know you need help with your entire system and structure, you're not profitable if you had employees, you have too many underpay clients, you have way too much turnover, whether it's contract turnover or employee turnover, you can always go to cleaningbusinessfundamentals.com, cleaningbusinessfundamentals.com. That is our training program that Juan and Karen took that helped them become mop-free millionaires. They've earned the green jacket that we give out at our events, Juan and Karen, make sure you have green jacket this year because we'll be doing our green jacket presentation ceremony.
Juan Chaparro:
Karen won't be there.
Debbie Sardone:
Oh, I wish she could. Such a beautiful lady.
Juan Chaparro:
Literally, last night, we had her third baby, so ...
Debbie Sardone:
That's right. Oh, that was last night and here you are on with us. Congratulations, Juan.
Juan Chaparro:
Yes.
Debbie Sardone:
Oh, that's so beautiful. Well, give her my love. She's a beautiful lady and a wonderful mother.
Juan Chaparro:
I'll do that.
Debbie Sardone:
If you need help with your business and you're thinking, “I need what Juan got. I need that help from A to Z.” Then go to cleaningbusinessfundamentals.com and fill out an application for a strategy session. And we'll talk to you about your business and see if we're a good fit to help you. Otherwise, I hope to see you in Dallas for three full days.
Juan Chaparro:
Definitely. Says, “Congrats.” Okay, perfect. So just to wrap up here, guys, you can always reach us at the Juan@pipehirehrm.com if you need anything as well. I'm open to share my experience on the switch from 1099 to W2. It was six years ago. So I did went through that process. It's not fun, but the outcome is definitely worth it. And I think ...
Debbie Sardone:
Exactly.
Juan Chaparro:
... you guys will want that outcome and not live in fear and you want to grow. And definitely that is the only way to really grow, specifically at house cleaning business.
Debbie Sardone:
And I want to do a quick little plug for Pipehire, Juan. I know you did this to feature me and to talk about CBF Live and 1099, but I also want to do a quick plug for Pipehire because pipe is one of the most unique, automated systemized HR platforms for the residential cleaning industry. My own company, we do over $2 million in revenue and we use Pipehire to manage our HR processes on the back end. I am telling you, he will make your life so much easier. So make sure you look into Pipehire. He came through CBF, he fixed his business. He got to a million dollars beyond, and now he has enough time, freedom and money to launch another business that he is also successful at. So I just wanted to brag on you, Juan, because you guys have done phenomenal and you're truly providing a high quality service for cleaning business owners.
Juan Chaparro:
Thank you, Debbie. It's a really a pleasure to be able to create these solutions out of our own pain. We started this two years ago. Actually we launched in CBF 2020 when the COVID started. So it's going to be two years exactly here on this month. And it's really providing a lot of value for people, especially automating the whole process of HR and hiring and recruiting. I always tell people, we're not in the cleaning business, we're in the staffing business. We have to be great at this process of finding people, training people, hiring, managing everything, because customers really pay us is for that, is to find people. And if we're not good at finding people and retaining them, then we shouldn't be in this business. So we just happen to clean houses.
Debbie Sardone:
Exactly. Staffing first, cleaning second. If you get the staffing piece right, you can make a fortune. If you get the staffing piece wrong, you'll struggle your whole life.
Juan Chaparro:
Definitely. And I just shared a little URL on the chat here, guys. If you want to click on it, there's a small survey about just things that you want to share, frustrations that you want to share. Because we are always improving Pipehire and we like to get people to share pains and things they have that we can improve through software. So if you want to click on that form, it's a Google Form, very simple, very short. You just get pick things that you would like to see out there, that you like to be improved upon. We obviously consider those as new improvements features that we released throughout the year. And that's it for today. I really wanted just to highlight Debbie, the event and how this transition is possible. And with CBF behind you, there's really nothing to be afraid of. You'll get out of it and you'll succeed in your business. So thank you Debbie for your time. It's been a pleasure. I hope to see you soon there.
Debbie Sardone:
Thank you, Juan. Thank you, Juan. We'll see you soon and congratulations.
Juan Chaparro:
Thank you. Thank you. Have a good night. Bye-bye.[/expand]
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