Convincing IC groomers to switch to W2

[Max Tompkins]

Hello, am looking for advice on convincing a team of groomers to switch from non-compliant independent contractors to compliant W2 employee status. I understand the topic from legal and technical implications at fed and state level.

A friend took over a pet grooming biz (I work in a computer field as legit IC), where all groomers were illegally filing as IC. And the previous owner wound up paying heavy tax penalties after disgruntled groomers made trouble. The new employer wants to be tax compliant, and switch them to W2.

But that will cost 18% more in payroll (paying SS, DI and UI). To offset, he must lower commissions from 50% to at least 40% (a financial advisor insists on 35%). As expected, the groomers are not happy with legal reality, and threaten to quit, since other places are willing to employ illegal IC. But that would probably take many clients away, who are longtime loyal to the groomers, and at a time when the business is already struggling during pandemic weirdness, and prices are already high for the area. Its too late to enact a non-compete agreement, which may not even be practical to enforce. And he is not readily finding experienced replacements (willing to be W2), and would prefer to keep the current staff.

What is the best way to convince the groomers to get on W2? Is there an equitable rate or other compensation that we are missing?

[cockerlvr]

Raise prices to offset the loss in pay.

[Admin]

Remind the IC's that their taxes will go down. IC's have to file Schedule SE and pay double FICA/MEDICARE taxes on it along with a Schedule C. W-2 groomers pay just one does of FICA/MEDICARE which is deducted in a paycheck. That is savings of over 7 percent for the employees. Also do what cockerlvr says as well like it or not but be accurate in what amount is and not overdo it.

Every business we have converted did well by remembering "the gravy in the business is bath dogs." Even on W2 a business makes twice the profit on bath dogs. Are bathers doing all the bathing for the groomers. We published proof that groomers lose about 10% a day by not having bathers do their baths, and these are well paid bathers. But I cannot write that here, we wrote the book literally, Groomer Wage Systems not opinion but actual figures, and quality doesn't suffer at all if you have pro level bathers.

[Max Tompkins]

Raise prices to offset the loss in pay.

Thanks. Yes, the owner is pushing prices as much as dare.

...pay double FICA/MEDICARE taxes...

Thanks. Yes, I read your helpful advice on this topic here and I think elsewhere!

The groomers are convinced they benefit on 1099, as we dont know how they may be finagling their personal finances/taxes.

The owner does pay separate bathers on W2. And I passed on the great advice to try to solicit more baths. Wrangling proper payroll has been the biggest hurdle, as he tries to fix the engine while the car is running down the highway ;-)

[Kurt99]

I just hope this new owner can groom. He has no choice. Just do it. The next shops who take these groomers on as illegal ic is in for a whole lot of hurt. If it’s true the shop was busted for illegal classification, ain’t no chance those Groomers will find the same set up at a new shop in that area and have the owner again take on their shenanigans. Their gig is up. Just do it and get ready to groom his butt off. It will settle. Some will stay.

[dogma]

I agree with Kurt.
This business belongs to your friend NOT the groomers. He better learn to groom!
And he better learn to make things legal NOW! The IRS already came down on this business once, they will be keeping an eye on it going forward.
No way would I let my illegal IC groomers hold me hostage. They can go find illegal IC work elsewhere.

After taking the advice of groomers on this board and from advise Admin has given, I finally went to paying my employees by the hour. I really do make more profit this way. Yes, it was scary. I thought they would slow down considerably. They didn’t. Things just hum along as before.

Ive always paid my groomers legally. They have always been W2 employees.
Our industry needs to get off the bandwagon of handing groomers 50% or more of our business. We are giving away HALF our business. That’s crazy. And all because it’s tradition! (Do I hear the music of Fiddler on the Roof?! Tradition, TRADITION!)

I pay my groomer over $20 an hour, which is 1/3 of what I charge per hour to groom a dog. There are no “I’m only getting 30% complaints. She knows she make a comparable wage for the area.
She gets a raise yearly, as I raise the price of my grooming yearly. Plus paid vacation time, hefty Christmas bonus and she is a LEGAL employee!

Tell your friend not to let his illegal workers hold him by the short-and-curlies. Time to sit them down and inform them of the new rules. They can go run their own business if they don’t like it.