The underground economy is the illegal way to avoid paying payroll taxes and workers compensation insurance.
Of course when and if you get caught, the penalties are quite high. If you do the bulk of your work yourself and only hire low paid staff that has low payroll expenses, you can compete with the underground economy.
Have your employees be independent contractors.
The other way to beat this game legally is to make your employees independent contractors. To do this properly requires actually setting up your old employees into business. They need to own their own truck, buy their own gas, pay their own expenses, make their own hours and ideally have more than one company they work for.
Let’s take a termite treatment team. They would be given a job to do at a fixed price and they would do the job. They would pay their own expenses and their income was not based on how long the job took. They also would schedule their own work.
When contractor’s licenses are involved the old employees must have the appropriate state contractor’s license or this will not work.
The IRS will be working very hard to say that your independent contractors are actually employees. If they succeed, it is common to find that you are fined $200,000 in back payroll taxes for the prior 3 years.
Get good advice from a business attorney or a CPA. Do not just think you can figure this out on your own.
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