How to pay my spouse for running my webshop?
January 25, 2019 8:48 AM Subscribe
How do I hire my spouse?
I have recently started a webshop after some press generated a bit of buzz about my product. My partner, with a background in sales, custom sales, e-commerce, design, etc. etc. is perfectly suited to run the shop and expand the business. They want to help. I absolutely want help, but I also want my spouse to feel compensated and not just taking on more responsibility from my activity.
I guess the question is, how do I "hire" my spouse when in the end all of the money is both of ours anyways? At the moment, this is a sole proprietorship and not a formalized LLC.
I have recently started a webshop after some press generated a bit of buzz about my product. My partner, with a background in sales, custom sales, e-commerce, design, etc. etc. is perfectly suited to run the shop and expand the business. They want to help. I absolutely want help, but I also want my spouse to feel compensated and not just taking on more responsibility from my activity.
I guess the question is, how do I "hire" my spouse when in the end all of the money is both of ours anyways? At the moment, this is a sole proprietorship and not a formalized LLC.
You can pay him as a 1099 contractor. (You're in the U.S.?) If you were an LLC, things like retirement savings (Simple IRA) are open to you as a benefit to your employees which your husband could be one. You guys should look into forming an LLC. It's very simple and gives you a lot of benefits.
For the two of you personally, don't look at hiring him market rate, look at what your business brings in and set a monthly retainer for his work. Keep in mind, he is a business expense but if you file your taxes jointly, you will pay tax on income. Leveraging retirement savings is a great way to pay yourselves for the work you put into the business. But, I am not your tax professional so talk to one! Talk to one today before you do anything else!
posted by amanda at 8:57 AM on January 25, 2019
For the two of you personally, don't look at hiring him market rate, look at what your business brings in and set a monthly retainer for his work. Keep in mind, he is a business expense but if you file your taxes jointly, you will pay tax on income. Leveraging retirement savings is a great way to pay yourselves for the work you put into the business. But, I am not your tax professional so talk to one! Talk to one today before you do anything else!
posted by amanda at 8:57 AM on January 25, 2019
This is an interesting question and I'm looking forward to reading all of the answers.
If you remove the "spouse" part of the equation (ie, if your spouse was not an option and you really did need to hire someone), you would look at this like hiring a sales manager, most likely on sort of a project basis. So, maybe a set contract of three to six months, and then a review of the increase in sales to determine if the sales push is making a difference.
You could also consider a percentage of sales approach. That's sort of a "we're in this together" type of approach, vs the set contract rate where the spouse/sales manager gets paid whether sales improve or not.
Either way you would want them to outline what their approach would be, and a budget for advertising (if necessary), and an estimated amount of time per week they would be able/willing to devote to this project. You might informally also talk about "work hours" so that neither of you gets unhappy about the amount of time and work being devoted.
posted by vignettist at 9:00 AM on January 25, 2019 [4 favorites]
If you remove the "spouse" part of the equation (ie, if your spouse was not an option and you really did need to hire someone), you would look at this like hiring a sales manager, most likely on sort of a project basis. So, maybe a set contract of three to six months, and then a review of the increase in sales to determine if the sales push is making a difference.
You could also consider a percentage of sales approach. That's sort of a "we're in this together" type of approach, vs the set contract rate where the spouse/sales manager gets paid whether sales improve or not.
Either way you would want them to outline what their approach would be, and a budget for advertising (if necessary), and an estimated amount of time per week they would be able/willing to devote to this project. You might informally also talk about "work hours" so that neither of you gets unhappy about the amount of time and work being devoted.
posted by vignettist at 9:00 AM on January 25, 2019 [4 favorites]
Have your SO fill out a W9. You keep that for your records, just as you would for any vendor.
Your SO should then invoice you for the services provided. You can use a basic template for the invoice and/or it can be handwritten; it doesn't have to be fancy. A few things that people sometimes forget to include on their invoices but that are pretty important are a description of the work provided, an invoice number, and a billing date.
Then you pay the invoice like you would any invoice. One important thing about that that people sometimes forget is that you should make out the payment to the same name that your SO put on their W9.
Also just like with any invoice, keep the invoice and proof of payment (i.e., the check stub) for your records.
By Jan 31 of next year, you should give your SO a 1099 for their earnings this year. That is, if they make over a certain thresh hold, anyway (I think the thresh hold is $400, but it might have changed recently). Again, this is the same for any vendor that you use.
posted by rue72 at 9:01 AM on January 25, 2019 [1 favorite]
Your SO should then invoice you for the services provided. You can use a basic template for the invoice and/or it can be handwritten; it doesn't have to be fancy. A few things that people sometimes forget to include on their invoices but that are pretty important are a description of the work provided, an invoice number, and a billing date.
Then you pay the invoice like you would any invoice. One important thing about that that people sometimes forget is that you should make out the payment to the same name that your SO put on their W9.
Also just like with any invoice, keep the invoice and proof of payment (i.e., the check stub) for your records.
By Jan 31 of next year, you should give your SO a 1099 for their earnings this year. That is, if they make over a certain thresh hold, anyway (I think the thresh hold is $400, but it might have changed recently). Again, this is the same for any vendor that you use.
posted by rue72 at 9:01 AM on January 25, 2019 [1 favorite]
I would certainly talk to an accountant rather than to MeFi about this. If in US, you may find that recent tax law changes (e.g. about deductibility of unreimbursed business expenses) would make it important for you to set up a business entity.
posted by sheldman at 9:03 AM on January 25, 2019 [5 favorites]
posted by sheldman at 9:03 AM on January 25, 2019 [5 favorites]
Ok, here’s the deal, you need to talk to an accountant who can help you run the numbers on this. It’s very possible that hiring your spouse as a part-time employee for this will allow you (the business) to save on some taxes by reducing your profitability. It’s also possible that doing so could allow you(the couple) to significantly increase your retirement savings by setting up and contributing to specific small business and self-employment retirement vehicles. But this will all depend on what state you live in, how much money you expect to make, and what the ownership and structure of the business is. If you decide to go the route of formal employment, you can probably get free payroll services through whatever bank holds your separate business checking account. In short if you’re planning on doing less than $20k in business a year it’s probably not worth getting this formalized, if it’s going to be over $200k it is almost certainly worth significant savings, if it’s between $80 and $120k then it’s a tossup and an accountant can tell you one way or the other.
posted by bq at 9:14 AM on January 25, 2019 [1 favorite]
posted by bq at 9:14 AM on January 25, 2019 [1 favorite]
Response by poster: I probably should have put this question in Human Relations category. I guess I'm not looking for the nuts and bolts of how to actually pay them, but more of how do I make it worth their while to participate in this activity when we both see the benefit of the sales regardless of their participation.
posted by Sreiny at 9:24 AM on January 25, 2019
posted by Sreiny at 9:24 AM on January 25, 2019
If you had to hire someone not your spouse, you would have to pay *them*, and your household would not see the entire benefit of that person's work. The real question is, is the increased income from having a sales manager worth a fair wage for the time and effort they're putting in? If not, then your husband probably shouldn't do the work, and you wouldn't want to hire someone else to do it, either.
posted by restless_nomad at 9:30 AM on January 25, 2019 [2 favorites]
posted by restless_nomad at 9:30 AM on January 25, 2019 [2 favorites]
how do I make it worth their while to participate in this activity when we both see the benefit of the sales regardless of their participation
How much does s/he want? Have you asked them?
posted by JamesBay at 9:33 AM on January 25, 2019
How much does s/he want? Have you asked them?
posted by JamesBay at 9:33 AM on January 25, 2019
I think it's worthwhile for you work together to estimate how much hiring someone else would be.
Your partner can then offer a 'partner discount' for the project, but it will still be helpful to start from that baseline.
This is because:
- By creating a budget for the work, and creating a 'partner discount', it explicitly acknowledges your partner's skills and generosity.
(This is often how pro bono / non profit projects are invoiced. It's $100/hr to do the work, but there's a $50/hr non-profit discount, so it's $50/hr total, etc)
- If your partner doesn't have the time to do it down the line, then you may have to hire someone else, and it's worthwhile figuring out if the numbers could make sense that way
I'd also add that you name the project and really specifically define times when you work on it. As someone who collaborates often with my partner, it's very helpful to try to define 'work times' and 'relationship times' so that they don't all mix together. They invariably do mix together, but less so than if we didn't try.
posted by suedehead at 9:37 AM on January 25, 2019 [6 favorites]
Your partner can then offer a 'partner discount' for the project, but it will still be helpful to start from that baseline.
This is because:
- By creating a budget for the work, and creating a 'partner discount', it explicitly acknowledges your partner's skills and generosity.
(This is often how pro bono / non profit projects are invoiced. It's $100/hr to do the work, but there's a $50/hr non-profit discount, so it's $50/hr total, etc)
- If your partner doesn't have the time to do it down the line, then you may have to hire someone else, and it's worthwhile figuring out if the numbers could make sense that way
I'd also add that you name the project and really specifically define times when you work on it. As someone who collaborates often with my partner, it's very helpful to try to define 'work times' and 'relationship times' so that they don't all mix together. They invariably do mix together, but less so than if we didn't try.
posted by suedehead at 9:37 AM on January 25, 2019 [6 favorites]
how do I make it worth their while to participate in this activity when we both see the benefit of the sales regardless of their participation
In that case, then what you'd probably want to do is form a partnership with them -- so that you both have an ownership stake -- rather than hiring your SO as an employee or contractor.
Since you'll both be working on stuff for the business, neither of you can be limited liability partners. You'll have what's called a "general partnership."
Forming a general partnership doesn't require anything formal, they can actually just be handshake agreements. But if you want, you can draw up an agreement with ownership percentages, etc. You can find templates online.
In order to disburse the profits of the business, you each would get partner distributions (quarterly, annually, or never, it's basically whatever you want) based on your percentage of ownership. You would both pay income tax on those distributions out of your personal tax return, not your business tax return.
You will definitely need an accountant to help with your personal tax return at that point, if you don't use an accountant for that already. If you decide to do reasonably complex things like partnership distributions, you should probably also hire an accountant to draw up the initial books for your business. This isn't difficult work as far as accounting jobs go, and you should be able to keep up your books on your own afterward if you have even basic bookkeeping knowledge, but it's much better to get things like this right the first time than to have a crisis when your 2019 taxes come due.
posted by rue72 at 9:40 AM on January 25, 2019 [3 favorites]
In that case, then what you'd probably want to do is form a partnership with them -- so that you both have an ownership stake -- rather than hiring your SO as an employee or contractor.
Since you'll both be working on stuff for the business, neither of you can be limited liability partners. You'll have what's called a "general partnership."
Forming a general partnership doesn't require anything formal, they can actually just be handshake agreements. But if you want, you can draw up an agreement with ownership percentages, etc. You can find templates online.
In order to disburse the profits of the business, you each would get partner distributions (quarterly, annually, or never, it's basically whatever you want) based on your percentage of ownership. You would both pay income tax on those distributions out of your personal tax return, not your business tax return.
You will definitely need an accountant to help with your personal tax return at that point, if you don't use an accountant for that already. If you decide to do reasonably complex things like partnership distributions, you should probably also hire an accountant to draw up the initial books for your business. This isn't difficult work as far as accounting jobs go, and you should be able to keep up your books on your own afterward if you have even basic bookkeeping knowledge, but it's much better to get things like this right the first time than to have a crisis when your 2019 taxes come due.
posted by rue72 at 9:40 AM on January 25, 2019 [3 favorites]
Apologies if this information is too basic!
Ultimately my point is just that if you want your partner to have a stake in the business, then you can give them an actual ownership stake in the business. I think that hiring them on as your employee/vendor would be kind of counterproductive in emotional terms, because it creates such an inescapably hierarchical relationship, and that sounds like the opposite of what you want.
If the decision is between giving them some money for helping you or letting them help you because they love you, I personally think it would be kind of...insulting? to give them money and that you should just take the favor.
posted by rue72 at 9:47 AM on January 25, 2019 [1 favorite]
Ultimately my point is just that if you want your partner to have a stake in the business, then you can give them an actual ownership stake in the business. I think that hiring them on as your employee/vendor would be kind of counterproductive in emotional terms, because it creates such an inescapably hierarchical relationship, and that sounds like the opposite of what you want.
If the decision is between giving them some money for helping you or letting them help you because they love you, I personally think it would be kind of...insulting? to give them money and that you should just take the favor.
posted by rue72 at 9:47 AM on January 25, 2019 [1 favorite]
Purely on a human relations level, what if you think of this as a family business, rather than just your business? So, you both own the business; the business has income and expenses; and you include as an expense the value of both your time and spouse's time in calculating the business's net profit.
This frames it as a thing you're doing together that values both of your time. And it informally models what you'd have to do if you incorporated, so the admin work sort of pays for itself: it's a nice way to test whether the business is really sustainable, and good practice if you get more formal.
posted by john hadron collider at 10:07 AM on January 25, 2019
This frames it as a thing you're doing together that values both of your time. And it informally models what you'd have to do if you incorporated, so the admin work sort of pays for itself: it's a nice way to test whether the business is really sustainable, and good practice if you get more formal.
posted by john hadron collider at 10:07 AM on January 25, 2019
Response by poster: Sorry to threadsit, I would not assume gender here as some of the answers have.
posted by Sreiny at 10:07 AM on January 25, 2019 [2 favorites]
posted by Sreiny at 10:07 AM on January 25, 2019 [2 favorites]
On a human relations level, this is very tricky. I'll just name a few issues that have come up in my own business where my spouse does occasional work and maybe something will resonate with you. I recently put out some feelers to hire someone to do my website. Doing websites is something that I used to do and something that my spouse has done and also does do in a certain capacity in his work. Basically, we are at the level that wordpress or squarespace websites should be easily do-able by us and that's how we made my first website. However, my spouse has often offered and has done work for me in his area of expertise which has benefitted the business. I have not compensated him for that work and we never talked about doing so. However, I'd like to revamp my website. I need it done. Not done on side-gig, spousal-pitching-in time, I need it DONE. So I got some bids. They were high enough that I needed to kind of pull back and look at my marketing budget in general and my earnings and blah-blah. My spouse saw the bids and was like, "We could do that! You don't need to pay for it! I'll help!" Is it done? No. It's not.
Now, you'd think paying your spouse would create a boundary...would create a priority and enable these things to happen with less friction. It can help, I think, but it's really left up to your particular relationship and how you deal with this kind of conflict which is a different kind of conflict than you deal with in your day-to-day relationship.
Lastly, before going and making your spouse a partner in your business, think about what kind of control you want to maintain. At this point in my business, I prefer to keep my books and my income and expenses my own business. The few times I have let my spouse in on this side of things, I have tended to get very unhelpful critiques or comments. This really isn't his fault, he's just commenting but it's actually not feedback that I need or am interested in. So, for my relationship, it is important to keep a barrier between my business and my relationship and for what I am doing, it doesn't make sense to make him a partner anyway.
Having said that, I do think for me the best possible way to leverage utilizing his skills in my business on an as-needed basis is to create an employee so that I can put funds into a retirement savings account from the business income. He does contribute to the success of my business and often in very direct ways that are quantifiable (hours). But, it does take a few steps to make this happen and we haven't made it happen! I got the lowdown on this through my accountant so if this appeals to you, I recommend that.
I'm reminded of when my mom and grandma offered to make my wedding dress. This filled me with anxiety because if they did this very generous thing with their considerable talent and I didn't like it, or it didn't fit well, or there was something that I wanted changed...I just wouldn't be able to do that - even if I had paid them! Whereas if I hired a seamstress, I could ask for alterations or a change or even freak out if what I had asked for was not delivered. I talked this through with my mom and grandmother and they agreed. We hired someone and then they helped me make good decisions. I like my website but there are certain compromises that I made because my spouse was helping me and 1) we needed to get it done so, "yay, done!", and 2) some things were wonky but he couldn't fix it and I couldn't leverage to get those things "fixed" because he's my sweetie.
posted by amanda at 11:36 AM on January 25, 2019 [10 favorites]
Now, you'd think paying your spouse would create a boundary...would create a priority and enable these things to happen with less friction. It can help, I think, but it's really left up to your particular relationship and how you deal with this kind of conflict which is a different kind of conflict than you deal with in your day-to-day relationship.
Lastly, before going and making your spouse a partner in your business, think about what kind of control you want to maintain. At this point in my business, I prefer to keep my books and my income and expenses my own business. The few times I have let my spouse in on this side of things, I have tended to get very unhelpful critiques or comments. This really isn't his fault, he's just commenting but it's actually not feedback that I need or am interested in. So, for my relationship, it is important to keep a barrier between my business and my relationship and for what I am doing, it doesn't make sense to make him a partner anyway.
Having said that, I do think for me the best possible way to leverage utilizing his skills in my business on an as-needed basis is to create an employee so that I can put funds into a retirement savings account from the business income. He does contribute to the success of my business and often in very direct ways that are quantifiable (hours). But, it does take a few steps to make this happen and we haven't made it happen! I got the lowdown on this through my accountant so if this appeals to you, I recommend that.
I'm reminded of when my mom and grandma offered to make my wedding dress. This filled me with anxiety because if they did this very generous thing with their considerable talent and I didn't like it, or it didn't fit well, or there was something that I wanted changed...I just wouldn't be able to do that - even if I had paid them! Whereas if I hired a seamstress, I could ask for alterations or a change or even freak out if what I had asked for was not delivered. I talked this through with my mom and grandmother and they agreed. We hired someone and then they helped me make good decisions. I like my website but there are certain compromises that I made because my spouse was helping me and 1) we needed to get it done so, "yay, done!", and 2) some things were wonky but he couldn't fix it and I couldn't leverage to get those things "fixed" because he's my sweetie.
posted by amanda at 11:36 AM on January 25, 2019 [10 favorites]
I am the partner of a successful business owner for whom I perform a number of technical and financial tasks. I don't get fair market value financial compensation because she earns more than the maximum social security threshold and paying me would cost us money collectively. Even when I was still working a straight job, it didn't make sense for us to exchange payment. She does express appreciation, but I've never really thought about needing anything particular financially or otherwise to feel like it is a worthwhile endeavor. From time to time, I have offloaded tasks that I used to perform to compensated tech support or accountant/bookkeepers when I feel like its more of a burden than its worth to us as income. We talk about these issues of how much work I'm comfortable adding to my schedule and what tasks are better suited to be outsourced but that communication doesn't ever really involve specific compensation incentives. I've had moments where I feel like my contributions weren't being appreciated and we talked about it and resolved it, just like one might if you felt like your other contributions to running the household or supporting any other joint endeavor aren't being recognized. The problem is one of communication and recognition, not about the financial compensation -- because as you say, all the money is going to the same place anyway
posted by Lame_username at 12:50 PM on January 25, 2019 [4 favorites]
posted by Lame_username at 12:50 PM on January 25, 2019 [4 favorites]
Best answer: They want to help. I absolutely want help, but I also want my spouse to feel compensated and not just taking on more responsibility from my activity.
My spouse and I "reward" each other with vacation time and hobby support, really.
Our work lives are pretty entangled right now. My spouse had a dream to run a martial arts academy. I was offered a role in running some martial arts academies, a role I could only afford to take because a) my spouse earns 1.4x what I was earning and 2x what I am now earning, and b) we had made some decent choices early in our partnership around savings, housing, etc. and c) he generously let me.
So now I work in an organization which hires him on a VERY part-time VERY minimal pay basis plus he gets calls from me to help with things on the fly, which he generously does both for me and for the organization. Meanwhile I am kind of testing out his dream job while he grinds away at corporate life. (My role is not what his would be.) I also help him in various ways with his career where I can and in the past I have really really supported him including a move. So right now it's not at all even but in our lives it evens out.
We're a team. Team us. That's what it comes down to. And a healthy team both helps AND rewards AND makes things explicit AND doesn't let people burn out (hahahahaha ok we try).
All our money ultimately goes into the same pot, and ultimately we both take on extra work at our workplaces.
Sooooooooo...we budget together in time and money for each other.
So. He is going on a _ten day_ meditation retreat in the spring, that we are paying for, and I will be watching our kids and holding down all the fort stuff so he can do that. In the past I have also supplied like tens of thousands of dollars in money for him to pursue dreams and a motorcycle.
Sooooo...what motivates your partner that they would really love to do? And can you book that for after this web project is done?
posted by warriorqueen at 12:51 PM on January 25, 2019 [3 favorites]
My spouse and I "reward" each other with vacation time and hobby support, really.
Our work lives are pretty entangled right now. My spouse had a dream to run a martial arts academy. I was offered a role in running some martial arts academies, a role I could only afford to take because a) my spouse earns 1.4x what I was earning and 2x what I am now earning, and b) we had made some decent choices early in our partnership around savings, housing, etc. and c) he generously let me.
So now I work in an organization which hires him on a VERY part-time VERY minimal pay basis plus he gets calls from me to help with things on the fly, which he generously does both for me and for the organization. Meanwhile I am kind of testing out his dream job while he grinds away at corporate life. (My role is not what his would be.) I also help him in various ways with his career where I can and in the past I have really really supported him including a move. So right now it's not at all even but in our lives it evens out.
We're a team. Team us. That's what it comes down to. And a healthy team both helps AND rewards AND makes things explicit AND doesn't let people burn out (hahahahaha ok we try).
All our money ultimately goes into the same pot, and ultimately we both take on extra work at our workplaces.
Sooooooooo...we budget together in time and money for each other.
So. He is going on a _ten day_ meditation retreat in the spring, that we are paying for, and I will be watching our kids and holding down all the fort stuff so he can do that. In the past I have also supplied like tens of thousands of dollars in money for him to pursue dreams and a motorcycle.
Sooooo...what motivates your partner that they would really love to do? And can you book that for after this web project is done?
posted by warriorqueen at 12:51 PM on January 25, 2019 [3 favorites]
Form a pass through corporation -- either LLC or S corp. Better for both of you $$ wise.
posted by whimsicalnymph at 6:24 PM on January 25, 2019
posted by whimsicalnymph at 6:24 PM on January 25, 2019
Is this business generating major revenue or is more like what the IRS would call a 'hobby' business (ie. it it a small project / isn't a major source of income / doesn't turn a profit yet)?
Hobby business, I would leave your spouse out of it. If you need help, hire someone.
Major source of income, form some type of LLC partnership then you both own it. Most likely there are major tax benefits / strategies to doing this although it greatly complicates actually doing them. Like everyone else has said, this is not something you would want to do on your own so the first step would be to contact an accountant well versed in small business stuff.
Somewhere in between, 1099 them if your partner really wants to work on it, then if it doesn't work for your relationship it can be over whenever you want it to be.
I own a LLC partnership with someone I am not in a romantic relationship with but obviously it IS a legal relationship. You have disagreements and you can't walk away, so you have to figure out a way to make it work that doesn't get personal.
posted by bradbane at 12:12 PM on January 26, 2019
Hobby business, I would leave your spouse out of it. If you need help, hire someone.
Major source of income, form some type of LLC partnership then you both own it. Most likely there are major tax benefits / strategies to doing this although it greatly complicates actually doing them. Like everyone else has said, this is not something you would want to do on your own so the first step would be to contact an accountant well versed in small business stuff.
Somewhere in between, 1099 them if your partner really wants to work on it, then if it doesn't work for your relationship it can be over whenever you want it to be.
I own a LLC partnership with someone I am not in a romantic relationship with but obviously it IS a legal relationship. You have disagreements and you can't walk away, so you have to figure out a way to make it work that doesn't get personal.
posted by bradbane at 12:12 PM on January 26, 2019
This thread is closed to new comments.
I'm not quite clear if your question is as simple as that.
posted by humboldt32 at 8:57 AM on January 25, 2019 [1 favorite]