Please evaluate the legal/tax validity of the following as a business model:

Unemployed get benefits for a period of time after being fired/layed-off. However, they loose those benefits (to my knowledge) if they start making a certain amount of money.

Interested in the idea of exploiting the system by offering deffered payment/equity in the company/maybe both ... to hire those who have recently started receiving unemployment benefits.

Any obvious problems with this idea (don't care about the proposed ethical/moral arguements ... just looking for specific laws, tax code, etc that makes doing this impossible.

1/21/2013 9:13:18 AM

I realize this thread is about scamming taxpayers and taking advantage of unemployment benefits, which I am not. Hear me out, maybe I can offer some insight.

I am in outside sales, which is currently salary+commission, but will move into straight commission starting at the beginning of July 2010. I have been in this position since July 2009. I have competition from several direct manufacturing sales reps, large distributors, and local distributors. Here are the advantages and disadvantages of each:

Direct Advantages: Immediate knowledge of new technology, no middle man mark up, one shipping bill (paid by manufacturer or buyer of goods), access to larger range of non-commodity items, control inventory, have access to many distributors that can effectively sell their goods which increases market share, and set prices of commodity they manufacture.

Direct disadvantages: Typically have 1-3 sales reps per region (i.e. southeast, mid-atlantic, northeast, etc.) limiting the number of accounts they can successfully manage/cold-call, lack physical customer service or physical technical service available to or affordable for smaller users or altogether, are sometimes not trustworthy because they will go in behind their distributors that sell their commodity to one account in large quantities (i.e. they missed a big account, and have found out about it through a distributor selling their particular product) which leads to the distributor not selling their product anymore, have too many distributors selling the product ultimately driving the set price down through deviations, possibly rely on distributors to actually sell the product, and competition from other direct sources.

Large distributor advantages: have access to other commodities that go hand in hand with other manufacturers (poor example- grocery stores sell milk as well as cereal), get direct pricing, many locations regionally or nationally easing the shipping burden of buyers with multiple locations, personal service either customer or technical, many sales reps that are able to cover a broader territory, access to multiple manufacturers of the same commodity allowing to keep prices in check, service programs that smaller companies can't offer and direct providers can't match in price or value, and experts of many many commodities as opposed to one or a few.

Large distributor disadvantages: smaller local distributors creating price wars (think Michael Scott Paper Co vs Dunder-Mifflin), direct mfg's going in behind and stealing business, limited access to all of the mfg's (you won't find Harris Teeter name brands in Food Lion and visa versa), can't truly set prices because it's based on both supply and demand, territory management, and tough growth prospects in slower economies (this is true for direct as well really)

Local distributor advantages: Typically a good ol' boy setting where the seller and the buyer know each other for years (this does happen at all levels, but mostly at the local level), local folks are right down the street and can be used in emergencies, if the local guy buys at high enough volumes then there is no shipping charge to the end user, and access to both direct mfg's and large distributors.

Local distributor disadvantages: easily beaten in price, array of commodities, array of technology, lack of trained staff, low cash flow, etc etc etc.

This is what I have noticed in my six months, I am sure there are plenty more that need mentioning. The way I am setting myself apart as a sales person is this: I go after the big accounts right now while I am new. The big accounts, if I land them, will take care of me while I am new and building a customer base. The money made off of those allows me to focus free time on smaller accounts that get me higher margins. I build up big accounts, I would like to have 5-10 of these, then get 20-30 medium accounts. If I lose 1 or 2 big accounts, the 20-30 medium accounts keep me afloat while I go after new big accounts. I don't really waste time on small accounts simply because they basically pay for breakfast or something really small.

I will say this, if you can't get a big account in the first 6-8 months (assuming you have cash flow that you can ride this long) you could be in a world of trouble. If you can get one, it will really make going after the others a lot more enjoyable and less stressful. It's simply just very exhausting wasting any time on anything other than big accounts in the very beginning. You work just as hard on the medium sized accounts and see 1/3 to 1/36 of the money in my situation.

If you have any other questions, you can PM me. I hope you die in a fire.

1/21/2013 9:24:07 AM

This should be a good thread

1/21/2013 9:33:17 AM

I know that company lost out on the "hiring unemployed people" bonus with me because I had worked over 40 hours within 90 (?) days, so I imagine any unemployed lepers you hire would have to be kept under a certain amount of hours per week.

1/21/2013 12:51:01 PM

My uncle did something similar to this. He's now being sought after by the state of NC.

1/21/2013 12:55:47 PM

Quote :

"Interested in the idea of exploiting the system by offering deffered payment/equity in the company/maybe both ... to hire those who have recently started receiving unemployment benefits."

lol

Unemployed people are allowed to earn a certain amount of money before they lose their benefits. If they go over the limit in any week then they lose their benefits for that week. When they get paid is irrelevant.

[Edited on January 21, 2013 at 1:12 PM. Reason : Cant talk good.]

1/21/2013 1:07:41 PM

Don't incriminate yourself - There is always the chance that a member of law enforcement could browse this board. Do not post anything that will incriminate you or someone else.

1/21/2013 2:31:04 PM

^ pretty sure he's talking about legal "exploitation". Same idea as tax avoidance (legal) vs tax evasion (illegal).

1/21/2013 3:51:55 PM

we should have a system to do this legally, would encourage new hiring

1/21/2013 3:52:39 PM

Everyone I've ever met who was concerned about this:

Quote :

"Unemployed people are allowed to earn a certain amount of money before they lose their benefits. If they go over the limit in any week then they lose their benefits for that week. When they get paid is irrelevant."

have been completely fucking worthless as workers. While I would never discriminate based on current employment status I've never had anyone who limited their hours so they could continue to draw unemployment who wasn't a problem. They usually get fired for poor job performance pretty quickly.

1/21/2013 4:21:57 PM

sounds like a Seinfeld plot and George is not impressed


[Edited on January 21, 2013 at 4:50 PM. Reason : .]

1/21/2013 4:48:52 PM

There's very little you have to do to "exploit" this system.

The way you get around this is by fixed contracts with single payments on completion. "Hire" the person as an independent contractor, just 1099 them.

Then setup a contract where you pay them once upon completion of terms (like contract lasts 4 weeks). At the end, you pay them. They can't collect unemployment during any week they receive pay. The next week they resume collecting unemployment.

In most states you can do revolving 1099 contracts for up to 1 year without any down period. After that it varies state by state, but many states have laws in place preventing employers from "permanent contractor" status, requiring you to either hire them fulltime as employees or break for a certain number of days before the next contract.

1/21/2013 11:10:30 PM