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Discussion Starter · #1 ·
When I start my business I am going to have a few people that will have designed shirts for me. I don't want to just screw them over and not pay them anything. I would like to set it up where they would get some sort of percentage of each shirt sold of the shirts they design. Is it possible to set them up like I just described?

I know the IRS website will most likely give me the best definition on this, but I was hoping if anyone had any personal experience on this. Also how did it work out for you?

Also, I am definitely a newbie towards creating my own business and to t-shirts. Does anyone have a recommended pattern to starting your own business? Such as, obtaining licenses, tax matters, bank account, domain, etc.
Or any books to recommend on this?

Thanks,
Hayden.
 

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You can set them up as a sub-contractors. Keep track of how much you pay each one of your designers and at the end of the year, if you paid them more than $600.00 to any one designer then, you have to issue them a 1099-misc. income form. Similar to w-2.

For more info. Google search 1099-misc income.
 

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Discussion Starter · #5 ·
Another question on employees.

One of my designers I do business with lives in another state and is a good friend of mine. Does that require more paperwork since he does not live here in Texas?
 

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Discussion Starter · #7 ·
Well its not officially started. But I planned on paying him by a percentage of each shirt that he designs or a set amount to each shirt. Do you think this is good way to approach this also?
 

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As far as fees and payment schedule is what ever works best for you and the artist and what you agree to.

Not sure how everyone else is handling it, does anyone have any advice you can give?

But, in terms of the method of pay - (When paying someone as a contractor there is no payroll tax, therefore less paper work. You still need to issue 1099-MISC at the end of the year if you paid out more than $600.00 to any one individual or payments of $10 or more in gross royalties
).

When paying wages (payroll) you must withhold income tax from their pay and you are responsible for reporting it to both federal and state government agencies.

Best to consult your accountant for further advice.
Questions regarding how to report the amounts from Form 1099-MISC on your tax return should be directed to your tax professional or the IRS at (800) 829-1040. You can also visit
www.irs.gov for information, forms and publications.

Here is the information that I found from the IRS.gov web site.

Independent Contractor (Self-Employed) or Employee?
It is critical that you, the employer, correctly determine whether the individuals providing services are employees or independent contractors. Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors.

Hope this helps!
 

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Discussion Starter · #9 ·
If I hired a designer and I decide to pay him 15% for each shirt sold. Well Say something happens and I decide to let him go. Do I have to continue paying him that 15% since he is not under contract with me anymore?
 

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I've been through similar situations in the past with freelance artist. We would send them a 1099 at the end of the year. But to address another issue you brought up, I'd be more concerned with paying them a percentage of every shirt. Been there and done that, and from my experience it turned out to be a nightmare. Unless your accounting system is REALLY dialed and you're setup to payout royalties, it's time consuming and probably not worth it for you or the artist. And what if the design really takes off? Do you want to payout thousand of dollars for a design that may of only cost $300 to begin with? Another thing to keep in mind is the copyright is owned by the artist not you unless you get it in writing. I had a contract that we worked up that define the terms of the agreement of each project. For instance is it a license agreement or do I own the right to the image after the project? How long is it good for? Is it a blanket agreement can i use the image for anything? like mugs, t-shirts and print ads or was it just for tees. There are lots of things to keep in mind when you enter into a license agreement. Unless you absolutely have to I'd avoid them. Just pay the artist what they want and move on. If they're out of your budget then negotiate the rate down or find someone else. There are some good posts on this board about copyright and license agreements. I'd check them out before I entered into any kind of long term agreement. just my 2 cents, hope it helps. good luck!
 

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Would I have to have him sign a contract for every design he produces?
Unless you hire him as an employee and have him sign a work for hire agreement, yes. One contract could cover multiple designs though.
 

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Would I have to have him sign a contract for every design he produces?
It's really up to you how you set it up. In our case we did a lot of licensed merchandise for bands. We would negotiate a contract for every project or group of designs. The more you get in writing the better off you'll be in the long run. Try to keep the contract to a fixed period of time. You don't want to be figuring out royalties years from now. We had a couple bad experiences with some artist. After that we paid a flat rate of $150-$500 for a design and we stipulated we held the royalty free copyright and that the design couldn't be used again for a period of time. lots of artist just tweak designs and sell them off to someone else.
 
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