“We’re going to classify you as an independent contractor,” the salon owner says. “You will be better off as a subcontractor, really. It will be better for you because you won’t have to pay taxes and you can write off expenses.”
What is she talking about? What is an independent contractor? What is a subcontractor? How are they different from being an employee? How can anyone avoid paying their taxes? What can you “write off?” None of it makes sense to you.
This post will help clear up that confusion for both you and the likely misguided salon owner.
What is the difference between being employed and self-employed?
According to the IRS, workers are either employed or self-employed.
An employee is a worker an employer has a significant degree of control over. This control may include the rights to:
- set the worker’s schedule,
- require the worker to wear the employer’s uniform or dress in accordance with the employer’s dress code,
- set rules the worker must abide by,
- establish protocols the worker must follow,
- require the worker’s attendance at training and meetings,
- require the employee’s exclusive devotion to their business,
- determine the rate at which the employee’s services are priced,
- and dictate to the employee as they please.
These are only a few of the factors that may indicate a worker is an employee. In exchange for this degree of control over the worker, the employer must classify the worker as a W-2 employee and contribute to that worker’s employment tax obligation.
A self-employed person, however, is a business owner (even if they have no employees of their own). When a person is self-employed they:
- set their own schedule,
- work wherever they please,
- perform their work however they choose using whatever tools and products they choose,
- may sometimes work on a contracted basis (as an independent contractor, possibly functioning as a general contractor or subcontractor), for many business owners and private customers,
- often have their own business location,
- may wear and promote their own branding,
- may not be required to undergo an employer’s training or attend an employer’s meetings
- receive 1099 forms from their customers (which may include business owners and private clients) so they can claim their income when they file their self-employment taxes.
These are only a few of the factors that may indicate a worker is self-employed. In exchange for the freedom they enjoy as a self-employed business owner, these workers are required to pay the entirety of their employment tax obligation and are exempt from laws designed to protect employees in the workplace (anti-discrimination, worker’s compensation, wage and overtime requirements, etc.).
A “hybrid status” employee is a fictional construct. You cannot be an employee that is also “independent.”
A lot of people in our industry have this belief that an independent contractor or “subcontractor” is a special type of employee that has more freedoms than a regular employee, but not as many freedoms as a booth renter or someone who is self-employed. This is utterly incorrect.
There is no distinction between an independent contractor, a subcontractor, and a self-employed person. They are the same. If you are responsible for paying the entirety of your employment tax responsibility, you are self-employed. It doesn’t matter if the salon owner calls you “independent,” “contracted employee,” “subcontractor,” or “the goddamn supreme CEO of the unicorn fairies”–if you are not employed, you’re self-employed.
Independent Contractor Defined
An independent contractor is a self-employed person who is contracted by a business or private client to complete a particular job according to the terms of their contractual agreement. For a wealth of information on what it means to be an independent contractor, read this post. Basically, an independent contractor is a business owner or freelancer who is choosing to fulfill a contractual work arrangement for a customer (who may happen to be a business owner).
A subcontractor is a a self-employed independent contractor (or a business) that is contracted to provide some service or material necessary for the performance of another’s contract. Subcontractors perform a job or portion of a job under the direction of a general contractor. True beauty “subcontractors” are exceptionally rare.
General Contractor Defined
A general contractor is a person who contracts for and assumes responsibility for completing a large project and hires, supervises, and pays all subcontractors. General contractors are under contract themselves by a business entity or private employer. They are overseers, responsible for facilitation the completion of a complex job.
The easiest way to explain the role of a general contractor is to use the industry in which general contractors are most typically found: construction. Often, a general contractor will be contracted by a builder to ensure the timely and satisfactory completion of a building. The general contractor will draw on their network of professionals and business owners, contracting individual jobs (plumbing and electrical installation, framing, duct work, masonry, roofing, etc.).
Each of these self-employed professionals (or separate businesses) has been given a specific project to complete, and they agree to completing those projects by signing a contract. The general contractor’s job is to oversee the satisfactory completion of those projects, making sure the subcontractors have fulfilled their obligations so the general contractor can fulfill his or her own contractual obligations to the builder.
Salon owners often try to claim that because they are self-employed, they are general contractors and have the right to hire independent contractors to “subcontract” under them. They’re almost always wrong in how they apply those definitions. A salon owner operates a business entity which they manage independent of any outside control. They are not under contract themselves.
The only semi-legitimate use of this designation tends to occur during large fashion or media projects. For example, let’s say my friend Mike (a well-known MUA with a large network of collaborators in Los Angeles) is contracted by a production company to oversee the completion of a large special effects project for a sci-fi movie. He can do the makeup, but he needs someone skilled in prosthetic fabrication and application and someone capable of creating a custom wig.
Because Mike is the general contractor and his contract requires him to pull this look off, he has the authority to subcontract these portions of the job to those who have the necessary skills. The subcontractors are responsible for satisfactorily fulfilling their contract requirements, and Mike is responsible for ensuring their work meets the standards outlined in his contract from the production company.
These subcontractors don’t work for Mike or the production company. Mike also doesn’t work for the production company. They’re all independent freelance professionals, completely self-employed business owners, each responsible for fulling contractual agreements.
So let’s return to our original dilemma. The salon owner wants to classify you as an independent contractor, but is that classification appropriate for the situation? Read the 20 Factor post to learn more about the ways in which it may or may not be. However, the salon owner’s statement that you “won’t have to pay taxes” is false. You, like everyone else, will most certainly have to pay your employment taxes.
By classifying you as self-employed, the salon owner is actually passing off her portion of your tax burden onto you and exempting herself from her obligations as an employer. Those obligations include many different state and federal requirements like complying with any applicable discrimination laws, providing coverage under a worker’s compensation insurance policy, and ensuring you’re paid the prevailing minimum wage and overtime pay. Typically, salon owners choose to utilize the “independent contractor” classification to facilitate wage theft and tax evasion–at the salon professional’s expense.
Unless you are truly self-employed and possess all the freedoms that come with self-employment, this arrangement only serves the salon owner’s best interests.
It’s extremely important that you know your rights. Don’t allow yourself to be taken advantage of. Do your research and contact an employment law attorney for clarification and guidance.