This topic pops up in my inbox so often, I thought it might be a good idea to write an article directed towards salon owners so that they can better understand exactly what an “independent contractor” is.
An independent contractor is:
* responsible for their own employment tax.
An independent contractor is NOT:
* exclusive to your business (regardless of what your “contract” stipulates)
* to be held to the terms of any kind of “non-compete” agreement
* an employee that you don’t have to accept tax responsibility for.
The consequences you, as a salon owner, could face if you are found to be improperly classifying employees as independent contractors are incredibly serious. You can (and will) lose everything you have if you are caught (which you will be). The amount of money you save in employment tax by cheating the government is far less than the amount you would be penalized in the event of an investigation and its subsequent audit.
It. is. NOT. worth. it.
Owners have lost their businesses, their homes, and have been put so far into debt for back taxes, fines, and legal fees that they will never live long enough to pay it off. Let’s not get into what could happen if your “independent contractors” decide to take you to civil court or report you to the Department of Labor. In addition to the drama from the IRS and your state labor board, you’ll have to answer to a judge and pay damages against the people you’ve wronged.
There is literally only one legitimate scenario in which a salon owner would utilize the independent contractor: an on-call employee.
An “independent contractor” is the on-call massage therapist that only comes in to do a few clients when your full-time therapist is overbooked and can’t take walk-ins. This on-call therapist comes in, does the work and leaves. She does not sit in the salon and wait for clients. She does not fold your towels, answer your phones, or scrub your toilets. She does massage. That’s it. You do not dictate to her how you want the services performed. She works wherever she’s called to work at her discretion. She is not and will never be exclusive to you unless you put her on your payroll and make her a legitimate staff member (which means she fills out a W2 and you assume responsibility for half of her employment tax). You pay her before she leaves the salon and at the end of the year (if you’ve paid her more than $500 in that year) you provide her with a 1099 she can file her taxes.
It can be very tempting to classify your staff as independent contractors and have them sign contracts that effectively makes them your employees. I get it, you don’t want to pay employment tax or be held to federal/state labor laws. Take my word on this: don’t do it. Not even once. In the long-term, you’re screwing them and you’re really screwing yourself.
If you are going to completely disregard my advice, at least treat the contractors properly.
*They do not have a dress code.
*They do not follow a code of conduct or any kind of “employee manual.”
*They do not sit in your salon all day, they come and go as they please.
*They are not exclusive to your business.
*They are not your employees. They do not clean, they do not answer phones, they do not do your laundry. They do what their job title entails, nothing more, nothing less.
*They do not sign your “employment contracts” that limit their rights as a self-employed person.
Too often I get messages from owners asking how they can “work around” the IC status through clever contract manipulation. To those people, I have two questions:
1.) What the hell makes you think I’m going to help you take advantage of your staff when I’m clearly an advocate against that shenaniganry?
2.) Do you want to incriminate yourself? Because that’s all you’ll be accomplishing.
Having your independent contractors sign “non-compete” agreements or “conduct” agreements is probably the stupidest thing you could do. These agreements can be used by that contractor to prove that you were overstepping your bounds into an “inappropriate degree of control” area which is only suitable in an employee-employer relationship. I’ve had more than a few owners tell me, “But they signed it! Aren’t they required to adhere to it since I have their signature on it?”
…no. They aren’t. You broke federal law, simpletons. The fact that the contractor agreed to your tyrannical contract before they realized they were getting hosed will hold no weight with a judge, who will see you as an opportunistic, greedy owner (since you are clearly the only person benefiting from that arrangement). They will look at you and say, “You are the business owner. You should have known better. Your ignorance of the law is no excuse and doesn’t enable you to violate it at will. If you weren’t aware of how to classify your staff, you shouldn’t have opened a business to begin with.”
Straighten up, salon owners. The IRS and the DOL are coordinating efforts against those of you that are misclassifying. They don’t care if it’s accidental or not. You’ve been warned.