Independent Contractor, Booth Renter or Employee?

  1. help!
Independent Contractor, Employee, Booth Renter: Which
one am I?
The salon industry is a great industry to be in!  It not only allows you to be expressive by being creative and showing off your talents; it allows you to help others and make them feel beautiful.  Some are able to take cosmetology classes while in high school while others go full or part time to earn their degree in this field. Nails Magazine has an article in the January 2014 issue  at nailsmag.com.  The industry requirements vary from state to state as far as hours and licensing.  Some states are reciprocal (will let you transfer hours/licenses) if you move.  Each state board is different so you must check with them if you are planning a move and continuing in the industry.
However, the most important thing that you can do is making sure that you classify yourself correctly when starting out in this industry.  If you are planning on working for someone else or being self-employed there are a few options on how you are classified/paid.  There are actually three categories that you can fall into and each category has it’s own set of rules.  There are some grey areas and you want to be sure that you are as accurate as you can be.  It is a whole lot easier to start out correct than having to reorganize later or at the expense of your income.
There will be more articles following this one!  However, in brief the way to look at it is this:
EMPLOYEE:  This is someone who can work for another person or entity.  You are paid hourly or on commission or both; you are supplied to perform your job duties mainly by the company you work for, may or may not have set hours, may or may not get benefits such as vacations, health insurance, 401k’s, etc. In this classification you will  have your taxes taken out of your check and the employer will match your FICA/FUTA taxes for you.  Your tax rate is less than if you were self-employed (both renter/independent contractor). You will most likely not have any write-offs at year end since your employer should be providing you with the means to do your job and you have no major investment in the company.
BOOTH RENTER:  The simpliest way to understand this classification is to imagine that you are a renter in an apartment complex.  It is similiar.  You take care everything yourself.  Your advertising, etc.  You rent space.  You have the total control of that space.  You can retail your own products and collect your own payments.  Your clients pay YOU.  They write a check to YOU.  If they pay by visa it is YOUR visa sale…  You are on a contract with a “rental” fee for the space that you are working in.  You have a key to come and go as you please into the space that you occupy. You set your own hours of work.   If in your contract it is dictated that you pay a portion of the receptionist (to use her/him), visa (to use) cleaning crew (to use) then if it is in writing and noted it is then part of your contract and you are actually paying a fee towards using these services.  Unlike if you were an employee and it would be part of your employment terms.  You will either issue a 1099 to the person you have paid rent to at the end of the year or the person that you rent from will issue to you for rent paid.  You are also able to write off your expenses related to your job and investments made.
INDEPENDENT CONTRACTOR:  This is a very grey area for most.  It has been indicated that most do not fit into this category in the beauty industry.  The way to describe this category is similiar to:  If you were a hotel and didn’t provide massage services.  You could call in a masseuse that would be on call and available to the hotel on an “on call” basis without a permanent schedule for your location.  The hotel is able to call in as many massage therapists as needed when needed. You are able to work for several hotels in the area without it being a conflict.  The hotel is able to pay as a 1099 to the massage therapist without having to be liable for taxes to this person.  The massage therapist is responsible for the ‘self-employment” tax that is to be paid to the government on their wages.  The self-employment tax is a higher tax than an employee would pay to the government since the employee’s fica/futa taxes are matched by the employer.  You are able to write off your expenses relating to your job.
Again, this is a general synopsis of these categories.  Please refer to your tax advisor for full and complete details to make sure that you are classifying yourself correctly.  The law may have changes and there are areas that are unclear and it is highly advised that you make clarifications on anything that you are unsure about.
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