You just started your own salon business or barber shop and you need workers. You hear it is better to your bottom line to have independent contractors instead of employees. Thus, you decide that you will treat your workers as independent contractors and give them a 1099-Misc form at the end of the year. Is this a good idea? Is it legal?
When if comes to workers, there are two classifications: an employee or an independent contractor. An employee if someone for whom you withhold payroll taxes and issue a W2 form at the end of the year. An independent contract is someone you pay 100% of what they earn and issue a 1099-MISC form at the end of the year.
Treating your workers as contractors is attractive to business owners because it frees them from the responsibility of having to withhold federal and state taxes. Instead, the independent contractors is the one responsible for calculating and paying their own payroll taxes. If you have contractors you do not have to be responsible for paying a share of an worker’s Medicare and Social Security contributions, unemployment insurance or worker’s compensation insurance. Further, federal and state labor laws apply to employees and not contractors. Therefore, if you decide you no longer want to work with a contractor, he or she cannot sue you for wrongful termination. You also do not have to pay overtime.
Having a contractor is certainly the more attractive option. But, is it legal?
The law follows the notion that an worker is an employee unless you can prove otherwise. Texas defines employment in Section 201.041 as “a service, including service in interstate commerce, performed by an individual for wages or under an express or implied contract of hire, unless it is shown to the satisfaction of the commission that the individual’s performance of the service has been and will continue to be free from control or direction under the contract and in fact.” Businesses with employees are subject to the Texas Unemployment Compensation Act (TUCA) and therefore must pay unemployment insurance.
There are three main components in determining whether the worker is an employee or a contractor: service, wages, and direction and control.
If the worker has set working hours and the employer exercises control over the work the person does, the times they do it, where he or she does the work and provides the tools or materials to do it, then that person is an employee. Be aware that if the worker has a flexible working schedule where he or she sets his or her own work hours does not mean that person is an independent contractor. Even if you have a contract classifying that employee as an independent contractor does not automatically mean that person is one. In terms of wages, even if you issue a 1099-MISC, that person may still be an employee. Paying a person cash does not mean that person is not an employee.
If the work that the person does is an integral part of the business, then that person is an employee. If you have a nail salon and the worker is a nail technician, then that person is an employee. If you have a barber shop and you hired a graphic designer to help you with your logo, that is likely an independent contractor.
The responsibility of employee classification falls on the employer. Misclassification can result in fines, increased taxes and interest charges. A business owner can be fined $200 per worker if the employer is operating under a government contract. You can also be fined several thousands of dollars by the state and federal government.
The Texas Workforce Commission offers a 20-point test to determine if someone is an employee or an independent contractor.
The majority of salon workers are in fact employees. If the relationship that you have with the worker is one in which he or she is renting the booth or chair, then technically that person may be an independent contractor. But, they are only independent contractors if they maintain complete control over their work by scheduling their own appointments, setting their own schedules, purchasing all of their supplies and being paid by the client directly. Also, an independent contractor is not required to wear a uniform.
Charleen E. Merced
The Department of Labor offers a guide for nail salon workers in the website at
www.dol.gov/whd/nailsalon.
The Employment Status – A Comparative Approach:
https://twc.texas.gov/files/businesses/form-c-8-employment-status-comparative-approach-twc.pdf
