This quick article has been written for salon owners so that they can better understand exactly what an “independent contractor” is. For more detailed information, I highly recommend reading the following posts after this one:
An independent contractor is:
- self-managing, and
- 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, or
- 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 likely will) lose everything you have if you are caught (which you very likely will be). The amount of money you save in employment tax by cheating the government will be far less than the amount you would be penalized in the event of an investigation and its subsequent audit.
As a consultant who specializes in structuring businesses for legal compliance, I have watched as salon 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.
There is literally only one legitimate scenario in which a salon owner would utilize the independent contractor: a freelance specialist.
An “independent contractor” is the massage therapist who agrees to do chair massages in your hair salon for a bridal party. This therapist comes in, does the work in accordance with the event’s work agreement, takes her payment, 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 massages for the bridal party. That’s it. You do not dictate to her how you want the services performed. She is not and will never be exclusive to you unless you put her on your payroll and make her a legitimate employee (which means she fills out a W-2 and you assume responsibility for half of her employment tax).
It can be very tempting to classify your staff as independent contractors and have them sign contracts that effectively make 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 emails from salon owners asking how they can “work around” the IC status through clever contract manipulation. To those people, I have two questions:
- What makes you think I’m going to help you take advantage of your staff when I’m clearly an advocate against that shenaniganry?
- 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 the least intelligent 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. Unlawful contracts are unenforceable.
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.
For salon owners, there are two options: own a rental facility or an employment-based salon. There truly is no in-between or middle ground.
Know Your Rights: Course BundleProduct on sale
Salon Ownership and Management: The Definitive Guide to the Professional Beauty BusinessProduct on sale
The Salon Compensation and Pricing Megakit$79.00
The Salon Landlord’s Toolkit$14.99