Beauty Store Business

AUG 2013

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Beauty & The Law Independent Contractors & Booth Renters Here are tips from a legal perspective on how your beauty business should work with them. by Jean Warshaw YOU DON'T ALWAYS NEED TO EMPLOY STAFF TO service your beauty store or provide beauty services to the public, and many business owners turn to independent contractors instead of employees for help. There are many advantages to bringing independent contractors into your beauty business, but as always, there are legal considerations and risks that you should take into account before deciding how to organize your business. Your business is responsible for paying minimum wage, overtime, Social Security taxes, Medicare taxes and paying for workers' compensation and unemployment insurance for employees, but not for independent contractors. Similarly, your business could be liable for the wrongdoing of employees that it would not be liable for if the workers were independent contractors. Naturally, businesses of all types often don't want these financial and legal obligations and would prefer engaging independent contractors instead of hiring employees. But it's very important to correctly categorize people as employees or independent contractors because if you make a mistake, you could owe back taxes, back wages and overtime payments as well as penalties. is an independent contractor and waives all rights to benefits that an employee would have, you could still be found to have an employee instead of an independent contractor. The laws governing labor issues and taxes look at a range of factors covering supervision, direction and control—and the determination is based on the relationship as a whole instead of any one critical fact. The determination is more complicated because there is one test for federal tax purposes, another for state unemployment taxes and still another for federal wage and hour and anti-discrimination laws. It's possible to have the same worker classified as an independent EMPLOYEE VS. INDEPENDENT-CONTRACTOR DIFFERENCES ADVANTAGES OF HAVING EMPLOYEES 98 August 2013 | beautystorebusiness.com It's possible to have the same worker classified as an independent contractor for federal tax purposes, but as an employee for state unemployment taxes. contractor for federal tax purposes, but as an employee for state unemployment taxes. The main advantage of having employees is that a beauty store has a great deal of control. Employers can require their employees to wear uniforms, come to work at set hours, take breaks only as permitted, answer the phone using a script and generally mandate how the business must be conducted. A business that relies on independent contractors will not be able to dictate all these aspects of work—particularly in the context of booth renters, which are discussed later. ADVANTAGES OF HAVING INDEPENDENT CONTRACTORS Independent contractors pay their own federal selfemployment taxes. Businesses with employees have to THE IRS 20-FACTOR TEST If you have most of the elements of directing and controlling the work, the person providing services will usually be classified as an employee. Determining whether you have an employee or an independent contractor can be more of an art than a science. The IRS has a list of 20 factors it analyzes to determine if there is an employment relationship, and generally is more likely to find that your business has an employee if: 1. You have the right to require compliance with your instructions. 2. You train the worker (the greater the amount of training, the more likely a worker will be classified as an employee). 3. You integrate the worker's services into your business operations. 4. You require that the worker's services be provided by him or her personally. Image courtesy of Barry Burns Your employees report to you, and you can tell them exactly how you want them to perform their work. You can tell them where they have to work, when they can come and go, how long their lunch breaks are and generally dictate the details of their work life. In contrast, you can tell independent contractors what they must deliver to you, when the work has to be finished and what quality it has to be, but you can't control how they perform their services. There's no bright line test to help decide if someone is an employee or an independent contractor and this is often a very difficult call to make. Even if you have a written contract that says that the service provider withhold income tax and pay Social Security, Medicare and unemployment taxes as well as a range of state and local taxes that are imposed on employers. But businesses that have independent contractors pay a fee to independent contractors who are responsible for their own taxes. You don't have to give independent contractors paid vacation time or other benefits that you offer your employees. Your business may not be liable for damages if an independent contractor is negligent, but will be liable if an employee is. An independent contractor can't sue you under some anti-discrimination laws.

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