Laws concerning tips, taxes, and technicians can get confusing. Take this quick test to see if you’re operating on the right side of the law.
1. An independent contractor is:
b. An employee
c. A subcontractor
d. A contracted employee
2. A nail tech and her salon have a commission-based arrangement where the salon owner pays the tech her commission bi-weekly. Is the tech an independent contractor or an employee?
a. Independent contractor
Who determines which services to offer clients, which products to use, and what the price is per service?
a. The salon owner
b. The nail technician
c. It should be agreed upon between the nail tech and the owner.
d. It depends on the status of the nail technician.
4. A salon owner is required by law to give employees how many weeks of vacation a year?
d. 2, plus Thanksgiving, Christmas, New Year’s Day, and the Fourth of July.
5. Salon owners can offer independent contractors the use of front desk services, such as booking appointments and collecting service fees. In return, they can require independent contractors to help with salon responsibilities such as laundry or cleaning.
6. A salon owner can require an independent contractor to be present in the salon during certain hours, regardless of whether she has customers.
7. Employers are required to cover health insurance for their employees.
8. An employee must report tips to her employer.
9. An independent contractor must report tips to her employer.
10. An employer is required by federal law to allow for breaks and meal periods.
11. Salon owners must provide booth renters/independent contractors keys to the salon.
12. An employee cannot deduct business-related expenses, such as uniforms, continuing education classes, and tax preparation.
1. a) Self-employed. The IRS does not recognize the nebulous hybrid relationships many salon owners and techs try to create. Techs operate either as a completely independent business (a self-employed booth renter) or as an employee. Subcontractors are people like plumbers and electricians; they perform part of the whole job and there is a start and end date.
2. b) Employee. An independent contractor receives all service payments directly from the customer.
3. d) It depends. If the salon hires employees, the owner gets to decide. If the salon works with booth renters/independent contractors, each self-employed tech determines her own products and pricing.
4. a) 0. Though many employers offer benefits that include paid holidays or even a full week’s vacation, it is not required by law.
5. b) False. Independent contractors must collect payment for their own services, and salon owners cannot require independent contractors to perform tasks that benefit the business of the salon.
6. b) False. An independent contractor has complete autonomy over her schedule.
7. b) False. Employers with less than 50 full-time employees are not required to pay health insurance. Beginning in 2015, employers with 50+ full-time employees must offer all employees working an average of 30 hours per week or more in a month health care coverage or face a fine.
8. a) True. Cash tips that total more than $20 a month must be reported to employers, who are then required to withhold federal (and sometimes state) taxes on those earnings. Employers are also required to withhold social security and Medicare taxes on income earned through tips. Use IRS Form 4070 to report tips.
9. b) False. It’s a trick question. Independent contractors don’t have employers. She must claim her tips when she files her own taxes.
10. b) False. Some states have requirements for breaks and meal periods, but the federal government sees these benefits as a “matter of agreement between the employer and the employee.”
11. a) True. Booth renters/independent contractors have a legal right to be able to access their business regardless of business hours.
12. b) False. Expenses that exceed 2% of your adjusted gross income may be able to be deducted as “miscellaneous” expenses. (Get guidance from your accountant.)