I suspect that many nail technicians who classify themselves as “independent contractors” may not be at all. I urge salon owners and booth renters to take a closer look at their situation before the IRS decides to take a closer look.
If you have classified your situation incorrectly (and filed your return under the wrong classification), you could face back taxes and penalties it you are audited.
Contrary to popular belief, just because a person is paid by commission doesn’t automatically make her an independent contractor.
The IRS provides 20 categories by which it judges the employer/employee (or salon owner/booth renter) relationship. The amount of control a salon owner exerts over a worker tells whether that person is an employee or an independent contractor. If you must abide by the salon’s rules and regulations of where, when, and how to work, you are an employee. If your hours are set by the salon owner or manager, and you have no control over them, you are an employee.
For example, let’s say you rent a booth, buy all your own supplies, and do your own advertising. You split your receipts 60/40 with the salon owner, and you’re paid out of the central register once a week. You are required to work certain hours, take walk-ins, and maintain a dress code. Although you generally work without direct supervision, the salon owner can dismiss you if you do something that harms her business. In this scenario, you are an employee.
On the other hand, let’s say you provide your own supplies, and when a client pays for a service, you keep your share and put your earnings to the owner, you set your own hours, and, if necessary, you can even hire an assistant. Although the salon owner can terminate your employment agreement, she doesn’t have enough direction or control to be considered an employer by the IRS. In this scenario, you are an independent contractor.
The word “independent” may be the key to determining your status, as the classification lies in determining which party in the relationship has control. If, by and large, you control your schedule, prices, and supplies, you are probably an independent contractor. But if you are the one being controlled, you are more likely an employee.
Tax laws are complicated and confusing, but the consequences of not adhering to them can be very painful and costly. And, since the IRS doesn’t get around to auditing returns until years after they’ve been filed, you could wind up owing years’ worth of interest on an incorrectly filed return.
I urge nail technicians and salon owners alike to talk to an IRS counselor, an accountant, or an attorney to be sure you are filing correctly. You can also contact your local IRS office and ask for an SS-8 form, which is titled “Information for Use in Determining Whether a Worker Is an Employee for Purposes of Federal Employee for Purpose of Federal Employment Taxes and Income Tax Withholding.” (At least the IRS is very clear when naming forms!)
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