Symptoms of a Bigger Problem

I recently read an article in The Sacramento Bee about 17 Sacramento beauty and nail salons being cited by The Division of Labor Standards and Enforcement for illegally classifying their workers as independent contractors.

This topic is one I wrote about in the April issue and blogged about recently and I feel this issue lies close to the economic core of the salon industry. As quoted by labor commissioner Angela Bradstreet, classifying workers as independent contractors when they should be employees “goes directly into the underground economy, and gives employers who are not complying with the law an unfair competitive advantage over someone who is complying with the law.”

However, I feel that the IRS may not have an accurate understanding of what the nail business is like today. I’ve heard from many salon owners that it is very difficult to keep a worthwhile profit margin while still offering low prices, and that if not for practices such as using independent contractors, many businesses would not be able to stay open.

What do you think? Do you feel tax compliance and worker classification is a problem that is widespread among the nail salon industry? Or isolated to a smaller number?

—Tim