Nail Biz What is IC

The Business of Nails
NAIL-BIZ by the Dragon

So many Independent Contractors. There seems to be an awful lot of independent contractors on there in the beauty biz. A large number of persons posting on the professional beauty boards identify themselves as independent contractors. Yet the IRS has stated that very few persons working as hair stylists or nail technicians actually qualify under the definitions used by the IRS.

An employee is not an independent contractor.
And, a booth renter is not an independent contractor,
though a booth renter pays taxes in a manner similar to an independent contractor,
the source of their income is not similar and their obligations to the IRS on reporting
income and expenses is quite different.

In fact, in one major aspect, the employee has more in common with an independent contractor that with a booth renter. That concerns who gives and who receives the form 1099 report of income.
Employers give form 1099 to employees.
Employers give form 1099 to independent contractors.
Booth renters give form 1099 to those from whom they lease business space.

As taxes go ....
Employers provide a paycheck that has taxes withheld, and also pay employer taxes;
For independent contractors, those who employed you pay your bill or invoice in full. You handle all taxes.
For booth renters, you pay a rent to who you rent business spaces from .... the rest of it is your business to run and to pay taxes on.

But people tell me... Yeah, I know. You call yourself an independent contractor. Or the salon owner where you work tells you that you are an independent contractor. The other persons there say that they are independent contractors and therefore so are you. You may even pay an accountant to do your taxes and they say oh yes you are are independent contractor.

Well don't let that close your mind. Because the only people who can decide whether or not you are an independent contractor are the IRS people. And the only people who can come in and audit you and fine you untold thousands of dollars and bring hell and misery into every waking moment of your life are the IRS people. So if you want to really know if you are or are not an independent contractor ... stop listening to all those other people and start paying attention to what the IRS has to say about being an independent contractor.

What is an Independent Contractor. It's about how you work with others. What is your working relationship. Consider the housing industry as an example. We all know that the bulk of the building tasks are performed by independent contractors. The builder says hey, I'll sign an agreement with you to come in an install air/heating systems in 123 homes being built in such and such subdivision for such and such price. Or say you agree with a builder to come in a roof the homes in their subdivision for such and such price.

You see some of the characteristics here. Doing work for a set price. An agreement as to exactly what work is to be done. You are not being paid by the ultimate buyer of the home, you are being paid by the builder. You get paid for the work and you are responsible for seeing to it that the feds and the state get their taxes.

An Independent Contractor in the beauty biz could, for example, be someone who has an agreement with a salon owner to cover the vacations of the salon employees. The agreement might be that you come in and cover the work of any person gone on vacation and get paid $500 a week for it. You will receive a $500 check from the salon owner. Taxes will not have been deducted. You will be responsible for reporting this taxable income when you file your tax return. At the end of the year, those salons for which you have performed contractor services will each provide you with a form 1099, reporting monies paid directly to you. No taxes withheld. You will pay your taxes.

An independent contractor is not someone who comes into work at the salon day after day, week after week, with a split commission pay plan between themselves and the salon owner. That sounds like ...

An Employee... is someone who is supposed to be on a payroll. You can be paid hourly, you can be paid a commission. Some aspects of the minimum wage laws will apply to you. Your employer determines when you come in to work and when you go home. Your clients are not really your clients, they are the clients of the salon owner. You should receive a paycheck. Your paycheck should have deductions for federal, state and local taxes and deductions for Medicaid, social security and such. Also, the salon owner as employee, must pay their share of your social security and your workers compensation. And because the employer pays you, at the end of the year the employer is supposed to provide you with a 1099 income form reporting monies paid to you and taxes deducted on your behalf.
Now... now... now, if you are an independent contractor, the employer also is supposed to provide you with a 1099 income form reporting monies paid to you ... BUT NO TAXES.

Do you see why some salon owners like paying you as if you are an independent contractor when you are really working as an employee. They like not having to pay their share of all those employee taxes. Get it.

In fact this is probably why the false use of independent contractors status is so common in the discount shops. Suppose you open a discount nail shop. You do nails, so you gross $1000 weekly. And you hire three employees to do nails and they gross $1000 weekly. The split is 60/40, so you have your $1000, plus the $400 each from the employees, for a total weekly gross for you of $2200.

Your employees are treated just like employees; you tell them when to work, you control them. You can fire them. But for money purposes, you can going to call them independent contractors. At the end of the year, you give each of them a form 1099 showing that they earned misc income; income upon which no taxes have yet been paid. No taxes have been withheld. Income on which the shop owner paid no social security, no Medicaid, no workers compensation,,,,,Hey, it's a real win situation for the shop owner that really boosts their bottom line, ya see.

For the employee that was 1099ed as if they were an independent contractor, it is not so advantageous. They have no coverage for workers compensation, no earnings building them a future retirement in social security, and no unemployment insurance. None of the rights nor the advantages of being an employee. And they are responsible for paying all taxes on their earnings, which will be higher than an employee's taxes.

A booth renter... is what most people who think they are an independent contractor actually are. But for the IRS, you cannot be part booth renter and part employee. For tax purposes you must do all things expected of a booth renter, which then will place you in the independent business person's tax classification. A booth renter leases space within the salon. Space in which to operate their own business for their own benefit,,,, not to work under the control of the salon owner for the benefit of the salon owner. You pay a set rent, not a commission or a split of the income. You collect and control the money and give the salon owner a check for the rent amount. You must have your own key to the business as proof to the IRS that you can enter and leave as you wish and therefore determine your own working hours.

So you see, if you are in a work situation where you are called an independent contractor (or you are a booth renter ,,, or a booth renter that is being called an independent contractor) and they don't allow you a key ...... or they can tell you that you will be there at 8 am in the morning or else ..... or the clients pay a central cashier or cash register instead of paying you ...... or they tell you which nail products you are going to use ..... or you are being paid some sort of percentage split ,,,, well everything is maybe fine. UNLESS, the IRS ever checks you out. Then you are going to have to explain why you are not the employee that the IRS thinks you are.

Oh, and about the form 1099. At the end of the year, a booth renter is supposed to provide a form 1099 to the salon owner, showing the untaxed income that you provided to the salon owner. And as for your own tax return, you file as the operator as an independent business.
At a later date, I will provide a page here explaining what things you need to do throughout the year to meet your tax obligations to the state and federal government.

Booth renters should have a signed booth rental agreement. This is for the protection of both the salon owner and the booth renter. Why? For a lot of practical reasons, the main one being if the IRS ever knocks on your door or the door of the salon owner, here is proof of who is supposed to have been paying are those taxes, ya see.

So in booth rental, you lease a work space for a set period of time, at a set price that does not varying as income varies, and you work as an independent business person.

Related information ... Go back to the Business of Nails main page and click the link for booth rental contract. Do an internet search on 'booth rental' 'independent contractor' and such.... and visit the IRS on the web. There you can down load the training manuals used to train auditors.

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