Salon Owners: The Difference Between Hiring Employees Vs. Independent Contractors
What’s The Difference Between Employees Vs. Independent Contractors?
Hiring independent contractors and booth renters is common for salon and spa owners, but are your freelancers really freelancing or are they actually employees? And what’s the deal with booth rental? Not sure what the differences are? No problem!
We dropped in on one of MINDBODY University’s legal classes taught by lawyer Cory Sterling (@consciouscounsel) and and he broke down everything you need to know as a salon owner, plus ways to prevent AND deal with being audited. Keep calm, carry on and protect your salon business!
Employees Vs. Independent Contractors?
Simply put, the main difference between an employee and an independent contractor is CONTROL. Salon owners have control over employees’ work hours. This includes when they come to work, what they do and how they do it, what they wear, the list goes on. An independent contractor or booth renter has their own business and they’re coming to your business to provide services. They have a lot more control, but are responsible for their own taxes, receive no benefits or unemployment.
If you’re still a little unsure, Cory broke down the eight main indicators of an independent contractor. If you find that you control more than a few of these points, then you’re probably treating them more like an employee (which could be a major auditing problem!):
- Does the contractor create their own schedule?
- What services does the contractor provide?
- Who do the products and tools being used belong to?
- How exclusive are the services provided?
- Are wages incentivized by performance? (A flat fee is a sign of an employee.)
- Must the services be provided in a specific location or wherever? (Can they work in other salons/spas, besides yours? Did you make them sign a non-compete?)
- Do they have to follow a script/style when servicing clients?
- Does the contractor send you invoices?
Employee AND Independent Contractor?! You Can Make It Work…
It is possible to have a worker be both an employee and an independent contractor. For example, if your front desk employee wanted to rent a booth and work independently that employee can be hired as an independent contractor. You’d need separate paperwork for both classifications and the roles of each job must not cross over. You can’t expect them to answer the phone when they’re on the clock as a booth renter.
Here’s A Tip To Prevent Your Salon From Being Audited
Working with independent contractors? Cory recommends this KEY business mantra: screenshot defense! What’s that? When you’re so confident in your agreements, that if you go back and screenshot your documents—you can respond quickly and effectively to any claims/complaints. Once you’ve reached an agreement of expectations with a booth renter or independent contractor, document everything so you always have physical proof to go back to.
Oh, No! You’re Being Audited? Here’s What You Should Know
So if you ever find yourself in the uncomfortable position of getting audited, the first thing you should know is to have your lawyer and accountant present during the process. Auditors usually go back at least three years or more if they think you’re doing something wrong. Generally, auditors are looking for three things when they’re going through your paperwork:
- Your original agreement between the employee or independent contractor.
- Proof that the independent contractor does freelance for a living. (This can be their business card, a copy of their license, their website, etc.)
- Every single invoice that the independent contractor gave you.
Pro Tip: If they don’t give you their invoices on time, do not pay them until they do. You’re risking your business by not having the appropriate paperwork.
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