Employee vs Contractor
I have a question and I'm hoping there is someone out there who has had experience with this situation. I'm an esthetician in California and I'm considering bringing in an another esti to work with me. My issue is that I don't want to get into paying workman's comp or taxes that I would have to pay with an employee. I only have one treatment room so she would be using it on the days I'm not there (2 days a week) so therefore she would be using all of my equipment and supplies. Because of this set up it's not ideal to do a rental contract and I was thinking of putting her on commission. Is there anyway she can still operate as an independent contractor (she does have her own business license) and I can pay her commission and then 1099 her at the end of the year to avoid paying all the additional expenses of having an employee? I'd appreciate any feedback on this!
Laurie
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Replies to This Discussion
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Permalink Reply by Cindy Greenwood on
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You CAN do that - lots of people do, and you probably won't be audited by the IRS.
But my opinion is that you should bring her on as an employee.
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Permalink Reply by Laurie Storey on
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Thanks for your response Cindy. I'm curious as to why you would suggest I take her on as an employee? I can't see being able to pay the expenses I would have to pay for an employee and still make any profit with someone who is only working part time. But this is all new to me so I'm very open to suggestions!
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There was an article in this months Les Novelle Esthetique which might help you with this.
Whether or not your person is a booth renter or independant contractor, you are still responsible for workers comp/disability. To protect yourself from lawsuits, back payments, and hefty fines should something happen, your best bet is to keep everything on the up and up
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Thanks for the link to the LNE article Cindy, I will learn a lot from it I'm sure. I've never heard of anyone having to pay workman's comp for someone leasing or renting space. I sublet the upstairs portion of a building from a chiropractor who leases it from the owner. The owner doesn't pay workman's comp for the chiropractor and the chiropractor doesn't pay workman's comp for me. I've rented space in a number of salons/spas over the years and never did I have anyone paying workman's comp for me. Maybe they were supposed too. Of course I was always required to have my licenses (business and state board) up to date and carry my own insurance and name them as AIE but I was running my own separate business so I didn't think they were required to pay the state anything for me. I sure wish someone had been paying it for me though, it would save me a lot of money over the years in disability insurance! :)
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Renters are NOT required by LAW to have WC coverage, but smart landlords -- and those who sublease -- often require it. All of our landlords do, and here is why.
If a claim is filed and you do not have coverage, you are 100% liable for the lost wages and medical expenses of the injured worker. CA has plenty of case examples of ICs winning WC claims so I would not be surprised if the nut jobs in the Golden State awarded claims to booth renters.
I had one claim from a former employee -- thank god we were covered for it. She averaged about two massages or facials a day, worked for 6 months and claimed "Repetitive stress disorder" that prevented her from ever doing massage or facials again.
She racked up $15k in doctors bills, was paid about $20k in lost wages (including tip income) before our insurance company gave her a $40k payout for her "long term disability"
If we had not been insured, we would have been on the hook for $75k, payable IMMEDIATELY to the injured party. That would have forced us to close our business and would have left our landlord searching for a new tenant overnight. They don't want to lose tenants to something as preventable as Bogus WC Claim Induced Bankruptcy, so they require us to have WC coverage and provide a copy of the policy upon signing the lease.
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Thanks for the good info in both of your replies. I guess you have to be very careful these days, especially in the crazy state I live in! You gave me a lot to think about and pretty much scared me out of bringing on anyone on a part time basis, just not worth it.
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and pretty much scared me out of bringing on anyone on a part time basis, just not worth it.
And yet the politicians wonder why they keep passing regulations and heap more on business owners yet jobs don't materialize...
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Exactly!!!
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Permalink Reply by coldsalineplexus on
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Well, as a commissioned employee, her % rate would have to be much lower than as a private contractor.
I think the fact that she already has her own business license (and, I presume, an LLC and EIN separate from her SSN) is a major indicator that she is legitimately her own business woman, and would simply be contracting with you for resources, ESPECIALLY if she provides services elsewhere (at another salon or spa, or mobile services) under her own business.
The LNE article that Cindy linked really does have some great info, and to add to that, I would say that you may be better off just calculating a rental rate for her to use her stuff. If I were doing this, I would formulate a base rate (for her to have access to the room), and then an hourly rate for when she is booked, based on her pricing. This way she could schedule her own appointments, ring up her clients herself, be responsible for her own discounts and things of that nature, and you would be assured of making your money on the space and supplies.
Whichever way you go, please make sure that she has professional liability insurance up to date and that you/your business are listed as an AIE.
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Thanks for your reply coldsalineplexus. This woman has her own business license because she is already working at a chiropractors office a couple of days a week. It's a less than desirable situation so that's why she contacted me. She also has her own pro liability insurance so yes, you are right, she is already set up to be her own business woman. I like your suggestion of the base rate in addition to the hourly rate so I'm going to speak with her about that and see what we can work out.
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Bad news, you have to follow the law and make them an employee.
You can only use an independent contractor for work that is NOT essentially similar to your business. Since you are an esthetician, all you are doing is bringing on another version of you- adding capacity not adding unique services.
For instance, a carpenter can sub-contract plumbing and electrical on a basement he is building out, but can't sub out any work for which he is licensed -- carpentry, dry wall, etc.
Also, providing equipment and supplies is one of the factors for determining someone is an employee. Contractors provide their own tools/equipment and supplies.
When figuring out what to pay an employee, keep in mind that CA UI, ETT snd SDI for a new employer is around 10%, WC is about the same, and your share of FICA/FUTA comes out to about 10%. So you are looking at almost 30% in payroll expenses. And that applies to Tips as well as to commission/hourly.
And let's not forget you have to pay your employee at least minimum wage for the 16 hours they are at your facility -- not counting tips. In SF, that is $11 an hour, so you are on the hook for $176 + 30% payroll expense, or about $240 not including the cost of processing her charged tips or payroll expenses on those charged tips. The People's Republic does not give employers a tip credit toward minimum wage like almost every other state does.
Also, you will have to get a business entity liability insurance policy. You can't rely on your employee, even if you require them to have it. A client is a client of your business, not your employee, and that is where the lawyers take aim.
When you add all this up, its no wonder employees have a tough time finding anyone who pays more than 30%!
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