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Permalink Reply by Terra Dolce on April 19, 2011 at 12:58pm

Hi Sheila,

 

I actually studied corporate and tax law.  From a business organizational standpoint they actually won't be classified as "employees."  The best way to classify them as is independent contractors whereby you would clarify your tax liability.  Ultimately, independent contractors earn a service/sales-based commission.  I think what you are really getting at is whether they are employees who are paid per service+sales or whether to treat them as Independent contractors.  As for employees, you wouldn't want to spend the time withholding taxes and having to file with the IRS on a monthly or quarterly basis.  With ICs you will only have to issue the yearly 1099s.  The difference is how you establish the contracts. 

 

Being a start-up, your best thing to do is to have independent contractors because then you don't have to get concerned about other issues related to having employees.  You should have a local CPA or Tax Attorney create the entity and the contracts.  The fees are minimal and will save you a lot of money in the long run.

 

Hope this helps.

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Permalink Reply by Sheila Brittingham on April 19, 2011 at 2:05pm

Thanks Terra, I have a meeting with my accountant next week. Thanks for your input.

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Permalink Reply by Ruby Powell on May 23, 2011 at 5:53pm

Currently I'm a independent contractor working in a spa on commission on services in Texas.  I receive a 1099 and pay my own taxes. This is acceptable, except for the fact that the clients are really considered to belong to the spa. Because of this and the owners not wanting me to have contact info on the client, I've decided to really be a independent contractor/self employed since this is how the IRS looks as me. I'm looking at renting a room with a massage clinic that is interested in expanding into other areas of the beauty industry. I've reviewed the contract and made several changes that are now being reviewed by the owner. I've found that the owners want the "no responsibility" of employees thus looking at the "renters" option, but want the luxury of calling the shots as if they are employees. I have really good negotiating skills, but have relied a great deal on my CPA and a very seasoned contract negoitator (past co-worker from my Corporate America days) help a lot on the contract.

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Permalink Reply by angela testa~kerivan on May 24, 2011 at 12:25pm

WOW that is a question that includes many variables.................to me it seems best to ask your accountant. Commission split, independant contractors, employees..............Good Luck & let me know what you figure out!

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Permalink Reply by Audrey on May 26, 2011 at 7:10am

If you decide to treat them as IC or 1099 people remember that they are no longer employees and you cannot legally treat them as such. An independent contractor must be free to set their own hours etc.

An employee is treated differently by the IRS than an contractor. Be carefull how you decide to do this. Having employees is more time consuming and has tax implications but you do have control over when and how they work.

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Permalink Reply by Audrey on May 28, 2011 at 7:17am

Here is a helpful IRS site.

http://www.irs.gov/businesses/small/article/0,,id=99921,00.html

Permanency of the Relationship

If you hire a worker with the expectation that the relationship will continue indefinitely, rather than for a specific project or period, this is generally considered evidence that the intent was to create an employer-employee relationship.

Services Provided as Key Activity of the Business

If a worker provides services that are a key aspect of the business, it is more likely that the business will have the right to direct and control his or her activities.  For example, if a law firm hires an attorney, it is likely that it will present the attorney’s work as its own and would have the right to control or direct that work.  This would indicate an employer-employee relationship.

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