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Independent Contractor vs. Employee
I am wondering if anyone has ever filled the SS-8 for and reported a mis-classifications to the IRS? I have been debating over a year now if I want to file one for a previous employer, I am 99% sure the MTs are employees, based off the list the IRS provides.
Im just not sure if its worth it, but I feel like if we dont start taking action MTs are going to keep being taken advantage of. I educate all my students, therapists and especially business owners I meet about the law in hopes to change the industry. I don't know if it is a problem in other states, but I feel in Utah its bad... really bad.
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Replies to This Discussion
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Permalink Reply by Daniel Cohen on
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Do you mean that the place set your schedule among other things? Most places here that pay per hour as an employee pay much less than the independent contractors. Many people in the industry don't want the lower pay and extra employee duties and limited vacation time. But if that is what you had anyway they should have deducted taxes etc. as an employee. State to state the laws differ regarding the benefit or draw backs of being an employee.
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Permalink Reply by Gordon J. Wallis on
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I'm not quite sure what you guys are talking about?. I'm an employee. I work for a Day Spa... We get paid a percentage of the work we do..Not self employed. Less Social Security taken out of your check.. No paying estimated taxes? Law is law? What law are you talking about that they are breaking?
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IRS has guidelines for employee/IC determination. Each state has its own labor laws which go beyond that. For example: in California if you worked 7 hours and had one massage and the pay from that divided by 7 was less than minimum wage, your employment violates the California wage law.
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Hmm, thats interesting.
Daniel Cohen said:IRS has guidelines for employee/IC determination. Each state has its own labor laws which go beyond that. For example: in California if you worked 7 hours and had one massage and the pay from that divided by 7 was less than minimum wage, your employment violates the California wage law.
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Primarily back taxes will be owed if you failed to pay your taxes as self employed both federal and state. In addition to IRS requirements you are also required to meet your state hour & wage regulations if it is determined you were not an IC. This can result in additional taxes & fines, as well as owed overtime pay from the employer.
Jeff Baldwin said:Hello Sreed,
First, I'd like to thank you for looking out for our industry and showing a desire to keep MTs from being taken advantage of by shady employers.
I have, personally, never filled out the SS-8 but I have been in a position where I have strongly considered it. Upon investigation, I found that the IRS, without putting too fine of point on it, have "guidelines" that are meant to be followed to determine whether an individual is an employee or an independent contractor. It all comes down to the level of control the business has over that individual.
An independent contractor, in general, and according to the IRS should retain the majority of control of their business. For example, if you are an independent contractor, the business CANNOT: control your schedule, dictate your clothing (uniform), set the rate for your services, dictate HOW you do your work, make you do duties outside of your primary contractor responsibility, control which clientele you will see, etc. Basically, if you are an independent contractor hired to perform a specific job, you will do only that job and any additional control or responsibility they wish to have over you MUST BE NEGOTIATED IN A CONTRACT. That last part is most important. If anyone wants to hire you as an IC, they better have a written contract explaining your duties and responsibilities in that position. And you then have the responsibility, as the contractor, to read that contract very carefully and identify abuses of power that, if you were made to perform, would classify you as an employee. And contrary to what some believe, if the business collects payments for you and then compensates you on a regular basis for your portion of the fee, this does not make you an employee. They are simply processing the finances for you.
And in regards to whether this is a state by state issue, that really is false. The IRS is a nationally governing entity. The IRS guidelines are the same for New York as they are in Utah, Colorado, Florida, or Main (unless the state has specifically established different guidelines or definitions). Check with the Secretary of State office for the state in which you are working for more information on that.
Well... I hope this sheds more light on the subject. I support your decision if you decide to file an SS-8. My only word of caution is that if the IRS determines you should have been classified as an employee, you may need to pay additional back taxes that were not collected during your employ there.
Best,
- Jeff
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Permalink Reply by Sreed on
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Thanks everyone for replying. I just need to get a copies of my work schedules and I am going to file. I have paid all my taxes (nearly the whole 15.5% self employment tax, since I had no deductions because they supplied everything) so I wouldn't owe a whole lot. Am I wrong to assume that the employer would be fined and penalized with back taxes for the 30+ therapists she has had over the last 2 years
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Good luck, report misclassification to your state labor board. They are quick and pursue these issues. It can make real reform. Here in California they will order repayment to all employees if it applies and notify the industry.
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Permalink Reply by Relax & Rejuvenate on
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Be careful what you wish for. If this spa/salon did have any employees or in anyway published a pay rate for employees, then being reclassified as an employee may subject you to the pay rates that would apply.
since most businesses pay Employees less than ICs -- in our case we pay them nearly exactly the same amount less as the employers taxes we pay -- the net affect on your wallet will be negligible. It may also expose you to reporting cash tips as taxable income which might not have gone reported as an IC.
is your goal to possibly recoup what you think is owed you or to punish someone for possibly violating the law? if tha latter, does that mean you would report unlicensed activity or other employers you know not following labor law?
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Keep in mind, the IRS guidelines are just that. They are not law and are not consistently applied by every agent.
for example, the issue of uniforms/dress code. When DirecTV came to install my dish, the contractor wore a shirt with the DTV logo, and had one ont he side of the truck. I asked about this, and he said his contract requires him to do this when he works on behalf of DTV. He has to buy the uni and cling decal. This is true of several similar businesses --- and I am pretty sure DTV ran this by their lawyers, accountants and HR team before putting it out nationwide.
So is requiring an IC to wear a uniform a violation of IRS guidelines? not necessarily.
It all depends on how the contract is written, the terms of use and the judgements/interpretation of the agent investigating the matter.
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Good point. Some guidelines carry more weight in assessment. As your example illustrates the logo is only to show that the contractor is acting on behalf of a company at the time. It does not restrict them from working for other companies at other times.
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Precisely. One of the tests of being a IC is that the IC has to be able to run their own, independent business. Many, but not all, non-competes do not apply to ICs as they might to an employee.
The reality is most businesses in the spa/massage field don't want the hassles and administrative nightmares of having employees, and most MTs would rather not have 100% of their earnging subject to tax and the control over their schedules and treatments that come with being an employee
Daniel Cohen said:Good point. Some guidelines carry more weight in assessment. As your example illustrates the logo is only to show that the contractor is acting on behalf of a company at the time. It does not restrict them from working for other companies at other times.
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