I recently reposted a blog that I had written about 6 months
ago that relates to an important and currently issue in the massage community.
The issue is confusion over employee practice or independent contractor
practice. I am not a lawyer. If you have specific questions about your
status contact the IRS, Department of Labor, or legal counsel.
Two Facebook comments worthy of mentioning are:
Marni Matyus writes -Thank you for posting this. I slightly
disagree in your definition of an IC as a room renter. Room rental is not an IC
or an employee. Ultimately the IRS decides IC situations on a case by case
basis. It is acceptable to hire an IC to complete a job/project. It is
reasonable to expect the IC to adhere to the dress code of the business when
working for the public and to present themselves to the public as an employee.
Generally an IC sets their own hours and usually provides much of their own
equipment. The employer can not tell you how to do the job but can set
expectations on what the outcome will be. In IC situations, usually the
customer pays the business who then pays the therapist and provides a 1099 at
the end of the year. It would be unreasonable to expect an IC to sign any type
of non-compete. So.. the IRS only offers "guidelines". Independent
contractors are individuals who contract with a business to complete a certain
task. (Which can be: massage my customers during these hours). If the IRS
determines that employees are improperly classified, there are severe penalties
for the employer.
Della Szeszol Melville writes: An IC is not the same as a
renter. This article portrays an IC as a renter. Paying a percentage or per
massage fee is not completely correct either as it would depend on whether or
not that's legal in your state, and also depends on how the money is handled.
Thank you both for your clarifications.
To better understand this issue I did some research this
morning and have posted below some content with where you can access it for
future reference. I did not write this
material but I do think it helps clarify the situation.
SANDY HERE-WHEN YOU SEE THIS I AM ADDING MY COMMENTS
THE FIRST ARTICE IS WRITTEN FOR CHIROPRACTIC AND APPLIES TO
MASSAGE THERAPIST IN THIS ENVIRONMENT.
The Independent Contractor Trap By John T. Whitney, DC
NOTE: The IRS can be very fussy, so please refer to their
Independent Contractor page for the complete definition.
More and more new graduates find the cost of startup too
steep and the whole prospect of starting from scratch too risky. The newbies
usually end up as, "associates", (employees) and hate it. There is
another way. In chiropractic the term "independent contractor", means
many things to many people, and that is unfortunate. What it is not, is an
employee, who is obliged to follow the dictates of the host (owner) doctor.
Many field doctors seeking an associate (employee) use the
term Independent Contractor (I.C.) . . . wrongly. The host doctor often
presents a contract to the one seeking to be a true independent. Upon reading
the contract one is quick to realize that the (well-meaning) host doctor is
really requesting an associate (employee) and that the only reason the
agreement is labeled Independent Contractor is in an effort to shirk the
responsibility as employer (collect tax and provide benefits). The government
is not amused by this thinly disguised deception and provides a hefty fine for
those doctors caught using this ruse.
The key factors deciding what is an I.C. and what is an
associate (employee) are quite simple. If the senior doctor appears to be
dictating (hours, methods of care, holidays, days to be worked and items
similar) the IRS will consider the new doctor an employee. If you are in any
doubt call the IRS for a ruling.(IRS form SS-8)
Another big, big factor is who "owns" the
patients. If the contract states that the patients (patient files) remain the
property of the clinic, should the IC decide to move on, you can be sure there
is nothing "independent" about the I.C. agreement.
The final tip-off is: is the associate being asked to sign a
non-compete clause, e.g. 15 miles for 5 years? If one were to sign something
like this, again, there is no "independent" in the Independent
Contractor agreement.
To be blunt, most contracts labeled as IC. agreements are
nothing more than a shallow attempt to hoodwink the new doctor into thinking
the agreement is something it is not. Often the host doctor is not even aware
of the deception since he likely got a copy of the document from a chiropractic
friend who got it from another chiropractic friend who copied it from who knows
where.
DEFINITION OF A TRUE INDEPENDENT CONTRACTOR:
One who leases space in another (already, up-and-running)
office. The space may be fully serviced space (complete with telephones, adjusting
tables, exam equipment, x-rays, stationery, postage, complete staff, etc.) or
partially serviced (supplies some of the needed staff, equipment, supplies).
One would be expected to pay commensurate with that which is supplied.
Everything is negotiable.
HOW MUCH?:
In years gone by it was common for an I.C. to simply pay
only a percentage of collections. A typical starting lease-fee mightbe 40% of
collections. Today that kind of arrangement would cause the IC to be
categorized as an employee by the IRS (not Revenue Canada however).Do not use
this method in the USA, it is not legal. The host doctor using this percentage
method will be severely punished by the IRS and be forced to pay a fine,
penalties, and the equivalent taxes levied on the IC. The preferred method for
an I.C. to pay for her space, is to have a set monthly base payment (e.g.
$500). Five hundred dollars a month to lease space is certainly a small amount
of money. But could be fair for a few months until the size of the practice
increased. At some arbitrary time in the future the host doctor could impose
what is known as, "additional rent". That arrangement is not only
fair for the I.C. but satisfies the IRS.
Example:
* First 3 months lease fee could be $500.
* Fourth month lease fee could be $500 plus 25% of
collections.
From that point until collections reach $20,000 per month,
the fee could be $500 plus 30% of collections.
Once $20,000 per month is exceeded in collections, the
amount between $20,000 and $25,000 could be at 35% of collections plus the $500
base rent.
Once $25,000 per month is exceeded in collections, the
amount between $25,000 and $30,000 could drop back to 30% ( we are now getting
into economies of scale) of collections plus the $500 base rent.
This could continue until the rent paid ($500) and % of
collection reaches, say $4000 per month, (arbitrary) and level off there. All
of this is negotiable, but the figures shown are fair guidelines.
One of the questions asked is "who gets the uncommitted
call ins?" To be fair, there are two main considerations in applying the
following formula; the length of time the senior doctor has been in the
location and the effectiveness of the location for walk-ins.
One idea is that uncommitted call-ins & uncommitted
walk-ins, go into rotation, perhaps giving the senior doctor 3:1 for the first
three or four months, 2:1 for the next 6 months and do a 1:1 division at the
end of one year.
This can be complicated if only one of the doctors is an
aggressive promoter/marketer. Perhaps co-operative marketing could solve this
problem (split costs 50/50).
When one covers for the other under a locum arrangement, it
should be treated no differently than if a locum were hired for the task. That
is to say; pay who ever looks after your patients 30 to 50% of services
rendered.
The I.C. arrangement has many positive aspects to it for
both parties. In an I.C. arrangement one achieves benefits of an employee
practicing in a busy office with supportive professional associate, at a know
address and yet is independent. Start-up cost are minimal compared to opening a
solo practice.
The host doctor benefits in several ways also; built-in
locums, possible built-in buyer, passive income (windfall), a close at-hand
colleague, expands the service hours of his/her establishment.
The I.C. is truly a wonderful opportunity for both host and
I.C. There is a flaw however; the human element. The host-I.C. arrangement
requires two mature human beings who realize that there will always be
differences of opinion with real or imagined,"slights". Conflict and
compromise is the order of the day, and frequent, regular meetings are
essential to keep the lines of communication open and to avoid little problems
festering to big problems. That does not seem like much does it? The reality is
that without maturity and frequent meetings the sleeve becomes unraveled.
In most cases the host provides everything necessary for the
I.C.to conduct a practice except marketing dollars .The cost for an I.C. to set
up would only be for any specialty items he or she requires, and a financial
cushion for 3-6 months for living and business expenses
From the standpoint of a host, a little construction work
may be necessary in the office to prepare an office for the I.C., the computer
must be programmed for a second doctor, (another) color coded set of files
ordered (important!), and an explanation and training given to the staff on
office protocol changes. The I.C. must not be regarded as an extra burden, by
the staff or treated like a second banana by the host doctor or staff, a common
occurance.
In time, more staff will likely be needed. The host should
not view this as a burden but as a sign of progress and also a promise of an
increase in her passive income. If a host doctor has the space, several I.C.'s
could eventually practice in the facility. This can represent a significant
source of income for the host. The I.C. should be rather picky about what
office he/she joins. Number one is that it must be a busy office. If it is not,
the I.C. will likely struggle along with the host. If one joins a busy office
the IC practice can grow rather quickly from the spill-over of the hosts
practice alone, - saving many marketing dollars and time.
The host should screen the I.C.'s who wish to practice in
his office for personality, gender, techniques, and aggressiveness. It is well
known that female practitioners are preferred by patients and grow their
practices rather quickly. It is also well known that females spend more time
with patients and see fewer patients on an average basis. Women practitioners
are absent from the office more often then men. A female practitioner can add a
sense of balance to a male dominated office.
An Independent Contractor does not sign a non-compete clause
but should expect to sign a non-solicitation clause. A non-solicitation clause
should be signed by a host and I.C. alike.
INDEPENDENT CONTRACTOR ARRANGEMENTS:
* Use a rotation system for uncommitted patients.
* The host has no control over the I.C.'s practice.
* IC. can move next door and take their practice with them
when contract expires.
* Input must be graciously considered by both parties.
* The I.C. is a very valuable property.
* 30%-50% of gross business of the vacationing doctor is
paid to the person who covers.
BENEFITS FOR INDEPENDENT CONTRACTOR
1. Proven location
2. Master of your own ship
3. Motivational due to empowerment
4. Lower risk than solo startup
5. Proven market
6. Affiliation without dependency
7. Lower start up costs
8. No restrictive covenants
FINANCIALS FOR IC
1. Up front marketing costs - Yellow Pages - Opening
Announcement
Legal Fees - Accounting Fees - Malpractice Ins. - Disability
Ins.
2. Any equipment or office supplies needed but not covered
by the arrangement.
3. Living and business expenses for 3-6 months.
As a matter of form, it would be more appropriate to refer
to this type of practice arrangement as a "Sub-Lessee", which is an
accepted legal term, rather than an "Independent Contractor", which
is a red flag to the IRS. http://www.chiro.org/newDCs/Independent_Contractor_Trap.shtml
SANDY HERE: SO BASED ON THIS INFORMATION THE ROOM
RENTER/SUB-LESSEE IS A MORE CLEAN WAY TO DO BUSINESS.
THE NEXT ARTICLE WAS WRITTEN WAY BACK IN 2002. MAKES ME
WONDER WHY WE REMAIN SO CONFUSED
Independent Contractor, Employee, Booth Renter: Which Piece
Am I?
Business Side By Ken Cassidy
Originally published in Massage Bodywork magazine,
December/January 2002.
Copyright 2003. Associated Bodywork and Massage
Professionals. All rights reserved. http://www.massagetherapy.com/articles/index.php/article_id/454/Independent-Contractor-Employee-Booth-Renter:-Which-Piece-Am-I
Distinguishing how to run your business is the most
important thing you can do for professional peace of mind. A question
frequently asked by concerned bodywork practitioners regarding their
relationship to their employers is "What am I: An employee, a booth renter
or an independent contractor? As frightening as it may seem, there are many who
don't realize there is a difference.
The alarming truth is 90 percent of all businesses in the
beauty and wellness professions are operating incorrectly under the wrong
classification, which can lead to trouble for both the owner and the renter
when facing taxes, not to mention unemployment and/or disability.
In May 2000, the IRS published an educational pamphlet
detailing the differences between an independent contractor, employee and booth
renter (Publication 3518, Catalog 73164X). Regardless, many are still
unknowingly operating illegally. Let's take a closer look at the three
categories in order to become more familiar with the similarities and
differences.
Employees
Most of us are aware of the business relationship between an
employer and employee. The business owner pays an operator a wage, commission
or salary, and pays all related taxes to the IRS and their state; employees are
covered by workers' compensation and state unemployment. At the end of the
year, the business owner serves the employee with an IRS Form W-2. The business
owner also has total control over the services, actions, dress and behavior of
the employee during their tenure.
Booth Renter
When renting a booth, the business owner leases
"space," be it a station, or esthetician or massage therapy room, to
the operator for a flat rate of rent. This rented space is the primary location
from which the operator conducts their business. At this time, they are small
business owners, a mini-salon owner if you will, operating within the business
owner's facility. The booth renter may come and go as they please (within the
operating hours of the business), set their own prices, book their own clients,
generate their own advertising and collect their own fees for services
rendered. The renter pays his own taxes and is not covered by workers'
compensation, employer matched unemployment or disability insurance. The booth
renter serves the business owner with an IRS Form 1099 at the end of the year
for all rents paid over $600. The renter can, however, make commissions on
retail sales made by vending the business owner's products (provided the
business owner retains retailing rights), in which case, the business owner
would serve the renter with an IRS Form 1099 for amounts more than $600.
Independent Contractor
Let me preface this classification by stating only half of 1
percent of the operators in the beauty and wellness industry qualify as an
independent contractor. Having said that, let's examine this business
relationship. Like a booth renter, the independent contractor operates their
business independently of the business owner. However, the salon, day spa or
wellness center is not their primary place of operation. They are not leasing
space; they are not on the payroll. They are paid on a service-by-service basis
and are responsible for all their taxes.
For instance, let's say as the business owner you have a
client who requests the services of a massage therapist. You own the massage
therapy room, but have no massage therapists on payroll, nor do you have anyone
leasing the massage room at that particular time. You do, however, have the
names of several licensed massage therapists in your area. You call several
until one is able to service this appointment at your facility. You then book
the appointment with the client, collect from your client after services are rendered,
then pay the massage therapist from the salon account. You would then serve the
independent contractor with an IRS Form 1099 at the end of the year for
services rendered for amounts more than $600.
Contracts and Agreements
Now let's examine how to prove your business relationship. I
cannot stress enough the importance of a business foundation in the form of a
contract, whether it is a business employment agreement, a space sub-lease for
booth renters or an independent contractor's agreement. Regardless of how an
owner operates the business, a contract will protect both parties in the event
of a disagreement, even if it escalates to a court of law. A solid contract
will most often alleviate those headaches, not to mention protect the business
owner and the operator in the event of an audit by the state or IRS.
A business employment agreement will outline what is
expected from the business owner and employee alike. The space sub-lease (or
lease if the salon or day spa owns the property) will clearly show the business
relationship between the business owner/landlord and the booth renter. A weak
contract between owner and renter does not prove the parameters of the
day-to-day business relationship of both parties. Weak contracts often depict
an employer/employee relationship, rather than the clear-cut separation of two
independent businesses, and is essentially useless if audited, making the
business owner liable for all back employment taxes, including penalties and
interest owed for the time period in question (usually a three-year time
frame), causing a financial and legal nightmare. This scenario is coupled with
the fact that once one agency finds you liable for back taxes, others are quick
to follow suit.
The same applies with an independent contractor's agreement.
A business owner should have the contract with the independent contractor
clearly define the working arrangement between both parties. It is better to be
covered for what might happen versus not being covered for what has already
occurred.
I have only provided a small piece of the big picture of
employment responsibility and whose role it is to pay all of the appropriate
taxes in a business relationship. Whether you are a business owner, an
employer/employee, a space renter, or in a few cases, an independent
contractor, the single most important tool you should have is a solid contract.
Whether it is a tax issue, a business issue, an unemployment/disability issue,
or a dispute that ends up in front of a judge, the business agreement or
contract is going to be the determining factor in 99 percent of most cases. It
is important to know that not just any contract will work for you (i.e.,
writing one on your own). It is how the contract is worded that will protect
you and give it the validity to withstand time. Improper or incorrect content
is the No. 1 reason audits occur and fail. Protect yourself, your loved ones
and your investments.
Ken Cassidy has been a cosmetologist for 30 years, licensed
cosmetology instructor for 18 years, business owner for 27 years and has
operated businesses with both employees and contract labor. A writer and
lecturer, Cassidy has been published in numerous journals and has worked across
the country with distributors, salon owners and managers setting up their
businesses for employees, contract labor and booth renting. Cassidy markets
business education for the beauty industry that shows how to run a successful
business for employees and/or contract labor and how to be more profitable
legally. For more information about business agreements, space sub-leases and
other business management issues, contact Cassidy by visiting
www.kassidys.com.
SANDY HERE
THE NEXT ARTICLE IS FROM THE IRS
Hire a Contractor or an Employee?
Independent contractors and employees are not the same, and
it's important to understand the difference. Knowing this distinction will help
you determine what your first hiring move will be and affect how you withhold a
variety of taxes and avoid costly legal consequences.
What’s the Difference?
An Independent Contractor:
·
Operates under a business name
·
Has his/her own employees
·
Maintains a separate business checking account
·
Advertises his/her business' services
·
Invoices for work completed
·
Has more than one client
·
Has own tools and sets own hours
·
Keeps business records
An Employee:
·
Performs duties dictated or controlled by others
·
Is given training for work to be done
·
Works for only one employer
Many small businesses rely on independent contractors for
their staffing needs. There are many benefits to using contractors over hiring
employees:
·
Savings in labor costs
·
Reduced liability
·
Flexibility in hiring and firing
Why Does It Matter?
Misclassification of an individual as an independent
contractor may have a number of costly legal consequences. If your independent
contractor is discovered to meet the legal definition of an employee, you may
be required to:
·
Reimburse them for wages you should've paid them
under the Fair Labor Standards Act, including overtime and minimum wage
·
Pay back taxes and penalties for federal and
state income taxes, Social Security, Medicare and unemployment
·
Pay any misclassified injured employees workers'
compensation benefits
·
Provide employee benefits, including health
insurance, retirement, etc.
Tax Requirements
Visit the IRS Independent Contractor or Employee guide to
learn about the tax implications of either scenario, download and fill out a
form to have the IRS officially determine your workers’ status, and find other
related resources.
Employment Information
There is no single test for determining if an individual is
an independent contractor or an employee under the Fair Labor Standards Act.
However, the following guidelines should be taken into account:
·
The extent to which the services rendered are an
integral part of the principal's business
·
The permanency of the relationship
·
The amount of the alleged contractor's
investment in facilities and equipment
·
The nature and degree of control by the
principal
·
The alleged contractor's opportunities for
profit and loss
·
The amount of initiative, judgment, or foresight
in open market competition with others that is required for the success of the
claimed independent contractor
·
The degree of independent business organization
and operation
Whether a person is an independent contractor or an employee
generally depends on the amount of control exercised by the employer over the
work being done. Read Equal Employment Opportunity Laws - Who's Covered? for
more information on how to determine whether a person is an independent contractor
or an employee, and which are covered under federal laws. Independent
Contractors vs. Employees Authored By: Partnership for Legal Access
SANDY HERE
THE NEXT ARTICLE IS BASED ON THE Texas Workforce Commission
under the Texas Payday Law. IT USES A QUESTION ANSWER FORMAT
What is the difference between an independent contractor and
an employee?
In a very general way, an independent contractor is a
self-employed person who operates her own business and is able to carry out
that business independently of the other businesses with whom she contracts -
her customers. An employee is a person who is not in business for himself but
works in a business owned by someone else and is dependent on that business for
the terms and conditions of his employment and for his continued employment.
· What difference does this distinction between independent
contractor and employee make?
There are many legal protections, liabilities and
relationships vary depending on whether the working relationship involved is
between an employer and employee or rather between an independent contractor
and a customer of that contractor's services.
· What difference does this distinction between independent
contractor and employee make with respect to employment protections?
Specifically with regard to employment rights, most
statutory employment protections apply to employers and employees but do not
apply to independent contractors. For example the requirements the state and
federal minimum wage laws and federal overtime laws protect only employees who
are employed by an employer. The Texas Payday Law protects only an employee who
is employed by an employer. None of these laws protect an independent
contractor - even if the independent contractor was paid less than minimum wage
or overtime or was not paid at all for her work.
· What difference does this distinction between independent
contractor and employee make with regard to employment benefits?
The other reason the distinction matters is that most
employment-related social safety-net benefit programs are set up mainly to
protect employees. Employees for example, are covered by workers compensation
and unemployment insurance laws, while independent contractors are not.
Employers are required to pay half of the FICA tax contributions for their
employees (7.65% of gross wages), while independent contractors have to pay the
entire FICA tax themselves (15.3% of gross wages). Similarly private employment
benefits, such as health insurance or retirement plans, are much more likely to
be available to employees and much more rarely to independent contractors
especially if they are low-income.
· Why do we guarantee fewer employment protections and
benefits for independent contractors than employees?
The theory is that independent contractors are owners and
operators of their own businesses and therefore they have enough economic power
to drive a hard bargain and take care of themselves. So they don't need the
protections of the law the way employees do.
· Why has it become so difficult to determine who is an
independent contractor and who is an employee?
The law defining the difference has never been completely
clear cut. There have always been some variations in the definition of
independent contractor and employee from one law to the next and variations
from one court ruling to the next. But in recent years more and more businesses
have begun to reclassify people who formerly were considered employees to now
consider them independent contractors. Some businesses have seen this as a way
to try to escape responsibility for complying with employment laws (for example
overtime laws) and for shifting costs from the business onto the worker (for
example FICA taxes and workers compensation premiums).
· If a worker is called an "independent
contractor" does that mean they don't have the employment rights of an
employee?
Not necessarily. Just labeling a worker as an
"independent contractor" does not by itself mean that he is an
independent contractor. Even if he believes he is an "independent
contractor," that may only be because that is what he has been told. It is
necessary to apply the legal test to determine whether he really is an independent
contractor or an employee.
· So what is the legal test for determining who is an
employee and who is an independent contractor?
This is a little complicated because somewhat different
tests are used by different agencies and different laws. But most of the tests
are similar and there are some common rules of thumb that help to separate
independent contractors from employees. One version of the test that is helpful
is the test used by the Texas Workforce Commission under the Texas Payday Law.
This test spells out 20 questions that clarify who is an employee and who is an
independent contractor.
The TWC test for independent contractors vs. employees
· The following 20 factor test has been formally adopted by
the Texas Workforce Commission for determining who is an employee and who is an
independent contractor under the Texas Payday Law. As a practical matter is it
also the test the TWC uses when enforcing the minimum wage and overtime
requirements under the federal Fair Labor Standards Act and the Texas Minimum
Wage Act. http://www.twc.state.tx.us/ui/tax/forms/c8.pdf
EMPLOYMENT STATUS - A COMPARATIVE APPROACH
Under the common law test, a worker is an employee if the
purchaser of that worker's service has the right to direct or control the
worker, both as to the final results and as to the details of when, where, and
how the work is done. Control need not actually be exercised; rather, if the
service recipient has the right to control, employment may be shown. Depending
upon the type of business and the services performed, not all of the twenty
common law factors may apply. In addition, the weight assigned to a specific
factor may vary depending upon the facts of the case.If an employment
relationship exists, it does not matter that the employee is called something
different, such as: agent, contract labor, subcontractor, or independent
contractor.
1. INSTRUCTIONS:
An Employee receives instructions about when, where and how
the work is to be performed.
An Independent Contractor does the job his or her own way
with few, if any, instructions as to the details or methods of the work.
2. TRAINING:
Employees are often trained by a more experienced employee
or are required to attend meetings or take training courses.
An Independent Contractor uses his or her own methods and
thus need not receive training from the purchaser of those services.
3. INTEGRATION:
Services of an Employee are usually merged into the firm's
overall operation; the firm's success depends on those Employee services.
An Independent Contractor's services are usually separate
from the client's business and are not integrated or merged into it.
4. SERVICES RENDERED PERSONALLY:
An Employee's services must be rendered personally;
Employees do not hire their own substitutes or delegate work to them.
A true Independent Contractor is able to assign another to
do the job in his or her place and need not perform services personally.
5. HIRING, SUPERVISING & PAYING HELPER:
An Employee may act as a foreman for the employer but, if
so, helpers are paid with the employer's funds.
Independent Contractors select, hire, pay and supervise any
helpers used and are responsible for the results of the helpers' labor.
6. CONTINUING RELATIONSHIP
An Employee often continues to work for the same employer
month after month or year after year.
An Independent Contractor is usually hired to do one job of
limited or indefinite duration and has no expectation of continuing work.
7. SET HOURS OF WORK:
An Employee may work "on call" or during hours and
days as set by the employer.
A true Independent Contractor is the master of his or her
own time and works the days and hours he or she chooses.
8. FULL TIME REQUIRED:
An Employee ordinarily devotes full-time service to the
employer, or the employer may have a priority on the Employee's time.
A true Independent Contractor cannot be required to devote
full-time service to one firm exclusively.
9. LOCATION WHERE SERVICES PERFORMED:
Employment is indicated if the employer has the right to
mandate where services are performed.
Independent Contractors ordinarily work where they choose.
The workplace may be away from the client's premises.
10. ORDER OR SEQUENCE SET:
An Employee performs services in the order or sequence set
by the employer. This shows control by the employer.
A true Independent Contractor is concerned only with the
finished product and sets his or her own order or sequence of work.
11. ORAL OR WRITTEN REPORTS:
An Employee may be required to submit regular oral or
written reports about the work in progress.
An Independent Contractor is usually not required to submit
regular oral or written reports about the work in progress.
12. PAYMENT BY THE HOUR, WEEK OR MONTH:
An Employee is typically paid by the employer in regular
amounts at stated intervals, such as by the hour or week.
An Independent Contractor is normally paid by the job,
either a negotiated flat rate or upon submission of a bid.
13. PAYMENT OF BUSINESS & TRAVEL EXPENSE:
An Employee's business and travel expenses are either paid
directly or reimbursed by the employer.
Independent Contractors normally pay all of their own
business and travel expenses without reimbursement
14. FURNISHING TOOLS & EQUIPMENT:
Employees are furnished all necessary tools, materials, and
equipment by their employer.
An Independent Contractor ordinarily provides all of the
tools and equipment necessary to complete the job.
15. SIGNIFICANT INVESTMENT:
An Employee generally has little or no investment in the
business. Instead, an Employee is economically dependent on the employer.
True Independent Contractors usually have a substantial
financial investment in their independent business.
16. REALIZE PROFIT OR LOSS:
An Employee does not ordinarily realize a profit or loss in
the business.
Rather, Employees are paid for services rendered.
An Independent Contractor can either realize a profit or
suffer a loss depending on the management of expenses and revenues.
17. WORKING FOR MORE THAN ONE FIRM AT A TIME:
An Employee ordinarily works for one employer at a time and
may be prohibited from joining a competitor .
An Independent Contractor often works for more than one
client or firm at the same time and is not subject to a non-competition rule.
18. MAKING SERVICE AVAILABLE TO THE PUBLIC:
An Employee does not make his or her services available to
the public except through the employer's company.
An Independent Contractor may advertise, carry business
cards, hang out a shingle, or hold a separate business license.
19. RIGHT TO DISCHARGE WITHOUT LIABILITY:
An Employee can be discharged at any time without liability
on the employer's part.
If the work meets the contract terms, an Independent
Contractor cannot be fired without liability for breach of contract.
20. RIGHT TO QUIT WITHOUT LIABILITY:
An Employee may quit work at any time without liability on
the Employee's part.
An Independent Contractor is legally responsible for job
completion and, on quitting, becomes liable for breach of contract.
C-8 (0406)Source: Texas Administrative Code, Title 40, Part
20, ' 821.5.
· How do use all these 20 different factors in combination
with one another?
The most practical and effective approach is to apply each
of the 20 questions to the facts of the case you are trying to evaluate. Pick
out those 3, 4 or 5 questions that seem as a matter of common sense to most
clearly capture the economic reality of the work relationship. Emphasize those
factors in making your case to an opposing party, or an administrative agency,
or a court.
· Does it matter if there is a written agreement signed by
the worker, stating the she is an independent contractor?
Not really. What matters is the true economic reality of the
relationship. If the worker had no real bargaining power in the relationship -
which tends to suggest she is an employee - of course she would feel like she
had to sign whatever document her employer required her to sign.
SANDY HERE –THE FOLLOWING IS FROM THE SMALL BUSINESS
ASSOCIATION
·
Avoid Exercising Control Over Independent
Contractors
·
Once you have hired an independent contractor,
there are a number of work habits you should avoid if you want the IRS and
other agencies to respect that classification:
·
Don't supervise the IC or his or her assistants.
The IC should perform services without your direction.
·
Don't let the IC work at your offices unless the
nature of the services absolutely requires it.
·
Don't give the IC employee handbooks or company
policy manuals.
·
Don't establish the IC's working hours.
·
Avoid giving ICs so much work or such short
deadlines that they have to work full time for you.
·
Don't provide ongoing instructions or training.
·
Don't provide the IC with equipment or materials
unless absolutely necessary.
·
Don't give an IC business cards or stationery to
use that have your company name on them.
·
Don't give an IC a title within your company.
·
Don't pay the IC's travel or other business
expenses directly.
·
Don't give an IC employment benefits.
·
Don't require an IC to give you formal written
reports.
·
Don't invite an IC to employee meetings or
functions.
·
Don't refer to an IC as an employee or to your
company as the IC's employer.
·
Don't pay ICs on a weekly, biweekly, or monthly
basis as you pay employees. Instead, require ICs to submit invoices, and pay
them at the same time you pay other outside vendors.
·
Follow the terms of the IC agreement, including
its termination provisions.
·
Don't give the IC new work after the original
project is completed without signing a new IC agreement.
by: Stephen Fishman, J.D. http://www.nolo.com/legal-encyclopedia/independent-contractors-avoid-classification-problems-35463.html
SANDY HERE.
FINALLY IS A LINK THAT
EXPLAINS THE SITUATION BUT THE ARTICLE IS TOO LARGE TO PUT HERE FOR YOU
KNOW YOUR RIGHTS IN THE SALON: EMPLOYEE, INDEPENDENT
CONTRACTOR, BOOTH RENTER
SANDY HERE: OK, I DID
A BUNCH OF WORK FOR YOU. MOST MASSAGE THERAPIST CLASSIFIED AS INDEPENDENT
CONTRACTORS SHOULD BE CLASSIFIED AS EMPLOYEES.
THERE ARE MANY GOVERNMENT PROTECTIONS FOR EMPLOYEES AND THE BURDEN IN ON
THE EMPLOYER. THE WAGE STUCTURE FOR
EMPLOYEES IS MUCH DIFFERENT THAN SELF-EMPLOYEE/INDEPENDENT CONTRACTOR. I AM GOING TO TAKE THE RISK AND TACKLE THAT
HORNETS NEST NEXT.
