In our last issue, we explored the advantages and disadvantages of being self-employed or working for a company. This article addresses the two major ways to work for a company.
Many massage therapists are hired as independent contractors (IC) when in reality they are employees. Many companies prefer the IC designation because it is less costly; it substantially reduces the amount of paperwork; they aren't required to withhold taxes; they don't need to provide benefits; they don't have to pay matching FICA (Federal Insurance Contributions Act) and Medicare (currently at 7.65 percent) or unemployment insurance; they don't have to provide Worker's Compensation coverage; and it's much easier to terminate a contract than to fire an employee.
The benefits to the therapist for being hired as an IC are a greater sense of autonomy; usually you receive more money for your services; you aren't responsible for running the business; and you can deduct your business-related expenses on your income tax return.
In general, an employee is an individual who performs services subject to the employer's will and control. In addition, an employer has the authority to tell employees what to do and how to do it.
Susan works for a day spa. She is told what hours she is to work and has little control of the types of clients she sees and the modalities she is to use. When not working with clients, she is expected to perform other duties, such as cleaning and marketing. The spa has set prices for services and collects all monies. She receives paychecks and is issued a W2 at the end of the year.
An IC is in charge of establishing his/her own hours, setting fees and controlling the type of work done. The Internal Revenue Service (IRS) states that a general rule is the payer has the right to control or direct only the result of the work done by an IC, and not the means and methods of accomplishing the result.
Steve is a massage therapist who has a private practice providing on-site massage to several companies. He also works on an "as needed" basis for a salon when he is available. He sets his own schedule with the spa and often brings in his own clients. The spa pays him a per session fee less costs to cover room rental, linens and supplies. He receives a 1099-MISC form at the end of the year.
See "Independent Contractor Status" in Issue 2 at www.futureLMT.com for more information on this topic.