Last year I was offering workshops at a day spa, and I had a meeting with the spa manager. We got to talking about her massage therapists, and I learned that she required them all to wear the same color, but she called them subcontractors. I felt I should say something ….
Before I became a massage therapist in 1994, I was a construction worker for 15 years. On a construction site, subcontractors operated under their own rules. Plumbers, for example, couldn’t be told how to do their work by the general contractor.
I have always felt the way massage therapists work is usually more of an employee situation than subcontracting. Over the years I searched the internet to validate my hunch, but never found anything authoritative.
I recently researched the subcontractor topic again. I was surprised to discover a page that clears up the difference between a subcontractor and an employee, and why it matters. I hope you visit this IRS site to learn for yourself.
When you are a business owner who has employees, you must pay three benefits to the government for each employee:
- You must pay half of the employee’s Medicare.
- You must pay half of the employee’s Social Security.
- You must pay all of the employee’s Unemployment Insurance.
That adds up. In addition, you must do all kinds of extra accounting and send off payments to the IRS regularly. But when your workers are subcontractors, you don’t have to pay the three benefits. At first glance, any business owner would prefer to have subcontractors, rather than employees.
However, if the workers are subcontractors, you may not tell them how to do their work. In order to save the cost of the three benefits, you must give up control over their behavior.
The thing is, you can’t just call them subcontractors in order to avoid paying the three benefits. Even if you get the workers to sign an agreement saying they are subcontractors, as the spa manager I spoke with had done, the IRS may ignore your agreement. The IRS will says workers are employees whenever they must follow your rules on how they do their work.
When I was a laborer and carpenter I always worked for the general contractor. Other tradesmen like electricians and ironworkers worked for subcontractors. My foreman could tell me how to do my work because I was his employee. But my foreman could not tell electricians and ironworkers how to do their work, because they were subcontractors. Subcontractors get to do their work however they think is best, as long as their work meets the standards and codes of that profession.
If you are a business owner who hires massage therapists, you must decide what is more important to you: Saving money or having control over how the therapists do their work. The IRS clearly says you can’t have both. I imagine most dayspas, resorts and salons will prefer to control how the work is done, even if it costs a bit more. Still I imagine a few clinics will prefer to give therapists more control over how they do their work.
Being a subcontractor offers more freedom but includes greater responsibilities. But labels matter. There are good reasons for choosing to be a subcontractor, and good reasons to prefer being an employee
Here are some reasons I prefer being a subcontractor:
- More independence. A subcontractor gets to decide how she does massage sessions. Her responsibility is less to the business, and more to the state who issued her license and to the customer. This feels better for some therapists who like independence.
- A subcontractor has more freedom in her appearance. On a construction site the general contractor may stipulate all workers on site must wear hard hats for safety, for example. The general contractor may make all its carpenters wear white hardhats. But if the plumbing subcontractor likes green, plumbers will wear green hardhats, against the contractor’s rules for its employees. If the same applies to massage therapy, a massage business may stipulate shoes must be worn for health reasons, but therapists may wear whatever color shoes they like.
However, subcontractors have greater responsibilities and receive no benefits:
- As a subcontractor, I need to supply my own oils, linens, the massage table and other tools of the trade.
- I may not call in sick. If nobody shows up to do the massage, I am in breach of contract. When I can’t be there, I must find another qualified therapist to do the work and I must be the one to pay that therapist.
- I am not earning toward Medicare, Social Security or unemployment insurance until I take steps to pay those things myself.
- Nobody is taking taxes out of my paycheck for me. I need to calculate my own taxes and pay them.
I have noticed many businesses that hire massage therapists call the workers subcontractors, but also control how they do their work and what they wear. This is a situation the IRS would like to correct. If you would like to find out if your situation counts as a subcontractor or as an employee, you may fill out Form SS-8 and submit it to the IRS. It may take up to six months for them to make a determination.
If the IRS decides your situation is employee, even though everyone thought the workers were subcontractors, The IRS wants the business to pay the three benefits.
Wait—to pay these benefits going forward? Or to repay all the benefits for years in the past? The answer is, when businesses agree to do pay voluntarily, the business still has to repay the three benefits for some of the past, but not the whole amount
However, if the business is less cooperative, the IRS may require the business to repay the three benefits for all years in the past, for as long as the business was controlling how the workers did their work. That could be a huge amount of money!
So you see how it is in the interest of business owners to read the IRS website and comply with the codes first, and not wait for the IRS to bring this to their attention.
Many of us did not realize the large difference between a subcontractor and an employee. I didn’t. My hope is that once the massage industry is clear on the difference, the mistaken situations will be corrected.
The following are some additional things that have worked when I’ve been a massage subcontractor
- Subcontractors generally make their own appointments. Employees usually have appointments made for them
- Brian Utting, the owner of the massage school I went to, always said 70/30 as a split for subcontractors. For example, if the person paid $100.00, the business would get $30 and the therapist would get $70.
- If the business sometimes makes your appointments, you could negotiate 70/30 for the ones you book yourself, and a different split for the ones the business doesn’t make for you.
- When I offered a sliding scale to someone, I always made sure the business owner still received her full share. So I couldn’t slide the price lower than, say, $30 because I felt the business should still receive 30 percent of the full price.
- Often the business owner and I would settle at the end of the week. I would collect money from customers if they paid by cash or check, and if they paid by a credit card the business would collect. On the weekly invoice, I would tally everything. Sometimes the business owner would owe me an amount and sometimes I would owe her an amount. When I had a nice relationship with the business owner, we might settle up the same day I presented the invoice.
My hope is for our business relationships to become more equal. Whether you are an employee, subcontractor or a business owner, you can always nudge the relationship toward more of an equal partnership.
Patrick Moore has been an employee, subcontractor and a self-employed massage therapist, since 1994. Patrick is the originator of Melting Muscles, which he has taught since 2002. He lives in Tucson, Arizona, with writer Traci Moore. They enjoy nature, photography, poetry readings and performing arts. He wrote “Create an Equal Partnership: How to Request a Raise” for MASSAGE Magazine’s May issue.