Massage therapists or practitioners can be loath to agreements. They love the idea of working together, but often despise working out money terms in a long-term working agreement. The unwillingness or inability to work through the financial terms of a contract can cost thousands of dollars to the clinic owner over time if outgoing expenses are greater than incoming revenue, and great hassle and expense to the contracting practitioner having to relocate. With such a wonderful symbiotic opportunity, why do so many clinic-owner or contracting-practitioner agreements go sour? I think the foundational presumptions are to blame. This series examines six common presumptions.
Presumption #6 – “It’s a Contractor Relationship Because I’ve Classified It as Such”
This presumption really hurts! In Canada our taxation body, the Canada Revenue Agency (CRA) provides a document outlining how to determine if someone can, for tax purposes, be considered an employee or a contractor or self-employed. This document is entitled Employee or Self-Employed? (Form RC4110) and can be found at the CRA Web site, http://www.cra-arc.gc.ca/tax/business/topics/payroll/clarify/menu-e.html. (U.S. readers should research the appropriate United States legislation for your reference.)
Many massage therapists I’ve spoken with maintain that their agreement is a client-self-employed contract, where the clinic, (the client), contracts services from the therapist (the contractor.). There are mutual benefits to this arrangement in that the contractor can deduct expenses incurred while providing therapy, thus lowering their taxable income. The “client” needn’t bother with withholding taxes on the contractor for federal and provincial tax, Canada Pension Plan (CPP), and Employment Insurance (EI); nor providing workplace benefit packages or WSIB coverage.
However, if we carefully examine the CRA document, we may find that the typical massage therapy agreement appears more like an employee-employer relationship. I believe this is a real “Achilles heel” in the profession, with both clinic owners and associating therapists vulnerable to an unfavorable ruling by Canada Revenue Agency should they be audited.
The implications from this document suggest the self-employed therapist…
* Can work for whom and when she or he chooses
* Is responsible for all tools and equipment
* Can hire assistants or replacements for providing the work (therapy)
* Incurs operating expenses through their own workspace
* Hires and trains assistants
* Has her or his own established business presence
* Actively markets her or himself
* Is paid a flat fee for the work
* Can negotiate prices for the work and can provide work for multiple payers (clinics)
* Offers no continuous relationship, loyalty, security, or subordination to the clinic owner
* Incurs financial risk, as well as opportunity for financial profit
This may be very different from many current clinic owner and contracting practitioner (associate) agreements where:
* The clinic manager retains control of the business and is responsible for the collection of monies, marketing, clinic maintenance, and the hiring of associates.
* Equipment and tools (linen, lubricants, files, etc.) are provided by the clinic owner
* The clinic owner assumes the risk of damage to the business, including the appropriate insurances
* The associate typically cannot sublet the space or equipment, and cannot hire or train assistants
* The associate assumes the clinic’s business presence, not standing out as a “business within a business”
* The associate may network, but the clinic often does the marketing via signage, brochures and business cards, advertisements, etc.
* The associate “rents” the space, equipment and tools, but may not be responsible for maintenance and replacement
* Can work for multiple clinics, but restrictions are imposed in referring business to the opposing clinic
* Does maintain a continuous relationship over time
* Can increase income by providing more treatment, but the fees and terms are often set by the clinic manager.
The CRA makes very clear the consequences of improperly defining an employer-employee relationship as a client-contractor relationship.
“An employer who fails to deduct the required CPP contributions and EI premiums must pay both the employer’s share and the employee’s share of any contributions and premiums owing, plus a penalty.”1
If you determine that you prefer an employer-employee contract, you will need to open a payroll account to remit your deductions. You can find that information at the Canada Revenue Agency Web site, http://www.cra-arc.gc.ca/tax/business/topics/payroll/howpayrollworks/steps/account/menu-e.html.
I encourage you to review your appropriate legislation and consult your lawyer and accountant to ensure you’re in compliance with the tax laws.
As I’ve argued, presumptions can be real agreement killers, leaving a wake of broken relationships and financial distress. I encourage you to leave your presumptions at the door and engage the process in a clear, now-awakened consciousness. Good agreements last a long, long time!
Don Dillon, RMT is the author of Better Business Agreements and the self-study workbook Charting Skills for Massage Therapists. Over 60 of his articles have been published in industry publications including Massage Therapy Canada, Massage Therapy Today, AMTA Journal, AMTWP Connections, and various massage school and professional association newsletters. Don’s Web site, www.MTCoach.com, provides a variety of resources for massage therapists.
Don has presented to members of the Massage Therapist Association of Alberta (MTAA), the Association of Massage Therapists and Wholistic Practitioners (AMTWP), the Massage Therapist Association of Saskatchewan (MTAS), the Massage Therapist Association of Manitoba (MTAM), the Association of Massage Therapists of New Brunswick (ANBMT), the Massage Therapist Association of Nova Scotia (MTANS) and the Ontario Massage Therapist Association (OMTA). He also presented to the pre-graduating class of 2008 at the AtlanticCollege of Massage Therapists.