Many massage therapists dream of working independently and being their own boss; others enjoy the benefits of working as employees of a massage business of someone else’s. Then there are those tricky situations: What if, for example, you’re an independent contractor and being paid as such, but you work in a shared space where someone else sets your schedule and rates? This situation, among others, demonstrates the often blurred line between being an independent contractor and being an employee.
“Many independent contractors fail to think about the ramifications of misclassification because they’re getting a regular paycheck,” said Natalie Fell, HR & business specialist for Step by Step Business, a resource site for people starting their own business.
“However, being misclassified means you could be missing out on employee entitlements like paid time off and overtime pay, family and medical leave, and worker’s compensation benefits should you experience an on-the-job injury.”
Misclassification has become an especially charged issue since the rise of the “gig economy,” in which large companies have their work carried out by an army of independent contractors nationwide. While litigation has focused on people working with ride-sharing and delivery companies, massage on demand has brought the issue into the massage and spa industry as well.
IC vs. Employee
You may be classified by an employer as one or the other, but is that classification accurate?
“An owner’s determination of this classification doesn’t make a difference,” said Andrew J. Contiguglia, a business and corporate attorney and owner and president of Contiguglia Law Firm in Denver, Colorado. “The classification of the worker will depend on several different factors determined by the local Department of Labor and the IRS.”
Classifying you and other workers properly is the employer’s responsibility and has ramifications if it isn’t done correctly. “Misclassification of workers can result in penalties for unpaid unemployment benefits, the payment of worker’s compensation benefits, and health insurance,” Contiguglia noted.
In general, here are some factors specific to massage therapy that may help determine your classification.
If you are an independent contractor, you probably:
- Set your own hours;
- Take your own (unpaid) time off;
- Determine your own rates and keep all gratuities;
- Dress for work however you see fit;
- Market yourself and get your own clients;
- Perform your massage work however you and the client agree, within your scope of practice;
- Purchase your own massage supplies (linens, lubricants, table, etc.); and
- Get paid via IRS form 1099, with no taxes withheld, and pay quarterly estimated taxes on the money you earn.
If you are an employee, you probably:
- Have your schedule set by your employer;
- May or may not be able to take paid or unpaid time off depending on benefits offered;
- Keep your gratuities, but charge the rates your employer sets;
- Wear a work uniform or follow a set dress code;
- Have marketing and clientele handled by the employer;
- Perform massage work subject to the employer’s approved techniques, rules and policies, within your scope of practice;
- Use massage supplies provided at the employer’s expense;
- Get paid via IRS form W2, with federal and state taxes withheld by the employer.
“The key component here is the degree of control the employer has over [their] worker,” said Contiguglia. He cites the “Right to Control” test generally used by the IRS and Departments of Labor, which has criteria including:
- Whether the employer has the right to control the worker;
- The type of business the worker is engaging;
- Whether there is supervision by the employer;
- The providing of workspace, tools and materials;
- The length of the employment relationship (ICs are retained for a specific project or length of time)
- Compensation (salary/hourly vs. paid per project)
- Integration of the IC work is tied to the core of the employer’s business
- Customer base (whether the employer is providing the customers or the IC is providing them)
“Another test used is the ‘Economic Realities Test,’ which focuses on the extent to which a worker is economically dependent on an employer,” Contiguglia said. “Does the worker depend exclusively on the employer for income? If so, that person will likely be classified as an employee. A true IC has multiple customers [they provide] services to, one of which is the employer.”
What if You Suspect You’ve Been Misclassified?
The answer to this question is not a simple one. The IRS says there are multiple criteria considered in order to determine your status; they review behavioral factors (how much control the employer has over you, the worker) as well as financial factors (tax withholding, who buys supplies, how expenses are handled) and the type of relationship between you and the employer (whether there is a contract, what benefits are conferred, and whether you are doing work that is a key part of the company’s services).
Each employment situation is unique, says the IRS on their website. “There is no ‘magic’ or set number of factors that ‘makes’ the worker an employee or an independent contractor and no one factor stands alone in making this determination,” it states. “Also, factors which are relevant in one situation may not be relevant in another.”
Let’s say you are being paid as an independent contractor (with no taxes withheld by the employer) and you believe you are doing the work of an employee without the benefits associated with being one. Our experts suggest:
1. Discuss it with your employer or HR department. “The first step is to have a conversation with your employer to see if they can reclassify you as a full-time employee,” said Fell. “If your employer isn’t responsive, the next step would be to contact the IRS.”
2. Get help from an expert. “It may be worth working with an experienced lawyer who knows how to navigate misclassification cases, as trying to jump through the hoops on your own can be cumbersome,” Fell said.
3. Report it to the IRS. Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, asks a number of questions pertaining to your employment situation so the IRS can decide how you should be classified. (This form can be submitted by the employer or the worker.) The IRS notes that it can take up to six months for its determination to be made.
4. Report it via your tax return. “If someone believes they are misclassified they can add a form to their tax return to treat their income as wages and only pay half the self-employment tax,” said Crystal Stranger, EA, author of “The Small Business Tax Guide” (Clear Advantage, 2014) and international tax director for the corporate tax and bookkeeping firm GBS Tax. “But they should know that by doing this they are burning the relationship with that employer, so this may not be smart if this could affect future choices of employment.” Look for Form 8919, Uncollected Social Security and Medicare Tax on Wages, on the IRS’s website.
So…What if You’re the Owner?
Contiguglia recommends consulting with an attorney experienced in business law when you want to classify a new hire, especially if you intend to classify the worker as an independent contractor instead of an employee; this is more problematic, liability-wise, than classifying an independent contractor as an employee, he said.
“I like to advise that any business owner should consult with a lawyer or other business professional before making such a decision on worker classification,” he said. “It’s important to structure your employment relationships to ensure that the working environment and conditions create the intended relationship.”
About the Author
Allison M. Payne is an independent writer and editor based in northeast Florida.