Is your massage therapy practice staffed by employees or independent contractors? Are you sure you know the answer to that question? Characterizing staff members as independent contractors is commonplace in the beauty and wellness industry. This business model permits salon and clinic orders to maintain flexibility and save money by adding staff hours in response to customer demand. Additionally, business owners avoid the costs of payroll taxes as well as unemployment and workers’ compensation insurance when a worker is classified as an independent contractor.
However, according to the American Massage Therapy Association (AMTA) , in many instances the characterization of worker as self-employed is incorrect. In this article we’ll discuss why worker classification matters and how to get it right.
Why getting your worker classification right matters
Getting your workers’ classification wrong can be a costly mistake. In Wage and Hour Class Actions Can Cost Employers Millions, Society for Human Resource Management’s Lisa Nagele-Piazza explains that even minor mistakes made by a business owner when classifying and paying workers can result in IRS tax liabilities and the imposition of penalties under the Fair Labor Standards Act. In some circumstances, misclassified employees may be entitled to claim back wages and overtime.
Employers who have avoided paying for unemployment and workers’ compensation insurance by classifying their employees as independent contractors may find themselves owing their state, as well.
As the IRS publication, Independent Contractor (Self-Employed) or Employee?, notes, “it is critical that business owners correctly determine whether the individuals providing services are employees or independent contractors.”
How to decide if your massage therapists and other workers are independent contractors or employees
Determining whether someone is an independent contractor is a fact-based inquiry. A worker can be classified as an independent contractor only if his or her employer does not control what work is to be done and how that work is completed. A worker will not be considered self-employed unless the work relationship meets the necessary criteria.
Additionally, employers cannot choose to classify an employee as an independent contractor if the appropriate federal or state rules are not met. Nor can an employer and employee form an agreement that waives these conditions.
So, while an employer is free to choose a business model that relies on independent contractors, he or she must ensure that the actual work relationship reflects that categorization.
What criteria does U.S. federal law apply when assessing a worker’s status?
The IRS advises employers to apply a three-factor, common law test to determine a worker’s status. To decide whether you have classifed your staffers correctly, begin with these steps.
First, assess how much control you exercise over your worker’s time and effort. Do you decide when your therapists work? Do you manage their schedule and assign clients to them or does each member of your team develop their own schedule and customer lists?
Next, examine your financial relationship with the staffer. Individuals who are paid a salary or hourly wage are more likely to be classified as employees. An independent contractor’s financial risks and rewards should resemble those of a business owner. The self-employed individual assumes more of the costs of doing business, but shares in the profits as well.
Finally, look at how the relationship is managed. Is there a contract outlining each party’s responsibilities and obligations? Does your business provide workers with paid time off, insurance, or other benefits?
Keep in mind though, not providing benefits or wages is not the only indicator. Instead, government regulators will look to the totality of the relationship. If your therapists and other staffers are not permitted to set their own schedules or control other aspects of their work performance, they are likely to be considered your employees.
Grow Your Business the Right Way
As your massage therapy practice gains new customers, ClinicSense can help you streamline your processes and minimize paperwork. But you’ll still need to add massage therapists to deliver that human touch. So, be prepared. Use the advice in this article to evaluate your business model and hiring practices to make sure that you are getting your employee classifications right.