Employees and Independent Contractors, Part 1
By Felicia Brown
Originally published in Massage Bodywork magazine, April/May 2000.
Copyright 2003. Associated Bodywork and Massage Professionals. All rights reserved.
Author's note: In this first of a two-part article, I will explain some of the fundamental differences between employees and contractors and what may make either classification more appealing to an individual. In part two, I will shed some light on the advantages to potential employers in regards to using one group over the other.
I have been in practice as a massage therapist for nearly six years. In that time I have worked as a self-employed contractor in a variety of settings including a gym, group practice, tanning salon, several beauty salons and my home. I also ventured off into the world of being an employer by starting my own group practice (now a day spa) more than three years ago. I guess you could say I have walked both sides of the massage therapy fence. As a result, I have learned a great deal about the ups and downs of working as, and working with, employees and independent contractors. Every situation is different. You and your financial advisors will have to determine which scenario works best for you.
Being self employed...freedom at last. No set hours, dress codes or company policies. No more orders from a temperamental boss. You are finally free to do the work you love whenever and wherever you want. Yes, it's true. There are many benefits to being your own boss, and working as an independent contractor does have a lot of advantages. In addition to working out of your own office, should you choose to have one, you can freelance with as many companies as you like and boost your overall income. Assuming you are busy, cash flow should be strong because you collect all the clients' fees directly. And, of course, as a bonus, you are able write off the majority of business expenses incurred. But is it really that simple?
In my experience, many salons that use independent massage therapists actually demand more from these contractors than the law really allows. For example, they may expect you to be on-call or available for a certain number of hours per day or week. Or they collect and keep the clients' fees, paying you instead weekly or monthly. Still others may expect you to act as an employee by limiting your work outside their establishment or even asking you to sign a non-compete agreement. But you don't really work for them...or do you?
By definition, an independent contractor is a business (therapist) that works independently of the business, such as a salon, by which it has been contracted. What this means, more or less, is that the contracting business (salon) has a very marginal amount of control over the smaller independent business (therapist). This statement translates into a set of requirements (see box) instituted by the Internal Revenue Service to determine whether to classify workers as employees or independent contractors. For example, supplies, advertising and equipment should be provided by the independent contractor, not the salon. Additionally, uniforms, schedules and rules are not supposed to be required or imposed.
IRS Keeps Tight Reign
You might ask yourself what difference all of this makes to the IRS. The answer is money, in the form of taxes. In a nutshell, the IRS wants to be sure they get the correct amount of money due on earnings from every taxpayer and business. Self-employed folks are responsible for taking care of their own taxes. This means filing quarterly paperwork (along with a payment to state and federal agencies.) It also means keeping good records for optimal deduction capabilities. If paperwork is not your strong suit, being an employee may be the road for you. Historically, independent contractors have been known to report less money than they really earned, thereby paying less in taxes. These same individuals also have a tendency to report earnings and pay taxes late, costing the IRS even more in revenues. Thus, the stricter guidelines for being an independent contractor.
When someone works as an employee instead of a contractor, all taxes due on those earnings are automatically deducted, reported and paid by the employer. The only burden left on the employee is to file a tax return at the end of the year. Although it is true, employees often make a smaller commission and aren't able to enjoy all the freedoms of the self-employed, the benefits gained by being an employee are often worth the concessions made by accepting such a classification.
Mind you, I am not against massage therapists working as independent contractors. Quite the opposite. I was very empowered by the knowledge that by being self-employed, in effect, I was running my own business. I really enjoyed it. The designation of small business owner gave me a lot of power mentally. It made me realize as I never had that I was truly in charge of my own destiny. It laid the foundation for me to start my own business and incorporate. It taught me more than being an employee ever could. But I made plenty of mistakes along the way.
My best thought is this. If you are like me -- responsible, organized, and driven with a plan to eventually start your own practice or business in the future -- then go for it. It will be an experience you won't want to miss. If, on the other hand, you are likely to work for someone else as long as you are in the business or don't really want to deal with anything other than massage in your life as a therapist, I suggest you take on the role of employee. You will likely be a lot happier without all the hassles and paperwork that come with running your own business.
Whatever you choose, know that you can always move in the other direction sooner or later. The world of massage is full of options we have barely even begun to discover.
Felicia Brown, LMT, owns a group massage therapy practice and day spa in Greensboro, N.C. Brown offers expert advice in business and marketing for massage therapists and other working professionals, and is available for lectures, workshops and private consultations. She may be reached at Balance, 823 N. Elm Street, Greensboro, NC 27401; via e-mail at FBrown6886@aol.com; or at 336/574-2556.