Employees and Independent Contractors, Part 2
By Felicia Brown
Originally published in Massage & Bodywork magazine, June/July 2000.
Copyright 2003. Associated Bodywork and Massage Professionals. All rights reserved.
Author's note - In this second of two parts, I will review some of the fundamental differences between employees and independent contractors. I will also share my experiences regarding the employer's advantages and disadvantages in utilizing one group over the other.
As mentioned last time, I have been in practice as a massage therapist for nearly six years. During the first few years I worked for a variety of establishments as an independent contractor. Then in 1996, I left all of my contracted positions to form my own company with the vision of creating a group massage therapy practice. Now, almost four years later, my business has grown into a full-service day spa, and from a staff of one (me) to a staff of about 20 which includes massage therapists, reflexologists, estheticians, nail technicians, and a support staff of three. During that time I have used independent contractors who either rented space outright or worked on commission; temporary help through an agency; and finally, employees. Each type of staff classification has its advantages. Only you and your financial advisors can decide which way to go. But first, let's have a little review.
Independent Contractor Defined
What exactly is an independent contractor? By definition, an independent contractor (IC) is a small business owner (therapist) who works independently of another business, such as a salon or chiropractic office, by which she has been contracted. What this means basically is that the contracting business (salon) has a marginal amount of control over the smaller, independent business (therapist). This statement translates into a set of requirements (see "Employees & Independent Contractors" in the April/May 2000 issue of Massage & Bodywork) instituted by the Internal Revenue Service to determine whether to classify workers as employees or independent contractors. For example, with independent contractors, supplies, advertising and equipment should be provided by the practitioner, not the salon. Additionally, uniforms, schedules and rules are not supposed to be required or imposed.
What else does this mean for the larger contracting business/employer? It means you are unable, or at least not supposed, to require your massage therapists or other ICs to follow a schedule of set hours, abide by a dress code, or comply with company policies. In addition, you are not allowed to limit the number of outside freelance opportunities your "staff" members take on.
This can sometimes create stress as business owners struggle to meet clients' scheduling needs and demands: "Sorry. Our massage therapist only works here on Thursday and Saturday," you explain. "She works in another office the rest of the week." Though I personally do my best to support each of my staff members in their outside ventures, multiple office locations can sometimes create a conflict of interest for everyone involved.
Benefits to Using Independents
So what are the benefits to working with independent contractors? First, ICs are responsible for filing and paying their own taxes without any real work required from the salon. If the salon or office actually collects some or all of the money due to the therapist and then issues a check periodically to the therapist, the IC will receive a 1099 at the end of the year. This form is similar to a W2 - it shows earnings paid for the year and is filed with the IRS. However, no taxes are paid by the employer.
Another benefit to using ICs is they are (hopefully) more or less responsible for themselves. They should be finding their own clients, setting their own hours, doing their own bookkeeping, etc. It takes a great deal of work off the business owner. It can also supplement the income to your business through commissions or rents received from each IC. Look out though, because the more ICs you have, the harder it is to keep up with everyone's idiosyncrasies. Each person will have their own way of doing things, may set their own prices, may even do their own kind of massage.
Consistency is hard to maintain as a staff grows, especially when it is one you can't impose rules upon. It is also likely your overhead will increase with a larger staff due to the higher amount of product usage, etc. Be sure to allow for this in whatever rent or commission you decide to charge.
Benefits to Using Employees
So why should I hire an employee? There are quite a few benefits to being in control. Consistency is one of the biggest. The larger your practice, the harder it is to ensure all clients are given the same service. While working with ICs can be easier on your wallet, it can be much harder to control all the details of how your business works.
Employees can, and expect to, follow your policies, schedules and price guidelines. They expect to work within a framework determined by you. And if they don't abide by the rules, employees expect to be reprimanded or let go.
Another good thing about employees is they tend to feel more a part of the organization than ICs do. They realize that by doing a good job for you, they not only retain their position, but they also help the company succeed. Being an employee gives them an identity directly linked to you. In this profession especially, people want to feel good about where they work. Doing a good job for you gives employees one more reason to be proud of their job. Recognizing staff members for a good job will only help increase this positive trait.
Drawbacks to Employees
But there are drawbacks to having employees. The No. 1 problem I run into is personal problems that translate into personnel problems. Ask anyone who owns a business what their greatest challenge is in business and you'll likely get a similar response. People have issues which spill into the workplace - romance difficulties, family illness, substance abuse, you name it. Any of these things and a million others can cause turbulence in an office.
I would strongly suggest having written policies in place for any kind of issue that could come up (tardiness, sick days, dress code, time off). Then enforce it. Stand behind those rules and have policies in place to handle any missteps by your staff. And, document everything in writing.
The other major drawback to utilizing employees over ICs, in my opinion, is the tax issue. More people means more paperwork and, of course, higher taxes. Unlike with ICs, employers are responsible for filing and paying taxes for their staff members, and a portion of the money is actually contributed by the employer. This can be tough to handle, but in my opinion is worth the gains received.
Lastly, I would be sure to have some security checks in place to safeguard your hard-earned cash. Check references and past employers. Be aware of any kind of irregularities in your bookkeeping and inventory systems. Don't be fooled the way many people are. Most theft occurring in small businesses happens on the inside. Protect yourself even if you don't think you need to. Whatever your situation, sit down with your accountant and decide which avenue is best for the structure of your business. Keep in mind whatever long-term plans you have for growth and expansion. Whichever option you choose, bring in people who can represent your business the way it deserves.
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.