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Employee vs Independent Contractor
I've worked for both types of pole studios- previously I was an Independent Contractor and with my current studio I'm an Employee. This is such a gray area for me, does anyone have any information regarding the pros and cons of each that they'd like to share with everyone else? Is this a trend that studios are moving towards in the pole industry? I guess my main concern is my instructor insurance as being an Employee, I'm now covered under the studio's policy- should I still get my own insurance like I always have before? Thanks for all input on this topic. https://www.studioveena.com/img/smilies/icon_heart1.gif
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21 Replies
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Charley resently posted something regarding this. Let me see if I can find it…..
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There are a few threads here too regarding this and I want to say there are some in the bogs.
https://www.studioveena.com/forums/view/question_for_instructors_20110930015553
https://www.studioveena.com/forums/view/Independant_Teaching_20111204115251
https://www.studioveena.com/forums/view/Instructors_I_need_advice_20110616105333
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Ha ha, Kobajo, I just had the same idea. And I just shelled out for an insurance policy for 2012. I will keep the insurance, it doesn't hurt to have a little extra protection from liability. And you have been teaching for a while, you will want that insurance to teach workshops at different locations.
Empyrean mentioned that the difference between an IC and an employee is tied to curriculum. If you are teaching your own curriculum you are an IC if you are teaching a studio's program you are an employee.
Can any studio owners speak to the differences from your perspective? Which is easier? Cheaper? Limits liability, ect?
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Here is the IRS's view.
http://www.irs.gov/businesses/small/article/0,,id=99921,00.html
There are pros and cons to each type for both studio owner's and instructors. Bottom line is, follow the IRS guidelines. States usually have their own guidelines as well.
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Nice link, LindaLu!
"Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed."
In essesnce, if you are an IC, your boss can't tell you how to do your job.
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Some differences to consider:
IC: pays full amount of Social Security and Medicare
Employee: Pays half and employer pays other half plus employer pays unemployment comp/insuranceIC: not entitled to unemployment comp
IC: carries their own insurance – employer CANNOT insure them
Employee…covered by the employer's insurance – may always choose additional insurance of their own if they want.IC: Collects payment for services and pays owner of business
Employee: Is page wagesIC: Determines schedule, class format, names of classes, etc
Employee: is subject to the rules the employer sets forth and teaches according to the employer's policy and class guidelinesAnother note: A spouse cannot be an independent contractor and neither can your offspring.
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From Empyrean: "IC: Collects payment for services and pays owner of business"
While an IC relationship can work as described above, that is not the only way they can legally "get paid" and still fall under the IC banner. From the IRS: "An independent contractor is usually paid by a flat fee for the job. However, it is common in some professions, such as law, to pay independent contractors hourly."
"A spouse cannot be an independent contractor and neither can your offspring."
This is not the case, at least in Kentucky. Your spouse can work for you as an IC but they must truly fit the guidelines or you will pay very heavy fines. AND if they determine that your spouse is actually doing work that classifies them as a co-owner while you've been filing taxes that say differently you are in major trouble.
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Rikki…do you do taxes? The federal law cannot be overridden by state laws and it is absolute that the federal law does not allow a spouse to be an independent contractor.
A lot of states have laws that were on the books prior to federal employement laws being in existance and they have not bothered taking them off the books. The law itself states that the federal law will supercede the state laws…or that you must abide by the stricter of the two.
So if this law actually is on the books, it's the federal law is in control. Anyone with whom you file a combined return or whom you co-habit with is considered "under your control" and then will not qualify under federal law as an IC.
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I forgot to address the hourly concept…
There are many more points considered in addition to how someone is paid. The "hourly" rate is affected by the type of work one does and whether the IC meets the other twenty points which the IRS generally looks at.
For example when a traveling pro comes to our studio to teach a workshop they are paid BY us as we collected the money for the workshop and they are paid an hourly rate. Clearly they are not our employee and are not following our instructions on how to teach the class and are not under our direct control.
The point here is that anyone who is running a business should consult a knowledgeable attorney or tax preparer and not try to interpret the laws themselves.
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FYI for the rest of the members reading this…here are two good sources:
http://www.irs.gov/pub/irs-pdf/p15a.pdf (pages 6-9)
and
http://www.twc.state.tx.us/news/efte/appx_d_irs_ic_test.html
Obviously it's really confusing and that's the whole point. Be certain of how you classify yourself or people who work for/with you. This is something we run into often so we have dealt with it a lot through our other business as financial consultants and tax preparers.
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"Rikki…do you do taxes? The federal law cannot be overridden by state laws and it is absolute that the federal law does not allow a spouse to be an independent contractor."
No, I do not do taxes. I can find absolutely no mention of spouse as contractor on the IRS website but have found several tax law websites that mention the handling of such a case. Can you point me to your source that says it is illegal? Not trying to be contrary – this is just an important issue for me!
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LOL…I can only point you to my husband who has a degree in tax law and has prepared taxes for over 30 years. Not single client of his has ever been fined for misinterpretation of the law. He authored my response.
Another important point is that no one should try to interpret tax law (or any law for that matter) based on what you read online even from the source (IRS) itself. If it was that easy no one would need a degree or license to prepare taxes and we'd have no need for tax law attorneys.
I simply strongly urge anyone who is using IC's or is an IC to consult a registered or licensed professional.
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Okay, but my accountant says it's legal and everything I've read on the subject says it's legal. Now, I know not to believe everything I read but when it's backing up professional advice and you can find nothing to the contrary….well….
Some "sources" I found that back up my accountant's position when Googling "legalities of hiring my spouse as an independent contractor":
http://smallbusiness.findlaw.com/business-structures/llc/llc-spouse.html
http://www.dmms.com/newsletter-running-a-business-with-your-spouse.html
http://www.ehow.com/info_7868703_can-spouse-work-llc-pay.html
I do TOTALLY agree with you that a professional should be consulted before making any decision regarding the matter.
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I would think that this phrase in the irs publication would answer the question regarding spouses (or and contractor):
The extent to which services performed by the
worker are a key aspect of the regular business
of the company. If a worker provides services that
are a key aspect of your regular business activity, it
of a is more likely that you will have the right to direct and
control his or her activities. For example, if a law firm
hires an attorney, it is likely that it will present the
attorney’s work as its own and would have the right
to control or direct that work. This would indicate an
employer-employee relationship.
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First of all Chemmie hit the nail on the head…it's more about what type of work someone (anyone) is doing that makes them an independent contractor.
For example you may POSSIBLY consider a spouse an IC if they perform an outside service for your business which they provide to others AND which you have no control over. ie: your spouse has his own business as a plumber and his business is a corporation, and you hire him to come in and work on installing a new toilet. IT's a gray area but it could be considered and IC.
ALso in this case you are paying the corporation. You may pay him based on an hourly fee but he is not regularly employed by you at an hourly rate to work for you on a regular basis.
However if he (or anyone) works for you teaching classes and they are teaching YOUR program YOUR way then they are not ICs.
The links you referenced are ambiguous…they are not making a blanket statement that your spouse can be an IC and in fact would only be referring to situations like I listed above.
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