Employees, independent contractors, freelance professionals … aren’t these terms really just three different ways to say someone provides a service and then gets paid for it?
As a spa owner – or actually, as ANYONE that’s the legal age to work, you should know the distinction between these three types of employment!
As a worker, the obvious reason for understanding this distinction is so that you are 100% clear on what your rights are in the workplace.
As a spa owner, improperly classifying your employees can get you into some serious legal trouble.
Being the boss really does come with great responsibility.
Aside from managing your staff, taking care of the bills, ensuring enough customers are coming in to keep the business running, and all that other fun stuff … when it comes to your spa staff, you MUST know the difference between an independent contractor and an employee, AND treat them accordingly!
Thinking that you can get away with the little things can come back to bite you in the “you know what” hard!
How to properly classify your staff: independent contractor vs. employee
As a spa owner, it’s incredibly important for you to make sure all criteria at the federal and common law level are met before classifying a worker as either an independent contractor or an employee!
The criteria used to determine your status as either an independent contractor or an employee depends on where you live
The labor laws and standards used to evaluate your employment status will vary depending on your geographic location!
The federal government and the individual state governments have their own set of standards when it comes to classifying the status of a worker. In the US, the guidelines surrounding your rights in the workplace will vary by state.
Key differences between an independent contractor and an employee in the US
It’s a good idea to consult with a legal professional to figure out which rules at the federal and common law level must be met for your specific situation!
According to Findlaw, the key differences between an independent contractor and an employee include but are not limited to the following:
- An employee typically works for one employer
- Works under a set of guidelines that are set by their employer: work hours, dress code, the direction that is given for tasks, etc.
- Entitled to employee benefits
- Not required to make any investments for equipment or tools
- Under the Federal Insurance Contributions Act, the employer will withhold income tax, Social Security, and Medicare tax from the employee’s net salary
- Protected by worker’s compensation benefits, and federal and state labor laws regarding wage and overtime
- May have the option to join a union
An independent contractor is generally defined by the following standards:
- Usually works for more than one employer
- Flexibility in setting their own work hours
- NOT entitled to employee benefits
- NOT under obligation to follow employer’s guidelines but is obligated to fulfill what’s outlined in their contractual agreement
- Pays self-employment tax, and is not subject to withholding from Federal Insurance Contributions Act
- NOT entitled to join a union
The key differences between an independent contractor and an employee in Canada
According to The Centre for Public Legal Education Alberta, it’s important to determine one’s status as either an employee or a contractor because there is a huge difference in which type of rights you are entitled to in the workplace!
Someone who is doing work for you is NOT considered an independent contractor just because you label them as one!
According to the CPLEA, the following pertains to an employee:
- The Code (common law and employment legislation) entitles employees to certain rights when it comes to minimum wage, overtime, termination, notice, holidays
- Relationship with employer is usually exclusive and long-term
- Canada Pension Plan, Employment Insurance, and income tax payments are deducted and remitted on their behalf
- Tax benefits cannot be claimed
An independent contractor:
- Is considered self-employed
- Is NOT protected by the Code (common law and employment legislation)
- May work for more than one organization
- Must provide their own tax, Canada Pension Plan, and Employment Insurance payments to the government rather than having it already deducted from their pay
- Can include reasonable business expenses on yearly income tax return as deductions
Why you MUST properly classify your workers
Spa owners or even workers themselves may operate under the assumption that there’s not much of a difference between the two and that they’re essentially just labels.
If you are one of these people, PLEASE do some research!
You really do need to understand that the nature of the relationship between a worker and an employer is entirely different for an independent contractor and for an employee.
Truthfully, the legal terms and the technical jargon can get pretty confusing!
That’s why it’s a good idea to consider consulting a legal professional to figure out your situation and what it is exactly that you’re entitled to (as a worker) or what your obligations (as an employer) are!
As a spa owner, incorrectly classifying a worker can lead to pretty severe penalties that will COST YOU.
According to the IRS, it could make you liable for that worker’s employment taxes!
The IRS emphasizes that it’s crucial to identify exactly what the business relationship between employer and worker is.
But it all depends on control and independence.
The IRS lists 3 categories used to determine the degree of control and independence in a business relationship: behavioral, financial, and type of relationship.
In other words, you must examine the nature of your business relationship to see how much control the employer has over the worker and how much independence this worker is given to perform their services.
For example, an independent contractor’s main priority is to complete the tasks that are outlined in a contract agreement with their employer. A contractor works independently to complete these tasks and the employer has little control over the process unless otherwise stated in the contract.
Why independent contractors are a good idea for spa owners
Hiring a bunch of employees costs money.
A LOT of money.
A team of permanent staff will up your expenses. I’m not just talking about their wages but you’re going to be spending more on training, product and equipment, treatment room space, utilities, benefits (if you offer them), insurance, and MORE.
According to NOLO, these expenses have a significant impact on your payroll! It increases it by a whopping 20 to 30%!
I’m sure you know all about the different seasons that come with working in the spa industry.
You have those hectic times where you can’t even find a couple minutes to grab a quick bite, and you also have those slow periods where you’re literally just watching the door!
As a spa owner, it’s the unpredictability of it all that really gets you.
Because you want to make money.
And in order to make money, you need to service as many clients as possible.
But to do so, you need to have the manpower!
Making sure you have the manpower, you run the risk of overstaffing. Which means, not only will you not make money, but you’ll have to cover wages with the money you’re NOT making!
Luckily, there is never a shortage of licensed professionals that are more than willing to take on more work. Take advantage of temporary staffing solutions such as SpaTemps.ca!
SpaTemps.ca will connect you with licensed aestheticians that are ready to provide their services as needed! This is a great way to cut expenses, to maximize your spa’s earning potential, and to eliminate the legal risks in finding workers (with ambiguous employment terms) on your own!
The same goes for independent contractors in the spa industry that are looking for work. With SpaTemps.ca, you get to call the shots! You have the flexibility in creating your own work schedule, set your own rates and you don’t have to commit to one employer.
But that’s not it.
You also get peace of mind from knowing you and the spa owner are in complete agreement of your status as an independent contractor – which is really the one key thing that needs to be understood by everyone involved to make sure that you are in the clear!
Do your research
I cannot stress this enough: do your research.
Make sure you are fully aware of the distinction between an independent contractor and an employee!
Whether you’re a spa owner or an aesthetician, it’s crucial to be aware of the different rights each type of employment is entitled to and which laws are in place to protect them in the workplace.
Figure out your situation!
Using temporary staffing solutions to find independent contractors is a great way to save money on wages, cut expenses, and always have the exact number of workers that you need!
With SpaTemps.ca, you eliminate the fuss that comes along with hiring someone that isn’t familiar with the different employment types AND you protect yourself from the risk of legal drama in improperly classifying your workers!
You and your freelancer have a mutual understanding that they’re offering their services as an independent contractor right from the moment you connect!
There is no question that this is a HOT TOPIC across the board. Still have questions? Let’s keep the conversation going inside our free online community for Spa Owners!