In our last post on the topic, we talked about how a business owner could begin to decide between renters, contractors, or employees.
But it’s not just business owners who are dealing with these issues. Plenty of massage therapists (aka Independent Contractors or ICs) are finding themselves on uncertain ground, where they are being treated partly as an employee and partly as an IC.
Why do business owners classify therapists as ICs when they should probably be employees?
Because it’s easier and cheaper. ICs can be paid by commission, are responsible for their own employment taxes, and a host of other little factors.
Having employees means getting involved in all the regulations governing employees, worker’s comp, payroll taxes, hourly wages and more.
It’s also entirely possible the misclassification isn’t intentional. Many massage business owners are just trudging along, assuming that the advice they got 5 years ago is correct. Or just following advice of other under-informed business owners.
What’s the big deal?
Well, it may or may not be a big deal to you. But if you are misclassified as a contractor, you’re losing out on
- the employer paying half your Social Security and Medicare taxes
- eligibility for unemployment benefits
- eligibility for worker’s compensation benefits
- workplace rights like a right to a minimum wage, overtime pay, sick pay, and rest and meal breaks
- eligibility for healthcare coverage as an employee
What to do if you think you are a misclassified worker.
Consider your situation. If you have a good working relationship with the business owner, start there. They could have already consulted a business attorney and be able to explain why you are classified as you are.
If they can’t explain the rationale or you are just not satisfied with the explanation, you can ask the IRS to clarify the arrangement by filing a Form SS-8 with the IRS. Either a worker or an employer (business owner, or as the IRS calls it, ‘firm’) can file the Form SS-8, and the IRS will open an investigation and make a determination.
If you don’t have a good relationship with the business owner and you fear retribution, well… you could go straight to the IRS. This may or may not be the best route for you.
Either way, you have to think about your situation, and what you’ll do if the IC option is no longer available to you. Do you want to be an employee (there or somewhere else) or is it time you launch a business for yourself?
In a perfect world, the business owner won’t mind that you started this conversation, and you’ll end up feeling confident that you are classified correctly, or the business owner will make the appropriate changes. In reality, the situation at work could become uncomfortable.
Think through the potential outcomes and proceed wisely. Gather all your records, pay stubs, receipts, copies of your schedule, anything you may need to show how much you have worked, and how you have been paid for that.
What happens when the IRS steps in?
If the IRS determines the employer classified the worker incorrectly as an IC, the employer may have to pay back taxes for the time they had the worker misclassified.
If this happens, be sure to consult a qualified tax preparer. You may need to file amended tax returns or file another form to avoid paying all your Medicare and Social Security taxes yourself.
Have you been in this situation? How have you resolved it?
Please remember, we are not attorneys or a tax experts. We are business owners with the smarts to find and use good resources. We should not be your only resource, and you should seek out qualified tax and business experts in your area to get the best advice for you and your business.
IRS Publication Publication 15-A
IRS Form SS-8 Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding
Department of Labor, Misclassification of Employees as Independent Contractors
The Department for Professional Employees, AFL-CIO
PS- Word on the street says the Spring 2016 AMTA Massage Therapy Journal has a good article on this topic. (But I don’t get that magazine and I haven’t sen it online, so you’ll have to do your own legwork there.