Are Pet Groomers Subject to State Payroll Taxes (California)?
by Michael Millenheft, Employment Development Dept. (EDD)
©Michael Millenheft, EDD All Rights Reserved Published here with the permission of the author.

In California, the answer to this question will depend on whether these workers are employees within the meaning of the California Unemployment Insurance Code (CUIC). Employees are covered for unemployment insurance (UI). Employment training tax (ETT), and disability insurance (DI) and their wages are subject to state personal income tax withholding (PIT). Employers of workers considered to be employees are required to pay UI contributions and an employment training tax, and must withhold DI contributions and PIT from the workers’ pay. Conversely, workers who are not employees within the meaning of the CUIC, but, rather, are independent contractors, are not entitled to UI and DI benefits, nor are the shop owners required to pay employer contributions nor withhold employee taxes.

Under the CUIC, whether a worker is an employee is determined under the common law rules of employment. Under common law, the most important factor in determining the relationship is whether the business owner, or principal, has the "right" to direct and control the manner and means by which the worker performs his or her work. The right to terminate the worker at will is a strong indication of control. If it is clear on the face of a relationship that a grooming shop or mobile grooming proprietor provides detailed instructions on how and when the pet groomer provides service to clients, the pet groomer will be classified as an employee. The existence of manuals or instructions, (i.e., set order in which services are performed, oral or written reports, designated travel routes, etc.,) telling the pet groomer how to provide the services is strong evidence that the proprietor is providing direction and control over how and when the services are provided. If, however, it is not clear on the face of the relationship whether the pet groomer is an independent contractor or an employee, various "secondary" factors are considered in order to establish whether or not direction and control exists.

Other factors include:

Equipment. Where the shop or mobile grooming business proprietor furnishes, repairs, and maintains all of the equipment (cages, cage air dryers, tables, bathing tubs) it is evidence of an employment relationship. Where the individual pet groomer furnishes repairs, and maintains equipment other than hand tools such as combs, brushes, clippers, and blowers, it is evidence of an independent contractor relationship.

Advertising . Where the proprietor plans and bears the cost of advertising, which may include the setting of special prices, the use of coupons and other promotional offers, provides the business cards for the establishment, it is evidence of an employment relationship. Where the individual pet groomers pay for their own advertising, set their own special prices, make their own promotional offers, and provide their own business cards, it is evidence of independence.

Prices . Where the proprietor sets the prices, it is evidence of employment. Where the individual pet groomers set prices, it is evidence of independence. (When all pet groomers in a multi-station shop or multi-van mobile grooming business charge the same prices, it creates a presumption that the proprietor has established the price structure.)

Business Hours and Appointments. Where the proprietor establishes the business hours and requires either that the individual pet groomers be present during those hours or that they only take appointments during those hours, it is evidence of employment. Where the individual pet groomers set their own appointments and are not bound by the business hours of the establishment, it is evidence of independence.

Cashiering. Where there is a single cash register and the proprietor or his or her agent collects all receipts, makes decisions about extending credit, and is responsible for any bad checks, it is evidence of employment. Where each pet groomer is responsible for collecting his or her own fees, may make decisions about extending credit, and is individually responsible for any unpaid credit accounts and bad checks, it is evidence of independence.

Method of Payment. Where the proprietor pays the pet groomers on a percentage (commission) or hourly basis, it is evidence of employment. Where pet groomers retain the fees paid for their services and pay the proprietor a fixed monthly rental fee (which may be augmented by a pro rata share of other expenses), it is evidence of independence.

Supplies. Where the proprietor provides shampoo, towels, and all other necessary supplies for the performance services, and the individual pet groomers are required to use the materials provided by the proprietor, it is evidence of employment. Where the pet groomers are free to purchase their own supplies and are not required to use or pay for supplies provided by the proprietor, it is evidence of independence.

Integration. Where the services of pet groomers is an integral and necessary part of the proprietor’s business, it is evidence of employment. Where the pet groomer’s services are not an integral part of the proprietor’s business, i.e., a groomer working in a separate part of a pet store where the groomers services only account for a small portion of the overall pet store’s revenue and the proprietor is not in the business of pet grooming, it is evidence of independence.

Personal Services. Where the proprietor can require the pet groomer to perform his or her services personally, it is evidence of employment. Where the pet groomer can delegate someone else to perform their services, it is evidence of independence.

Insurance. Where the proprietor pays for and provides an errors and omissions liability insurance policy for the pet groomer’s services, it is evidence of employment. Where the pet groomers pay for and provide their own errors and omissions liability insurance policy for their services, it is evidence of independence.

Licenses. Where the proprietor has appropriate city and county business licenses, and where the individual pet groomers do not have such licenses, it is evidence of employment. Where the individual pet groomers have city and county business licenses, it is evidence of independence.

Contracts. Where there is a signed contract, lease agreement, or station rental agreement which provides for a fixed monthly rental fee, and under which the pet groomers are provided with keys to the shop and have legal right to enter and serve clients at times of their choosing, it is evidence of independence. Where there is no signed agreement or where the agreement does not provide for a fixed monthly rental or where the pet groomers do not have the legal right to see clients at times of their own choosing, it is evidence of employment.

Profit or Loss. Where the pet groomer can make business decisions which would enable him or her to earn a profit in addition to the payment for the work or incur a financial loss due to investments or liabilities, other than the risk that he or she won’t get paid, it is evidence of independence. Where there is no ability to earn a profit or incur a financial loss, it is evidence of employment.

It is acknowledged that not all factors may be present in every situation. Also, no one factor may be conclusive of a determination of the working relationship. In a lot of cases, some of the factors listed above will point toward independence and some will point toward an employee relationship. When this occurs, all of the factors will be weighed together and judgment is exercised to determine the actual relationship.

The following are examples of how the California Unemployment Insurance Appeals Board has decided in cases involving dog groomers:

Groomers were held to be employees where the owner of business provided the facilities and equipment (except for the groomers hand tools), paid for all advertising, assigned the work, set the prices to be charged for the services, collected all the fees, and paid the groomers 60 percent of the prices charged. The groomers were not engaged in a business of their own, did no advertising, worked during the hours the shop was open, and their services could be terminated at will.

Groomer was held to be an employee where groomer worked on the owner’s premises using the equipment and tools of the shop, was trained by the owner, worked during the hours that the shop was open. Fees charged were collected by the owner, who paid the groomer 60 percent of the grooming fee. There was no written contract, and the owner could terminate the services at will.

Groomers were held to be independent contractors where the owner of a pet store provided workspace, cages, blow dryers, towels telephone and shampoo, did advertising, and provided insurance coverage. Groomers operated under a written contract that gave them complete control over their services, and the contract provided for written notice before termination. They made their own appointments, set their own fees, and provided their hand tools. They were paid by the job, and while the fees were collected by the owner, the money was kept in a separate register for the groomers. They received Federal Forms 1099 for their services, and filed their tax returns as self-employed persons. They did their own laundry and paid for bathers. The grooming entrance had a separate entrance, and the groomers kept different hours than the store. It was held that the groomer was engaged in a separate and distinct occupation and that grooming was only a small part of the store owner’s business.

Groomers were held to be independent contractors where the owner was primarily engaged in the operation of a kennel and grooming was a collateral service. Groomers participated with the owner in setting prices, set their own appointments, and decided when to take a day off. They had their own customer following whom they brought with them to the job, and if they left, they would take their customers with them. Customers would go directly to the groomer with any complaints. They were free to charge more for tougher jobs.

As the above four cases indicate, whether or not a pet groomer is an employee is not always easy to determine. If the status of your workers is unclear, you may request a written ruling from California’s Employment Development Department (EDD). You may also obtain additional information from EDD by visiting EDD’s website , or by calling EDD Payroll Tax Information and Assistance listing in your telephone book, or by calling (916) 464-3502 for a Employment Determination Guide (DE 38) and/or the information sheet: Employment Work Status Determination (DE 231ES). The DE 38 is a self-assessment risk analysis guide to help employers determine if an employment relationship exists.

Copyright 2007 Find A Groomer Inc. All rights reserved