Independent Contractor Status Confusion

From a financial point of view this may be the most important career information you ever read. It is alarming how many grooming employers advise you to be hired on an independent contractor basis, yet the arrangement doesn’t meet legal requirements. It may take years but trouble usually comes knocking on the doors of these establishments. The impact strikes both employers and independent contractors who are actually employees. Yes, we are being outspoken when we say that some of these employers know they are doing the wrong thing. Yet, they do it. What about the repercussions for employees when authorities get involved to correct the employer? These employers put employees at risk of audits, penalties and fines too. That's not ethical. There we said it! Be careful. The sad fact is that the IRS is reporting that the current recession has sparked many thousands of employers to switch employees to independent contractor basis in order to save money. That would be fine except their operations are not adapted to meet legal requirements. They operate the same and simply say, "You are now an independent contractor." Putting a new label on the working relationship is not how it works.  There are grooming operations facing the music with the IRS and sometimes state revenue agencies over this issue every year. This is an important warning.
 

The real cost of payroll is not generally known by groomers without experience as employers. If gross payroll wages are $500 for the week, the real cost of payroll for the employer is closer to $625 to $650 after account for the cost of worker’s compensation, unemployment insurance and other employer contribution taxes. Can you imagine the appeal of saving 25% to 30% every payroll? So why don’t more owners go for the savings? They are compliant with employment regulations. More than 90% of all groomers working under independent contractor status today are doing so illegally.

Do you think the government lets this slide by? No, we’ve gotten hundreds of calls from business owners in trouble with the IRS and state agencies for independent contractor violations. They typically end up in court and suffer penalties, interest and fines that may keep them encumbered for years.

What about the independent contractor who was really an employee. Well, they get into trouble too. Here’s why, all independent contractors must pay self-employment taxes. The independent contractor status shifts the burden for employer contributions from the business owner to the groomer working as an “IC.” Generally speaking, independent contractor status means you are self-employed.

Now how many pet groomers working as independent contractors file the correct tax forms and pay self-employment taxes? Thousands have been caught not doing so thinking they were earning “W-2 wages” like employees. Therefore, both parties are at fault and both face the music.

Why do so many pet groomers accept independent contractor status? They don’t know better. However, that excuse won’t get you out of trouble, including fines, penalties and interest. Others naively believe that business owners must be authorities on employment law and do as they are told. Same result. We know groomers who said being an independent contractor made them feel more important. That’s fine, but you better pay the extra cost for the pride. You are liable for expensive self-employment taxes. In fact, independent contractors may require business insurance, a business telephone and business permits or licenses. Are you really making enough extra income as an independent contractor to account for the added costs? Rarely, the full benefit was heisted away by the hidden employer. Most employers don’t give you a higher commission when paid as an “IC.” It really is a heist.

Not all business owners are intentionally pulling a scam. Some really don’t know the legal differences between employees and independent contractors. That’s no excuse. Every business owner (including true independents) should have legal and accounting counsel. Seek professional determinations to maintain compliance. Anyone who doesn’t know if they are actually legally classified an employee or independent contractor can refer to IRS publications. In fact, you can complete a SS-8 form and the IRS will provide a written determination. The same is true of the tax agencies part of your state government. Keep in mind you may be considered an independent contractor by state government, but not the federal government, and vice versa.

• A mobile groomer rents a mobile van. The owner of the van provides no clientele, advertising or scheduling services. The renter operates his or her own business using the van and pays separately for operating expenses. The owner of the van does not tell the renter when and where to work.
• A pet groomer rents a table in a grooming business. There are clear indicators that two separate businesses are being operated by the renter and landlord. The renter sets their work schedule, owns their clientele and has evidence of paying other business operating costs such as business insurance, telephone and advertising.

If you are looking for employment as a pet groomer many independent grooming business owners may approach you to accept an independent contractor arrangement. Remember to review the terms with a reputable attorney or Certified Public Accountant with small business experience. Never accept the business owner’s determination as fact. Whether you realize it or not, you are legally responsible for what you accept even if the employer is telling you an outright lie. You won’t get off the hook for back taxes, penalties, interest and fines.

We are making this serious situation very clear in this career report because the independent contractor basis is highly-abused in pet grooming. Probably 90% of today’s independent contractor groomers are actually employees. The solution is simple for these employers, account for the added costs of payroll in your grooming fees and become compliant.

Some of you are going to be self-employed after school, or after getting hands-on work experience. Let's take a look at self-employment income as a pet groomer. Click the Next bone now.