By Jennifer Bishop-Jenkins, ICMG
September 30, 2016
In the last four decades our grooming industry has experienced a notably rapid rise from relatively undervalued to highly professionalized. The impressive industry expansion and professionalization speaks well of all of us. I give special credit to our industry leaders who have urged us all to adopt better business acumen and best practices every step of the way.
Rapid change can also contribute to some confusion and uncertainty. One ongoing area of confusion and misinformation remains the appropriate use of the status of “Independent Contractor” as versus “Employee” in a grooming business. I had heard so many different opinions and interpretations of what the law allowed, that when I opened love fur Dogs in 2014, I started making phone calls to get some of my questions answered.
CAVEAT EMPTOR
Here comes the disclaimer: I am a Master Groomer, not a tax lawyer. This article is no substitute for legal advice from a tax attorney. but I have interviewed staff at the IRS and state tax agents in my home state of Illinois, private tax lawyers, and CPA’s (Certified Public Accountants). I pass on here what they have told me for general educational purposes, while of course urging everyone to consult their own business attorneys for legal advice in their own individual situations and states.
Many groomers across the county are still being paid as independent contractors, but several experts I interviewed observed that many may not be doing so within the boundaries of the law or even within their own best interests. IRS Employees, or your state tax administrators, are always available to answer your questions. and there are many excellent and inexpensive tax lawyers and certified Public Accountants (CPA) who will guide you in the law, and advise you for your own professional benefit.
DON’T let THIS happen TO YOU
A story from personal experience illustrates the importance of getting this right:
A few years ago I helped out temporarily at a grooming shop in a nearby town, filling in for an absent groomer for two days. While scissoring away at my grooming table, I made conversation with the very talented groomer next to me.
She told me she had been working there for 29 years. I let her know how impressed I was—staying at one business that long! since we were fairly close in age, both in our 50s, we started chatting about our mutual dreams for retirement, during which she stated, “Yes, I am going to have to start saving for that pretty soon!”
She then revealed to me that in three decades of working as a commissioned groomer there, being paid cash under the table, she had never paid into social security, and had no health care nor retirement savings. None.
As we chatted it became clear that she did not even know that we all only receive Social security at retirement if we have been paying into the system all our working life. She thought she would be collecting at retirement—but had never paid into it. She had been working for cash all her life, was 59 years old and needed knee replacement. Speechless and sad, I could only wish her well and gave her the name of my wonderful CPA.
This groomer was neither legal employee nor legal independent contractor. This groomer had, however, cooperated for three decades with a system orchestrated by her employer that was completely illegal for both of them. but she was the one likely to suffer the most devastating consequences.
IRS GUIDELINES
The definition of an independent contractor at the federal level, surprisingly, is not spelled out in statute—it is defined only by case law. There have been approximately 20 or so cases where courts have ruled on a dispute over whether or not a worker was an employee or an independent contractor. Those rulings have been turned into a set of questions on an IRS form that spells out the criteria for anyone claiming work as an independent contractor.
The form needed is the SS-8 and is available at www.irs.gov by typing SS-8 into the search box at the top of the IRS home page.
The form asks questions around the central theme of control – who makes decisions? Which direction does the money flow? how does the worker receive assignments? Whom does the customer pay? who provides the customers? who sets the hours and the rules of the business? The independent contractor should be the one in control, who receives all the customer monies directly, who owns and provides the customers, etc.
Here is one example of a federally legal independent contractor: The groomer could rent a station from a facility owner for a flat fee, do their own advertising, set their own hours and work standards, and not report to the owner of the facility. There could be a written contract defining the relationship and, most importantly, the groomer would collect monies directly from customers.
In that same facility, there would be no salaried employees, only other inull