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Are the hair stylists working for you as employees or as independent contractors?
Hello again Annette,
Even if you just pay them a commission based on a percentage of the revenue they bring in, that does not mean they are not employees.
There are many different things that determine whether or not someone is an employee or an independent contractor. But for the most part, an employee is someone who works under your control, works the schedule that you require, and you provide the supplies being used. An independent contractor would be someone who rents booth space from you, works his own schedule, and supplies all of his own shampoos, hair colors and other supplies.
If the people working for you fit the definition of employee, then regardless of whether you pay them a set hourly wage or if you pay them a commission, you must withhold taxes from their checks. You would be required to withhold federal taxes, state taxes (although if you are in FL then state taxes do not apply), Social Security taxes and Medicare taxes. As the employer, you would also have to match the SS and Medicare taxes on your own. You would also be required to pay in to the federal and state unemployment funds on their behalf and also cover them with workman's compensation insurance. You would issue them a W-2 form at the end of the year to show the total amount of money they earned and the total in taxes that were withheld from their checks.
If you want to classify them instead as independent contractors, then the people who work for you do not necessarily have to rent booth space from you. But they would have to have the flexibility of setting their own schedules and prices and they would supply all of their own products. In exchange, you would withhold a certain percentage of their sales to cover the overhead of the space they used and your percentage of the profits. In that case you would just issue them a 1099 form at the end of the year to report their earnings, and would not withhold any taxes.
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Thank you Annette