It’s very common for tattoo businesses to incorporate independent contractors as “guest artists” for their customers. However, a lot of tattoo studio owners may be unclear about the differences between hiring employees vs. independent contractors. Depending on the work arrangement you have with a contractor, the IRS might look at your individual situation and classify a worker as an employee. This can expose your business to potentially hefty fines and legal problems. So, for your purposes as a tattoo studio owner, what is the difference between being an independent contractor and an employee?
What Classifies a Worker as an Employee?
It’s safe to say that a person is an employee if the company they are working for does the following:
- Determines when, where and how to work
- Controls services offered
- Controls how the worker is paid
- Provides paid leave benefits and other employee-type benefits
- Pays the worker through company payroll, withholds (and remits) employee tax obligations and assumes liability for employer matching taxes
- Provides tools/equipment necessary to perform job responsibilities
- Sets standards for how work is performed and determines the longevity of employment
What Classifies a Worker as an Independent Contractor?
Independent contractor rights are slightly different from those of an employee. For instance, an independent contractor determines their availability to work and how they work. They control the financial aspects of their business and are usually paid a flat fee for services. The business does not withhold any taxes when paying an independent contractor. The responsibility for reporting income and paying taxes falls squarely on the independent contractor. In addition, an independent contractor is free to advertise and to pursue additional business opportunities as well as maintain their own business location.
A tattoo artist who rents a chair in your business studio, the painter you hire to repaint the studio’s walls, and the freelance writer you pay to spiff up your website are all independent contractor examples.
It would be nice if those were the sole deciding factors in determining whether a worker is an independent contractor, but unfortunately, there are a lot of additional complexities that the IRS will look at. This is to ensure that the employer and contractor are not avoiding taxes through the way the relationship is structured. In addition, the rules governing employees vs. independent contractors can vary widely depending on what state you live in.
Additional Independent Contractor Factors
You might consider a worker to be an independent contractor, only to discover during an IRS audit that the worker is technically an employee due to certain aspects of the business relationship. It’s important that you understand the areas that the IRS will look at when weighing a decision. Here are some additional factors that could cause the IRS to classify your “independent contractor” as an employee:
- Control of Behavior: How much control over how the worker does the job do you have? Do you control their hours, the tools they use, routines and procedures they employ, and do you require them to use certain tools or supplies? The IRS will look at these questions.
- Financial Control: Are there business aspects of the worker’s job that are under your control as a business owner? Do you reimburse them for expenses? Do you provide all the tools and equipment for them to carry out the job duties, or is the worker responsible for those things?
- Business Relationship: How do you and the worker view the relationship? Do both sides consider it an independent contractor relationship or is the worker under the impression that he or she is an employee? Do you have a contract that spells out the nature of the business relationship?
Tattoo Artist Liability Insurance
- Employer pays taxes when worker is an employee (W-2)
- Worker pays taxes when the worker is an independent contractor (1099)
- The IRS may closely examine the working relationship
One thing that remains constant for you as a business owner, is the need for liability insurance remains the same, whether you utilize employees or contractors.
Contact Marine Agency today at 800-763-4775 for an insurance quote.
Your need for liability insurance remains the same, whether you utilize employees or contractors.