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  1. #1

    Default Beauty Salon Independent Contractors are Being Treated Like Employees

    My question involves business law in the state of: California

    Hello. I am a senior level hairstylist at a well-known privately owned hair salon in Los Angeles. We are told that we are "Independent Contractors" and that the benefit of that is that we are able to utilize deductions at tax time and make our own schedules, etc (although junior level stylists and assistants are expected to work a specific number of days and hours). We are given a 1099 in January for the prior year.

    All clients book their appointments and pay for services and product purchases through a central front desk receptionist. All calculations are done regarding tips, services and retail sales and we are given a paycheck every 2 weeks and are paid a percentage (commission) on services and retail sales. Deductions from our pay (after the salon takes their percentage) include workman's comp insurance (around 4.8%), and all credit card charge fees. Tips are paid to us in cash daily and are not reflected in the paycheck. We all hold keys to the salon although there are clearly defined business hours in which front desk support will (or will not) be available. The last client must pay before the receptionist leaves, wether or not the stylist is finished with the service.
    My questions are:

    1: Are we indeed IC, or rather employees? It seems that clients paying the desk and thus stylists getting a paycheck for our commission renders us employees of sorts. A true IC would collect the client's money, then pay the salon their "rent". And if we are employees, are there not labor laws that entitle us to hourly pay, paid breaks, etc? I am loosely aware of AB1513 and am not sure how that impacts us now.

    2: The workman's comp deduction. We were told in July 2016 that there was a "new law" that all salons were required to charge their staff for this or face a hefty fine. When I dug into this it seems that yes, EMPLOYEES must all have this (paid by the employer). But if we are true IC, then we aren't employees and therefore not required to carry our own workman's comp insurance. This leads me to believe that since all employees are required to have it that our salon is simply stretching the truth and therefore getting us to pay something that they are supposed to be paying instead. They tried to say that as IC, we are "our own employees"...

    3: If we are found to be employees, are we not legally entitled to hourly pay in addition to commission pay? And retroactive?

    In summary, I feel like the salon is using the IC label to basically utilize the loophole of not having to pay taxes on us, to not have to pay hourly and also to pass the workman's comp insurance that THEY as employers are required to carry, on to us, telling us that we have to have it and pay for it. I am smelling a RAT.
    Thanks for your time.

  2. #2
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    Mar 2013
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    Default Re: Beauty Salon Owners and Illegal Pay Practices.independent Contractor or Employee

    This seems to be common with salons. What you describe leads me also to believe that you are being illegally misclassified. However, the line between IC and employee is often blurred so the best thing I suggest you do is contact the CA Department of Industrial Relations and see about getting an investigation started:

    http://www.dir.ca.gov/dlse/FAQ_Indep...Contractor.htm

  3. #3

    Default Re: Beauty Salon Owners and Illegal Pay Practices.independent Contractor or Employee

    Thanks so much for your quick response. I know the beauty industry has been doing this for years, to their benefit..walking both sides of the line, so to speak.
    Additionally, how can I find out about the workman's comp portion of my question? They are deducting that from our pay, I also believe, illegally.

  4. #4
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    Default Re: Beauty Salon Owners and Illegal Pay Practices.independent Contractor or Employee

    Quote Quoting beautyburnout
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    Additionally, how can I find out about the workman's comp portion of my question? They are deducting that from our pay, I also believe, illegally.
    Same place.

    If it turns out that you are an employee, the state will take care of that, too.

    By the way, if you don't agree with the salon's practice, you are free to leave any time you like.

    The salon owners only get away with this as long as the workers go along with it.

  5. #5
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    Default Re: Beauty Salon Owners and Illegal Pay Practices.independent Contractor or Employee

    1. not always -- sometimes systems are in place regardless of employee/IC. Do they have any hairdressers that are employees doing the same job as the ICs?

    2.The salon is responsible for making sure the ICs have workers compensation insurance. (When they are audited, they must either show proof of IC's own insurance OR they are charged for them). So it sounds like charging it directly through your income assures them that it is covered. The question would be if they would let you go out and get your own policy and stop that deduction? That would be a red flag to the IC relationship if they said no.

    Each IC/Employee analysis is based on different details. Do you have a written contract? Can you work elsewhere at the same time (either for yourself or at another place)? Can you refuse clients?

    3. If you were found to be an employee, the state should look at what you have already been paid in commissions and if that is already more than minimum wage/OT (and I would hope since you have been paying all your FICA that it is much more than minimum wage), I doubt you would recover any more wages. What you might recover is the employer portion of FICA and credit in unemployment wages to the state so that if you had the ability to apply for unemployment should you be let go through no fault of your own.

    Hairdressers can be setup in such a way that an IC is legal, but the company has to be very careful.... Honestly from the details you have given it could go either way.

  6. #6
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    Default Re: Beauty Salon Owners and Illegal Pay Practices.independent Contractor or Employee

    I will point out that a sole proprietor with no employees is exempt from workers' compensation laws in CA and every other state. So to say on the one hand that you are an IC and then charge you for WC is illegal unless you also have employees of your own working at the salon. You would need WC to cover them.

    This is a game companies play all the time to get away with not paying benefits and taxes to/for actual employees. But it really only matter when it matters.

    I went back to work after retiring. I was board and wanted to get out of the house. I was offered a very good job and I took it. But the company said that they would hire me as an IC. I already knew that my duties and work would make me an employee under the laws of NJ but I didn't care because it doesn't matter yet. It's good work and very good pay but I receive absolutely no benefits and I pay both sides of the SS equation. But I boned up on the labor laws.

    Benefits (vacation and personal time off, pensions, SS tax, insurance, workman's' comp, the ability to get unemployment, etc.) from a company if you are an employee averages, national wide, about an additional 30% of your salary. An IC gets zero.

    In NJ we have what the labor department calls the ABC test to see if you are an employee or an IC and I assume it is not that different or at all different in every state. Here it is:

    A. “Such individual has been and will continue to be free from control or direction over the performance of such service, both under his contract of service and in fact;” and

    B. “Such service is either outside the usual course of the business for which such service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed.” This is a two-part test and satisfaction of either part will meet the requirement. Service that is essential to the nature of the business does not meet the first part of this test, regardless of whether any employee performs the same type of service. If there is no fixed place of business, services performed in whole or in part at a temporary work site or an area where customers or prospective customers are located will not meet the second part of this test;

    and

    C. “Such individual is customarily engaged in an independently established trade, occupation, profession or business.” This requires the individual’s business activity to exist and continue to exist independently of, and apart from, the particular service relationship; it must be a stable, lasting enterprise that will survive termination of the relationship.
    If any of the answers is a no, then you are an employee and not an IC.

    So in your case, you would be an employee. (A) You are not free to control what you do. The solon books your appointments and you have no project to complete. Your service is ongoing. (B) The service you provide is not outside of the usual course of business and it is provided at the place of employment. You are providing the exact service that the business is in. And (C) You are (presumably) not working for other companies at the same time that you are working at your present place of employment.

    So if you were in NJ, you would be classified an employee and subject to all the rules and regulation on non-exempt employees under federal and state law.

    If you like your job and are willing to pay for the WC and all the things like rent then do nothing. Like I said, "It only matters when it matters" like if they terminate your employment.

  7. #7
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    Default Re: Beauty Salon Owners and Illegal Pay Practices.independent Contractor or Employee

    I suspect that the "central front desk receptionist" is at least 1 employee so it doesn't sound like an owner/sole proprietor unless the owner is doing those duties. So they would need WC for all employees and then proof of insurance from all ICs, even if that IC themselves is a sole proprietor....because if they don't pay it the salon owner must under the owners WC policy.

    You can't use NJ's definitions in CA -- but do agree they would fail at least B of the NJ test even though it isn't applicable to CA

    here is a link to the CA discussion of the matter: https://www.dir.ca.gov/dlse/faq_inde...contractor.htm They do state in there "Even where there is an absence of control over work details, an employer-employee relationship will be found if (1) the principal retains pervasive control over the operation as a whole, (2) the worker's duties are an integral part of the operation, and (3) the nature of the work makes detailed control unnecessary. (Yellow Cab Cooperative v. Workers Compensation Appeals Board (1991) 226 Cal.App.3d 1288)" I do think they will have a tough time passing #2 in CA, but again it gets back to details of the specific arrangement as I haven't looked up the details fo that case law. Only the DLSE can say for sure how they would rule.

  8. #8
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    Default Re: Beauty Salon Owners and Illegal Pay Practices.independent Contractor or Employee

    They would also fail A because they don't control the manner and means by which the work is preformed under CA law. OP is subject to the rules and manner of the solon.


    The basic test for determining whether a worker is an independent contractor or an employee is whether the principal has the right to control the manner and means by which the work is performed. When the principal has the "right of control," the worker will be an employee even if the principal never actually exercises the control. If the principal does not have the right of control, the worker will generally be an independent contractor.
    http://www.edd.ca.gov/pdf_pub_ctr/de38.pdf

    The issue of WC is for the contractor and not the solon. The solon needs WC for all its employees. But the IC doesn't if they are really ICs. If OP is an independent contractor, then there is no WC to protect them. You can't have it both ways.

  9. #9
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    Default Re: Beauty Salon Owners and Illegal Pay Practices.independent Contractor or Employee

    California EED has a six page info sheet on this particular issue. http://www.edd.ca.gov/pdf_pub_ctr/de231c.pdf It lists 14 elements and the weight each element is given.

  10. #10
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    Default Re: Beauty Salon Owners and Illegal Pay Practices.independent Contractor or Employee

    Quote Quoting budwad
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    They would also fail A because they don't control the manner and means by which the work is preformed under CA law. OP is subject to the rules and manner of the solon.


    http://www.edd.ca.gov/pdf_pub_ctr/de38.pdf

    The issue of WC is for the contractor and not the solon. The solon needs WC for all its employees. But the IC doesn't if they are really ICs. If OP is an independent contractor, then there is no WC to protect them. You can't have it both ways.
    That's interesting because in my state the owner would have to declare the ICs on a WC audit and show proof of business insurance so as to not have to pay premiums for them -- Surprised that CA would be different -- and requiring the insurance of the ICs would be one more way to show they are not employees.

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