Labor and taxation agencies in many U.S. states are now increasing examining on nail and hair salons about tax and labor laws related to this career. The above examines originating from northern California in early 2008 with the result that in only a few days, hundreds of nail and hair salons owned by Vietnamese were badly punished because of not fully understand the labor and taxation laws. Recently, the examines have spread to large and small cities in almost every state in the United States, causing many penalties to Vietnamese salons due to the troubles of the taxation and labor laws issues related to the hiring workers.
The purpose of the inspection of tax and labor agency focused on wages and benefits issues for hair and nail technician. Under current laws, hair or nail salon workers, in the United States, depending on the working environment, can be assigned as an employee, or an independently worker (independent contractor). And this assignment is an important key to create complex differences in tax matters and labor rules for workers as well as the owner.
The determination of the difference between "employee" and "independent contractor" in accordance with labor and taxation law is very complex issues that nail and hair salon owners are easy to be punished if they did not know. Although the law allows the nail and hair technician can work as an "employee" or an "independent contractor", the definition for the difference between "employee" and "independent contractor" is still very complex, derived from the difference interpretations between the Internal Revenue Service (IRS) and taxation and labor agencies in each state. In addition, rules relating to the practice of workers were set by beauty industry councils in each state (State Board), are creating more conflict points to the problem mentioned above.
However, whether workers are "employee" or "independent contractor", all are governed by taxation and labor laws that shop owners must understand and abide by to avoid being fined.
If a worker in nail or hair salon was identified as "employee", the owner will use form W - 2 to pay for workers and has responsible to deduct an amount of workers salary to pay for income taxes, along with taxes regulated by federal state based on that person's salary. For Social Security and Medicare taxes under the Federal Insurance Contributions Act (FICA) law, along with the tax deduction on salary of the "employee" for submission to the IRS, all salon owners must also contribute an amount of tax equal to "employee" deduction. In addition, the owner must also pay for unemployment benefits of the "employee" under the provisions of the Federal Unemployment Tax Act (FUTA).
In case worker is identified as "independent contractor", the shopkeeper will use form 1099 - MISC to pay for workers, and tax issues that would apply to that one is very different from the "employee ". "Independent contractor" is like freelancers, will receive 100 % of the amount of tax not deducted, then they have to state their total annual income themselves, they have right to be deducted expenses related to their jobs, and are obligated to pay taxes under the provisions of federal and state law where practicing. Therefore, if the workers are "independent contractor", owner will not be bound by the obligations of tax applicable for "employee" as mentioned above.
In case workers are considered as "employee", labor law requires owner to pay hourly wage at least equal to the minimum (Minimum Wage) regulated by the federal government, or at minimum wage specified by local state if it is higher than wage levels set by federal. In addition, owner will also have to pay extra wages when the "employee" works overtime in accordance to existing laws. Salon owner may also pay the "employee" in commission. However, if in accounting period the total amount of commission paid to the "employee" is less than the minimum hourly wage based on the number of hours worked, the employer must pay the amount equal to the difference the minimum wage is now applied in the state, including overtime wage. Besides salary issues, labor laws regulate some other benefits for the "employee" while working, such as to have a break, lunch time, etc. ... Otherwise, labor laws in most states oblige all employers to buy insurance (Workers Compensation Insurance) for "employee".
In case workers are identified as "independent contractor", the shop owner will not have to comply with the labor laws applicable to "employee" as summarized above.
Why nail salons fined?
Most nail and hair salons fined for not understanding the taxation and labor laws applied for worker in salon. Many shop owners still use Form 1099 - MISC to pay wages to workers, considering workers as "independent contractor". In principle, when workers are "independent contractor", owner is not required to follow the taxation and labor rules apply to "employee". An important issue is under current law, owner in this case have a responsibility to prove that workers are "independent contractor" based on conditions and standards set by the tax and labor agency. If the agency does not agree with the owner's proof, the worker will be considered as "employee", and so the owner will be fined for violating taxation and labor laws.
For workers who are considered as "employee", salon owner will use form W- 2 to pay for workers according to tax laws, these salons will naturally be governed by the rules applied for "employee", such as minimum wage issues, overtime hours, break time and lunch, labor insurance, etc ... If not obey and apply the full provisions mentioned, salon owner will be fined for violating labor laws.
In summary, nail and hair salons are now the examining target of the taxation and labor agency throughout states, and there are many shops have been fined for not understanding taxation and labor laws applied for workers in the salon. It should be noted that depending on the time the store has been operated, many shop owners violated taxation and labor laws were fined the huge sum of money. And under current law, the fines set by taxation and labor agencies debt will be determined by a court order, and all personal property will become collateral for fines.
In difficult economic situation and with the examines of taxation and labor agency aimed at nail and hair salon like present, you need pay attention to have clearly understand of the applicable law, and have the necessary and sufficient prepare to avoid regrettable penalties.