ForumsTaxes and Payroll

I am an Illinois CPA, but the answer in pretty much the same far and wide. It depends.

For the unrelated workers, it is common in the nail and hair salon industries to treat them as independent contractors if they meet several tests, including but not limited to:

• Who sets their hours? (other than the limitation of shop hours)
• Who sets their rates?
• Do they have their own equipment?
• Do they pay rent or a slot fee?
• Do they have any non-compete agreements?
• Do they have a book of business that follows them?
• Do they have their own insurance, reimburse you for coverage or pay it through their rents?

=>If you call the shots, they should be W-2 employees. If not, they may be IC's. Receipts being collected through the register would not help, but it isn't a deal breaker.

Treating them as W-2 employees will require the filing of payroll tax returns and payment Federal and state unemployment taxes as well as Social Security and Medicare taxes.

If the working spouses are managing the shop in general and protecting the house's interests, they should probably be W-2. If their management responsibilities are minimal and they are principally performing services, you could probably treat them like other services providers. You might want to qualify them one way or another depending on your other goals and other factors.

• Is the business profitable?
• Do you want to establish a retirement plan?
• Do you want to establish a group health plan?
• Who do you want to receive benefits, the owner spouses or participating spouses?

Separately, you may want to consider electing to have the LLC taxed as a corporation and then maybe elect to be taxed as an S Corp. There are advantages and disadvantages to the default partnership taxation as well as an S Corp or regular corporation.

Finally, I am inclined to ask why the participating spouses are not the owners? Do you keep your assets separate in general? Do you file separately? I can see some situations where it would be beneficial and others where it wouldn't. Please feel free to email me at dublincpa@gmail.com if you have any comments or questions you prefer not to post publicly.

Good luck with the new enterprise. I hope that I haven't made you regret going into business.

Thanks both for your replies.

LUCKIEST, yes if you happen to have a payroll services that you can recommend, I certain appreciate it.

dublincpa, to answer your questions...

They work by the show hours, but choose their own days off.

The shop sets the rates and they take in a percentage of the total amount serviced by them.

Yes they have their own equipment.

No they don't pay rent. Basically, as above, they just take a percentage of whatever they "make"

No agreements.

No book of business.

They don't have their own insurance.

How it works is customers, when they come in, are 'distributed' evenly to the staff based on what they need done. Then each staff person service the customer and writes up a ticket for what the services were and for the total amount (based on the set price of the shop).

The spouses also perform services, but only when all the staff are busy, otherwise they're just generally there for just looking after the shop, cleaning, keeping things in placed, etc...

As for why they're not owners. To be honest, that never really came up. The four of us sat down and discussed it ahead of time and just decided it's best and simplest to just put the names of the two male spouses on all paperworks just for simplicity and not requiring all 4 to sign everything, every time. This is not a real big deal to us.

Thanks so much for you help, and you certainly didn't discourage us at all.

Thanks very much for your help.

Hi Schatzie I would love to speak with you about your business!! Please contact me with a business # to reach you.

Marcus Walker