27 May 2022

Monday Biz Tips! The Truth about Payroll Taxes: Are My Service Providers 1099 or W2?

Every year salon owners attend The Summit and disclose that they employ 1099 service providers.

First, it is impossible to “employ” 1099 service providers, as the definition of 1099 is a tax form that reports the year-end summary of all non-employee compensation. In fact, the form is titled “1099-Misc” which implies miscellaneous income.

As an owner and leader of your company, it is your responsibility to understand and comply with state and federal employment and tax laws. As a simple test, consider this: in most cases, if you set the prices (determine how to charge the customers) and the hours of the salon, your service providers will be classified as employees and should be issued a W2 on an annual basis.

Employers are responsible for remitting taxes and matching FICA on behalf of their employees. FICA is the acronym for Federal Insurance Contributions Act. It requires employers to withhold Social Security and Medicare taxes from their employees’ wages (wages, salaries, commissions, bonuses, etc.) and to match the amounts withheld.

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