20-Factor Test | Sovereign Stylist

According to the Internal Revenue Service, a worker can only be classified one of two ways; employee or independent contractor. It is critical that business owners correctly determine whether the individuals providing services are employees or independent contractors. Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors.

The IRS 20-Factor Test is a self-administered “test” consisting of 20 factors for consideration. Based on the answers to those factors, a salon owner or stylist can determine the classification of a worker. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another. The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control.

We will now take a look at each of the 20 factors and relate them to the salon industry for better understanding.

Instruction - A worker who is required to comply with other persons’ instructions about when, where, and how he or she is to work is ordinarily an employee. The control factor is present if the person or persons for whom the services are performed have the right to require compliance with instructions.
1. If the salon owner retains the right to require compliance with their instructions, this control factor is present.
2. Questions to ask:
  1. Does the owner provide you with a schedule or have to “approve” your schedule telling you when to work?
  2. Does the salon owner tell you which station/booth/suite to work in/at?
  3. Does the salon owner tell you how to perform particular tasks?
    1. For example, you are required to blowdry/style all clients, you are required to do a scalp massage when shampooing, etc.
3. Do you have to follow opening or closing procedures?
4. Does the salon owner determine what services you will provide for clients?
Training - Training a worker by requiring an experienced employee to work with the worker, by corresponding with the worker, by requiring the worker to attend meetings, or by using other methods, indicates that the person or persons for whom the services are performed want the services performed in a particular method or manner.
1. An independent contractor is only responsible for the attainment of a result. They are not to be told specifically how to attain that result. The only thing that matters is that the service they were contracted for is completed in a satisfactory manner.
2. Questions to ask:
  1. Were you required to assist or apprentice as a condition of your position?
  2. Are you required to attend mandatory meetings?
  3. Are you required to attend specific continuing education classes?
  4. Have you been required to become certified in particular brands, manufacturers, techniques, &/or services?
  5. For example, required to become certified in Babe Hair extensions, required to become certified Aveda colorist, etc.
Integration - Integration of the worker's services into the business operations generally shows that the worker is subject to direction and control. When the success or continuation of a business depends to an appreciable degree upon the performance of certain services, the workers who perform those services must necessarily be subject to a certain amount of control by the owner of the business.
1. You can not debate this factor because beauty salons provide beauty services and stylists perform those services. The success of a hair salon hinges on the performance of hair services. Without those services, the business would not produce any profit and it would fail. Those hair services are integral to the success and continuation of that hair salon.
Services Rendered Personally - If the services must be rendered personally, presumably the person or persons for whom the services are performed are interested in the methods used to accomplish the work as well as the results.
1. If the professional does not have the ability to delegate jobs to other professionals at their discretion, they are likely not independent.
2. Questions to ask:
  1. If you call in sick and have a full day of appointments, what happens?
  2. If you call your clients personally and reschedule them, then the salon owner IS concerned with who provides the services.
  3. If you can call in another professional who is licensed to take your clients for the day, then the salon owner is NOT concerned with who provides the services.
  4. If someone from the salon will contact your clients & reschedule them, then the salon owner IS concerned with who provides the services.
  5. If the salon owner will assign your clients to another stylist who has time available, then they are NOT concerned with who provides the services, but they are still showing a degree of control because they are ultimately the one who decides whom the client goes to for services.
Hiring, Supervising, and Paying Assistants - If the person or persons for whom the services are performed hire, supervise, and pay assistants, that factor generally shows control over the workers on the job. However, if one worker hires, supervises, and pays the other assistants pursuant to a contract under which the worker agrees to provide materials and labor and under which the worker is responsible only for the attainment of a result, this factor indicates an independent contractor status.
1. The stylist is truly independent if they have the ability to interview, hire, train, pay, and fire their own employees without input from the salon owner.
2. Questions to ask:
  1. Can you interview, hire, train, pay &/or fire an assistant?
  2. Are you required to utilize the salon's assistants?
  3. Does your rent cover the expense of utilizing the salon's assistant?
Continuing Relationship - A continuing relationship between the worker and the person or persons for whom the services are performed indicated that an employer-employee relationship exists. A continuing relationship may exist where work is performed at frequently recurring although irregular intervals.
1. Independent contractors retain their independence, which includes the freedom to work wherever they please and offer their services to anyone willing to pay (including competing businesses).
2. Questions to ask:
  1. Do you regularly show up at the same salon to work?
  2. Does the owner require you to submit your work hours to them in advance?
  3. Are you able to work at one or more competing salons while working at the salon in question?
  4. Have you signed a non compete agreement?
  5. Are you on the salon's regular payroll?
Set Hours of Work - The establishment of set hours of work by the person or persons for whom the services are performed is a factor indicating control.
1. If a salon professional classified as an independent contractor works a set schedule that the salon owner established, that’s an indicator of misclassification.
2. Questions to ask:
  1. Does the salon owner set or approve your schedule?
  2. Are you able to come and go as you please?
Full-time Required - If the worker must devote substantially full time to the business of the person or persons for whom the services are performed, such person or persons have control over the amount of time the worker spends working and impliedly restrict the worker from doing other gainful work. An independent contractor, on the other hand, is free to work when and for whom he or she chooses.
1. If the stylist is required to be at the salon a specific number of hours and is left with no time to obtain gainful work elsewhere, they are most likely misclassified.
2. Questions to ask:
  1. Have you signed an employment contract?
  2. Are you required to commit to a particular number of hours at the salon in question?
  3. After you put in your required hours at the salon in question, are you left with enough time to seek gainful employment?
Doing Work on Employer’s Premises - If the work is performed on the premises of the person or persons for whom the services are performed, that factor suggests control over the worker, especially if the work could be done elsewhere. Work done off the premises of the person or persons receiving the services, such as the office of the worker, indicates some freedom from control. However, this fact by itself does not mean that the worker is not an employee. The importance of this factor depends on the nature of the service involved and the extent to which an employer generally would require that employees perform such services on the employer’s premises. Control over the place of work is indicated when the person or persons for whom the services are performed have the right to compel the worker to travel a designated route, to canvass a territory within a certain time, or to work at specific places as required.
1. In most states, salon services must be performed inside a licensed, board-approved salon facility. However, a truly independent contractor will generally have the ability to perform the service wherever they please (so long as the place they choose is also compliant with applicable state board regulations).
2. Questions to ask:
  1. Are you required to perform all services inside the owner’s salon?
  2. Are you allowed to work at another competing salon?
  3. If you were to go off-site to perform services, would it be done under the salon’s name?
Order or Sequence Set - If a worker must perform services in the order or sequence set by the person or persons for whom the services are performed, that factor shows that the worker is not free to follow the worker’s own pattern of work but must follow the established routines and schedules of the person or persons for whom the services are performed. Often, because of the nature of an occupation, the person or persons for whom the services are performed do not set the order of the services or set the order infrequently. It is sufficient to show control, however, if such person or persons retain the right to do so.
1. If the salon owner dictates salon protocols for services, it is likely that the relationship is employer-employee. Pay attention to the last sentence, it is SUFFICIENT to actually show the control, but if the salon owner RETAINS the right to control the way the stylist performs services it is still an employer-employee relationship.
2. Questions to ask:
  1. Do you have to perform ANY services according to the salon owner's protocol? For instance, required to clarify before wrapping a perm, required to provide a deep conditioning treatment for color clients, required to use Olaplex when using lightener, etc.
Oral or Written Reports - A requirement that the worker submits regular oral or written reports to the person or person for whom the services are performed indicates a degree of control.
1. If you are paid commission, the salon owner does not know how much to pay you without knowing what services you’ve provided. Whether it is logging the services in a notebook or entering them into salon software, this still qualifies as providing the owner with reports.
2. Questions to ask:
  1. Are you required to keep a log of the services you perform? For instance, all clients are checked out at a centralized location like a reception desk & logged into the salon software.
  2. Are you required to provide the owner with your client's contact information?
Pay by the Hour, Week, or Month - Payment by the hour, week, or month generally points to an employer-employee relationship, provided this method of payment is not just a convenient way of paying a lump sum agreed upon as the cost of a job. Payment made by the job or on a straight commission generally indicates that the worker is an independent contractor.
1. Do not let the last sentence confuse you into believing that classifying commission-only employees as independent contractors are permissible. If we’re going to get really technical here, commission-only generally isn’t legal unless the owner is auditing the hours worked against the commission and ensuring that the workers are making at least minimum wage at the end of each pay period.
2. Questions to ask:
  1. Are you paid by your clients?
  2. Are you paid by the salon owner?
  3. Are you on the salon’s regular payroll?
  4. If paid by the salon owner, are you paid per job completed?
Payment of Business and/or Traveling Expenses - If the person or persons for whom the services are performed ordinarily pay the worker’s business and/or traveling expenses, the worker is ordinarily an employee. An employer, to be able to control expenses, generally retains the right to regulate and direct the worker’s business activities.
1. An independent contractor generally makes a significant investment and has a realization of profit or loss, unlike an employee who would be reimbursed for purchasing things for the salon or driving to attend a required class.
2. Questions to ask:
3. If you had to do any business-related travel for the salon, would you be paid gas/mileage?
4. What supplies does the salon owner purchase/provide?
5. What supplies do you purchase/provide?
6. If you were asked to run to the supply store to make a purchase, would you be reimbursed?
7. Are you required to use the products/supplies/tools the salon provides?
8. Does the salon owner require you to only make your purchases at a particular store/website?
Furnishing of Tools and Materials - The fact that the person or persons for whom the services are performed furnish significant tools, materials, and other equipment tends to show the existence of an employer-employee relationship.
1. Employees usually purchase their own tools, but “materials” are usually furnished by the salon. If the salon owner requires a stylist to use a particular product line that they provide, that stylist is not actually independent, even if the stylist has to pay for the privilege of using the salon’s chosen products
2. Questions to ask:
  1. Are you required to only use particular brands/manufacturers that are supplied by the owner? For instance, you are only allowed to use Matrix hair color that the salon owner provides, you are required to only use the towels that the salon owner provides, you are required to only use CHI hot tools that the salon owner provides, etc.
Significant Investment - If the worker invests in facilities that are used by the worker in performing services and are not typically maintained by employees (such as the maintenance of an office rented at fair value from an unrelated party), that factor tends to indicate that the worker is an independent contractor. On the other hand, lack of investment in facilities indicates dependence on the person or persons for whom the services are performed for such facilities and, accordingly, the existence of an employer-employee relationship.
1. Independent stylists make a significant investment. They pay their rent for their “office” and operate their business in their space at their own discretion. If a stylist works in a salon that they do not have any investment in, they are dependent on the salon owner for the facility making them an employee.
2. Questions to ask:
  1. Do you pay rent for space within the salon to operate your own business?
Realization of Profit or Loss - A worker who can realize a profit or suffer a loss as the result of the worker’s services (in addition to the profit or loss ordinarily realized by employees) is generally an independent contractor, but the worker who cannot is an employee. For example, if this worker is subject to a real risk of economic loss due to significant investments or a bona fide liability for expenses, such as salary payments to unrelated employees, that factor indicates that the worker is an independent contractor. The risk that a worker will not receive payment for his or her services, however, is common to both independent contractors and employees and thus does not constitute a sufficient economic risk to support treatment as an independent contractor.
1. This factor references a significant investment and a realization of profit or loss. If both of these factors are present in the absence of salon owner control and an absence of an expectation of a continuing relationship, the odds are good that the worker is an independent stylist.
2. Questions to ask:
  1. Have you hired an assistant as an employee?
  2. Have you invested your own money into products/supplies/tools to be used on your clients?
  3. Do you stock & sell your own retail?
Working for More Than One Firm at a Time - If a worker performs more than de minimis services for a multiple of unrelated persons or firms at the same time, that factor generally indicates that the worker is an independent contractor. However, a worker who performs services for more than one person may be an employee of each of the persons, especially where such persons are part of the same service arrangement.
1. “De minimis” is a Latin expression meaning, “of minimal things.” Trivialities. A trivial service in a salon would be a repair to a broken shelving unit performed by a carpenter. This is not integral to the success of the business overall.
2. What stylists do in a salon is not de minimis. If the stylist is prohibited from performing their services at other salons, they are not truly independent, whether they have signed a non-compete or not. This is true even if the salon owner gives the stylist permission to perform de minimis services at competing businesses.
3. For example, let’s say that you’re a part-time stylist who has a cleaning business on the side. If the salon owner says you can clean a competing salon but you can’t work as a stylist there, you are being restricted from performing more than de minimis services and are therefore very likely an employee of that salon owner.
4. Questions to ask:
  1. Can you work at a competing salon?
Making Services Available to the General Public - The fact that a worker makes his or her services available to the general public on a regular and consistent basis indicates an independent contractor relationship.
1. If the stylist is permitted to work in other salons, take clients at their home salon, and work for anyone willing to pay them for the privilege, they are likely self-employed. If the salon owner says the stylist cannot perform services for anyone outside of the salon in question, they’re likely an employee.
2. Questions to ask:
  1. Are you able to perform services anywhere your license permits you? For instance, you can perform services at your in-home salon.
  2. When offered to perform services off-site, do you have to get the permission of the salon owner first?
Right to Discharge - The right to discharge a worker is a factor indicating that the worker is an employee and the person possessing the right is an employer. An employer exercises control through the threat of dismissal, which causes the worker to obey the employer’s instruction. An independent contractor, on the other hand, cannot be fired so long as the independent contractor produces a result that meets the contract specifications.
1. If you’re independent, you generally can’t be fired as long as you’re continuing to provide satisfactory results. Independent contractors are actually contracted. They sign an agreement to perform a particular, specific, one-time job. As long as that job is completed to the contract’s specifications, they can do the job however they please, whenever they please, using whatever tools they please. They can’t be “fired” since they’re not employees. Rather, the person contracting them (the salon owner in our case) could terminate the contract and potentially sue the contractor for failing to fulfill their obligations under the agreement.
2. If the salon owner has the ability to threaten a professional with termination, they are likely not independent.
3. Questions to ask:
  1. Is it your understanding that you can be fired?
Right to Terminate - If the worker has the right to end his or her relationship with the person for whom the services are performed at any time he or she wishes without incurring liability, that factor indicates an employer-employee relationship.
1. A typical independent contractor’s contract or a lease agreement will have penalties for early termination on the stylist's part. If they break the agreement, they’ll generally face consequences.
2. Questions to ask:
  1. Is it your understanding that you can quit at any time & not be held to the terms of a contract/lease?
  2. As a final note, the IRS does not use this exact 20-factor test, anymore. However, they still use the principles behind it to decide whether or not your workers are employees or independent contractors, and there are still several state’s Department of Labor that still use this same test.

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