Most Popular in:
Medical Spa and Spa Compensation Programs
By: Bryan Durocher
Posted: December 18, 2008
page 2 of 8
This practice is quite common in certain regions of the United States. The challenge with rental operations may be economic viability. One reason rental is so prevalent is that the owner of the business is not familiar with structure and does not know about employee operations. They decide that it would be easier just to have renters and not have to learn or deal with the “employee issue”. The reality is whether you have employees or renters, you still have to contend with the “people” issue. You need to have a fair, professional and well-run environment for your working professionals and their clients.
There are strict parameters around how the U.S. Internal Revenue Service (IRS) views booth renters. Renters pay a flat rental fee that can be collected daily, weekly or monthly. They have to have their own business phone line, process their own credit cards, set their own hours of operations, collect their own money and buy their own supplies. In addition, they have to prove and provide their own business insurance. Anything that does not fit into the realm of these parameters within the exception of contracting out reception services would be considered an employee. Make sure to have a contract with your independent professionals.
Common mistakes with owners: "My staff includes renters, and I collect the money on services and products and then I pay them back a commission on sales. (This is not rent)
Fact: The IRS views this as a way of trying to avoid paying payroll taxes.
When owning and operating a business, the owner needs as much leverage as possible to make money. The profit margins are too tight for mistakes. With a rental situation if the owner markets their business and attracts one person or a 1,000 people, the rental amount stays the same. This can make profit very challenging. The contracts for rental agreements are specific and best left to professionals who regularly deal with these types of legal issues.