The Esthetician Podcast
Welcome to "The Esthetician Podcast," your ultimate guide to thriving in the esthetics industry! Hosted by Kari Jo Patterson, a seasoned esthetician and business coach with over twenty years of experience, this podcast is designed for estheticians at every stage of their career who are looking to build a successful and sustainable business. Every episode of "The Esthetician Podcast" provides you with practical tips, proven strategies, and inspiring stories to help you navigate the challenges of building an esthetics empire.
The Esthetician Podcast
The Legal Pitfalls of 1099 vs. W-2 in Esthetics
The costly classification mistake that could destroy your esthetics business and land you in serious legal trouble. As a spa owner who scaled to a 4,000-square-foot facility while others in my town struggled, I've learned the hard truth about 1099 contractors versus W-2 employees – and it might shock you.
Most estheticians hire 1099 contractors because they fear payroll taxes and paperwork. What they don't realize is this decision could trigger what I call the "hella trifecta" – simultaneous investigations from the IRS, Department of Labor, and State Unemployment Department. This isn't just about paperwork; it's tax fraud that can result in back taxes, penalties, and even jail time.
The wake-up call for me came when a 1099 contractor forgot about her appointments, leaving clients stranded. I couldn't require her to fix the situation because legally, she wasn't my employee. That's when I realized I had zero control over my brand's reputation – everything I'd built could be destroyed by someone I couldn't manage.
The truth is this: if you provide the tools, products, booking system, and expect someone to work primarily for your business, they're a W-2 employee. Period. When salon owners claim 1099 status benefits workers through tax write-offs, they're concealing the fact that contractors actually pay double the taxes because the business is illegally pushing its tax burden onto them.
Proper employee classification isn't just about compliance – it's about building a business that can actually scale. I've created "The Esthetician's Guide to a Profitable Pay Structure" to show you how a correctly structured compensation system makes W-2 employees more profitable than contractors while keeping you legally protected. Are you ready to stop being afraid of payroll and start building an empire that lasts?
Leave a review if this episode helped you – your feedback means everything as we continue our mission to help estheticians build businesses where passion truly meets prosperity.
To learn more about coaching please visit: https://www.karijopatterson.com
Connect with me on your fav social platform:
Instagram: https://www.instagram.com/kari.jo.patterson
Facebook: https://www.facebook.com/karijopattersonestheticiancoach
TikTok: https://www.tiktok.com/@karijopatterson
Threads: https://www.threads.net/@kari.jo.patterson
Links You May Want to Check out:
Join the Client Building for Estheticians group to go deep in learning all the latest tips and strategies https://www.facebook.com/groups/clientbuildingforestheticians
Check out Kari Jo’s courses here https://esthelaunchacademy.com
Welcome to the Esthetician Podcast, where passion meets prosperity. Your host, Kari Jo Patterson, transformed from a solo esthetician into a successful business owner, achieving ultimate time and financial freedom by the age of 38. Kari is the author of Fearless Prosperity, empowering estheticians to build their empire and achieve financial freedom, and the creator of the Empire Growth System for Estheticians. Get ready for some empire-building wisdom Now. Welcome your host, Kari Jo Patterson. Hey there.
Kari Jo Patterson:Welcome back to the Esthetician Podcast. Today we are diving into a topic that I see estheticians get wrong all the time, and that is 1099 contractors versus W-2 employees. Listen, if you're hiring or you're thinking about hiring, this episode is going to save you from making a very expensive mistake. See, when I first started hiring, I did what everybody else in my whole entire town was doing. I hired a 1099 contractor and it was only because that is how all the hairstylists and other beauty professionals around that's what they all did. They were either 1099 or they were booth renters. But here's the thing I had no clue about the laws and it turns out I was breaking it. I'm going to share my mistakes and why 1099s might not be the best fit for your business and how hiring a W-2 employee made me more profitable when no one else in my town could figure out how to scale. Let's get into it.
Kari Jo Patterson:When I first started hiring, I went 1099 because of really two reasons One, I didn't know the laws and two, I just did what everybody else was doing. But I quickly realized that there were huge issues. For example, this one time I hired this girl and she was doing lashes for me, right, working as a 1099 contractor. Well, one day she didn't come into work. She forgot to be totally honest and, uh, her clients started texting me and they were like, where's this girl? I was like, oh, my gosh. And then like I text her and she's like, oh, I totally forgot, yeah. Anyways, the client was super upset because she was standing out there forever. And do you want to know what? I couldn't do anything about it. It was awful. Why couldn't I do anything about it? Because legally, as a 1099 contractor, she's not my employee. I couldn't tell her to go fix the client for free. I couldn't tell her you need to come in. I couldn't do anything. And that made me realize that I had zero control over my brand. So I become really well known in my town and I had five stars everywhere. And here I am. I brought in this 1099 and she could destroy this at any given minute. I had spent so much time and I was not going to let this one person ruin it for me. And that's when I knew that I had to switch from hiring a 1099 into W-2. Because the truth is is I just wanted more control over what my employee was doing so that she wasn't gonna affect my reputation that I'd worked on building.
Kari Jo Patterson:Here is the biggest misconception Most estheticians they think that as long as you don't control someone else's schedule, then they can be a 1099. And that is completely false. A true 1099 contractor is basically a freelancer. So I want you to think of them as a gypsy. They float from business to business. They use their own tools, their own products and their own booking systems. If you have someone that's using your business products, taking clients from your business's booking system, working inside your space every single day and you're paying them a commission rate, guess what? They are not a 1099. And here's the thing If you misclassify someone, you can get hit by what I call the hella trifecta.
Kari Jo Patterson:What does that mean? It means the IRS can come after you, the Department of Labor can come after you and the State Unemployment Department can come after you. You can have three groups coming from you. Just think if you piss off one employee and you have it misclassified wrong, yeah, you're going to be in some serious trouble. You're going to have to back pay all those taxes that you forced onto them, all their owed wages. You can even possibly face jail time. Yes, it is that serious. It is tax fraud. Here's the truth.
Kari Jo Patterson:Estheticians hire 1099s because they're afraid to pay the taxes on somebody. And I hear things like I can't afford employees, I don't want to pay payroll taxes, I don't know how to do payroll. Here's what you don't realize. If your pay structure is set up correctly, your business is going to cover the cost of those taxes anyways. It's not if you're paying 65%, or if it's not if you're on a 65% commission rate, which I did. That too, before I learned my lesson. I had an employee on a 65% commission rate as a W-2 employee and then, guess what? I had to pay another 7% in taxes. So, yeah, I was not making any money. But that is why your pay structure matters, and that is exactly why I teach estheticians how to structure a profitable pay system. And that's why I developed the course the Esthetician's Guide to a Profitable Pay Structure, because when your pay structure is set up correctly, you're not going to lose money. You are going to make more money, you are going to scale more and you are going to build a business the right way.
Kari Jo Patterson:How do you actually know if someone is in? Maybe you're an employee right now and you're like like am I misclassified, or maybe you're playing people, I don't know. If you really want to know and you want to do this the right way and you want to know are they a 1099? Are they a W-2? There is something called the IRS 20 factor test. This will legally tell you, the IRS will legally tell you what you should be classifying them as. So you fill out this paper and you answer the questions, you mail it to them and the IRS is going to tell you. But let me make it simple for you. If you set their hours, if you provide their tools, their products, you require them to use your booking system. Or they use your booking system and you expect them to only work at your business and they're not going to a bunch of other businesses. They're W-2 employee Period. I will debate you on this.
Kari Jo Patterson:Okay, here's the other thing estheticians don't realize. When you hire a 1099 this is why it's illegal, this is why it's tax fraud guys when you hire a 1099 and they're supposed to be a W-2, what you're basically doing is you're shoving your portion of taxes off on to them. So the 1099 is paying double the taxes because you should be paying some of it. So when a salon owner says oh, it's better for you because you can write things off and things like that. Dude, they're lying to you. You're actually paying both your tax and their tax and if they're providing any of your supplies, you don't even get the write-off Any of your supplies. You don't even get the write-off of the rent or anything like that. So how do you fix this so that you can scale If you are currently hiring 1099, so this is what you need to do Go to the IRS's site, take the 20 factor test, send it in. They'll tell you if you are misclassifying someone, fix it immediately. And, last but not least, you need to switch to a W-2 employee so you can build a real scalable business.
Kari Jo Patterson:Listen, I know it can be overwhelming and I get it. I used to be so terrified of hiring employees too, but guess what? I was the only spa in my entire town that scaled. I was able to renovate a 4,000 square foot building, literally take it down to the studs and rebuild it. Why? Because I did something different. I hired W2 employees, I trained them and we built something together. And that's why my business was profitable, while everyone else stayed stuck is because they were like oh, I'm going to do booth renters. Okay, now you're a landlord, enjoy that.
Kari Jo Patterson:You'll never build a sustainable business, or they do the 1099, right? So if you're ready to stop being afraid of payroll and having to pay taxes and you want to finally learn how to build a profitable pay structure, then I have something for you. My brand new course, the esthetician's Guide to a Profitable Pay Structure, is designed to teach you exactly how to pay your employees the right way, how to set up a commission structure, stop worrying about payroll taxes and scale the right way. So if you've been hiring 1099s because you didn't know any better, this course is going to save you thousands of dollars and help you build a business that actually works. I'll leave a link in the show notes below. I want to thank you guys for tuning in to the Esthetician podcast. If this episode helped you, please, please, please, leave me a review. I really I value it. I read every single one and they mean the most to me. I'll see you on the next episode and remember your business will grow when you do See you then.
Announcer:Bye, thank you for listening to the Esthetician Podcast with Kari Jo Patterson. Each week, Kari brings you real world lessons on how to grow your empire. To learn more about Kari fearless prosperity mastermind Group, one-on-one VIP coaching opportunities and more visit Kari. That's Kari. See you next week for more insights and strategies on the Esthetician Podcast.