Rev. Rul. 73-592

Advice has been requested as to the employment status of a beautician performing services for a beauty salon, under the circumstances described below, for purposes of the taxes imposed by the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, and the Collection of Income Tax at Sources on Wages (chapters 21, 23, and 24, respectively, subtitle C, Internal Revenue Code of 1954).

Under an agreement with the beauty salon, the beautician agrees to rent, for a fixed monthly fee, a booth containing a hydraulic chair, dressing table, storage space, and mirror. In addition, the salon furnishes heat, light, water, and the usual beautician supplies. The beautician's primary activities consist of selling and styling wigs that she purchases herself and she retains the entire amount she receives from such activities. In addition, she works on the salon's customers from time to time, although she is not required to do so. She does not receive any guaranteed amount from the salon. The beautician is free to select her own customers, set her own work schedule, and to come and go as she pleases. The beautician does not have to report for work at a specific hour or work a stated number of hours per day or week.

The shop rules require her to be responsible for cleaning her own work area, to maintain her own tools, and to furnish and maintain her own uniforms. The beautician obtains the necessary licenses for cosmetology from the state and pays the appropriate fees.

An individual is an employee for Federal employment tax purposes if he has the status of an employee under the usual common law rules applicable in determining the employer-employee relationship. Guides for determining whether that relationship exists are found in three substantially similar sections of the Employment Tax Regulations, namely, sections 31.3121(d)-1, 31.3306(i)-1, and 31. 3401(c)-1. Generally, the relationship of employer and employee exists when the person for whom the services are performed has the right to control and direct the individual who performs the services not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished. Thus, an employee is subject to the will and control of the employer not only as to what shall be done but as to how it shall be done. In this connection, it is not necessary that the employer actually direct or control the manner in which the services are performed; it is sufficient if he has the right to do so. The right to discharge is also an important factor indicating that the person possessing that right is the employer. In general, if an individual is subject to the direction and control of another merely as to the result to be accomplished by the work and not as to the means and methods for accomplishing the result, he is not an employee. The facts in this case show that the beauty salon, in entering into the fixed fee lease agreement with the individual in question, makes the services of an additional beautician available, both for its convenience and for the convenience of its customers. While furnishing a place to work and supplies are factors to be considered in determining an employer-employee relationship, the existence of those factors alone is not sufficient to establish such a relationship for Federal employment tax purposes.

In the instant case, the beauty salon does not exercise, or have the right to exercise, over the beautician, the degree of direction and control necessary to establish the employer-employee relationship.

Accordingly, it is held that the beautician is not an employee of the beauty salon for purposes of the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, or the Collection of Income Tax at Source on Wages.

It is further held that the beautician is engaged in a "trade or business" for purposes of the Self-Employment Contributions Act of 1954 (chapter 2, subtitle A of the Code), the income from which should be considered in computing net earnings from self-employment as contemplated by that Act and in determining whether she is required to file declaration of estimated income tax and self-employment tax returns under sections 6015 and 6017, respectively, of the Code.

Compare Rev. Rul. 73-591, page 337 this Bulletin, concerning the status of beauticians working under an agreement based on a specified percentage of weekly gross receipts.