Rev. Rul. 73-591

Advice has been requested as to the employment status of a beautician performing services in a beauty salon, under the circumstances described below, for purposes of the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, and the Collection of Income Tax at Source 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 "lease" a space in the salon to be used for the sole purpose of performing services as a beautician and hairdresser. The salon agrees to furnish, repair, and maintain all of the equipment, materials, supplies, accessories, and personal tools usually used in the operation of a beauty salon. For her services the beautician receives a specified percentage of all money taken in by her. No credit or free work may be done by the beautician without the prior express approval of the salon. The agreement may be terminated by either party upon one week's notice.

The salon rules require the beautician to be at her chair at 8 a.m. on those days that she is scheduled to work, to furnish her own uniforms, to charge fees as determined by the salon, and to perform services as requested by the customers. The beautician furnishes a report each day to the owner reflecting the day's receipts. The salon uses these records as the basis for computing the amount due to her. The beautician is required to work until 6 p.m. on weekdays and until noon on Saturday. The beautician obtains the necessary licenses for cosmetology from the state and pays the appropriate fees.

Individuals are employees for Federal employment tax purposes if they have the status of employees 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 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.

The facts in the instant case show that the beauty salon has the right to direct and control the beautician in the performance of her 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.

Accordingly, it is held that the beautician is an employee of the beauty salon for purposes of the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, and the Collection of Income Tax at Source on Wages.

Compare Rev. Rul. 73-592, below, concerning the status of a beautician performing services for a beauty salon under a fixed fee lease agreement.