He was referring to warehousing. However, my thoughts immediately turned to US spas.

The majority of US spa owners and managers I've spoken with have told me that, while they pay receptionists and attendants hourly wages, they pay their massage therapists and estheticians on a piecework basis. Instead of salary or hourly wage, they are paid a commission or set price for each service they deliver. Most of the time, these service providers are not employees of the spa. They are independent contractors. In essence, the spa pays another company to provide massages, body treatments and facials to the spa's Guests. However, delivering treatments to Guests is probably the core competency of any spa. Why would a spa outsource this?

Most spas do it because of the mistaken belief that the contract model saves money. The spa only pays for the massage, body treatment or facial that was actually performed. The spa doesn't pay the service provider anything if the massage therapist or esthetician doesn't provide a service, even though the spa may require the service provider to be in the spa for an entire shift.

This is a seriously flawed model. It ultimately delivers a poor Guest experience and creates staff dissatisfaction, which further negatively impacts the Guest.

Most spa managers I've spoken with have no training programs to show independent contractors how things are done at their spa such as Guest greeting, treatment protocols, room set up, etc. They just turn them loose. By doing this, how can the spa ever expect consistency from provider to provider and time to time for the Guest - a key source of Guest satisfaction and dissatisfaction?

I've seen lots of evidence that the contract model doesn't always deliver a good Guest experience. Here are just a few:

• I've been to spas where my massage therapist entered and left the spa when I did.
• I know someone who has been to two spas in one town and had the same therapist at both spas.
• I've been on a treatment table wrapped up like a mummy while the therapist tried to sell me products that were "far superior to those sold at this spa."
• I know someone who, while getting a massage, asked about the spa's facials and was told to go to another spa because they weren't very good at this spa. And, oh by the way, she also worked at the other spa.

Just as the spa shows no commitment to the independent contractor, an independent contactor shows no real commitment to the spa. The spa's vision and mission are probably not the same as the independent contractor's.

"We should never outsource our core competency."

But, the spa may say, the contractor is getting a large percentage of what the spa gets for the services they provide. Why would they be dissatisfied with that? Let me suggest a few possibilities:

• Independent contractors can't count on income from the spa. That can create a lot tension when they have to constantly worry about if they will be able to pay their bills. For massage therapists, those bills include paying for a massage therapist liscense, a business liscense, insurance and continuing education required by many states and the NCBTMB (National Certification Board for Therapeutic Massage and Bodywork).
• For independent contractors that work on-call, they have to include travel time from job to job to calculate real earnings. They may also have to pay for other expenses such as massage cream/oil, linens, laundering, etc..
• For independent contractors that have to cover shifts and only get paid for services they provide, it can be good on busy days, but when there are slow days (and there always are), it can be bad and the net income can be quite low (not even minimum wage).
• Independent contractors get no benefits - no paid vacations, no participation in group health insurance, no 401K, etc. They can't collect unemployment if the spa doesn't want to work with them any longer or goes out of business.

The IRS has rules about how employers (payers) define and treat independent contractors and employees. The definitions are:

• Employee - "Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed."
• Independent Contractor - "The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed."

The primary difference in how they are treated by the IRS is in the way taxes are withheld. The spa has to withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. Generally, the spa does not have to withhold or pay any taxes on payments to independent contractors (they are responsible for their own taxes).

If spa owners or managers are not controlling what will be done and how it will be done in their spas, they cannot possibly deliver good Guest experiences consistently. Therefore, in my opinion, they have to have employees in lieu of independent contractors in order to have a healthy business.

At the ISPA conference, I spoke with members of the management teams of 2 different spas that had recently been audited by the IRS. The IRS found that the spas' treatment of their staffs as independent contractors was incorrect, and the spas had to change their treatment of them to employees. I believe we will be hearing a lot more stories like this in the future. The spa industry would be wise to proactively examine their treatment of independent contractors and determine whether it truly meets the IRS's definition and change it to employee if it doesn't.

"We should never outsource our core competency."

Those are my thoughts about the spa industry's use of independent subcontractors in lieu of employees. Thanks for "listening." I am interested in your opinion. Share it with me at jar@DiscoverSpas.com.

~Julie

More On My Mind Articles