Independent Contractor Agreements for Spas, Salons & Massage Therapists

The Classification Problem

Why the beauty industry is under intense scrutiny

If you operate a spa, salon, or hire massage therapists, you are in one of the most heavily audited industries for worker misclassification. State agencies, the IRS, and the Department of Labor have identified "booth rental" arrangements and independent contractor relationships in this sector as frequently problematic.

The Dynamex Decision Changed Everything

In Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903, the California Supreme Court adopted the "ABC test" for determining worker classification under California's wage orders. This fundamentally changed how businesses must structure their contractor relationships.

Under the ABC test, a worker is presumed to be an employee unless the hiring entity can prove all three of the following:

(A) The worker is free from the control and direction of the hiring entity in performing the work, both under the contract and in fact;
(B) The worker performs work that is outside the usual course of the hiring entity's business; and
(C) The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

The "Prong B" Problem for Salons and Spas

Here is the critical issue: if you run a hair salon and you hire a hairstylist as an independent contractor, Prong B likely fails. The hairstylist's work (cutting hair) is not "outside the usual course" of your business (a hair salon). The same logic applies to massage therapists at spas, estheticians at skincare clinics, and nail technicians at nail salons.

The Booth Rental Myth

Many salon owners believe that "booth rental" arrangements automatically create an independent contractor relationship. This is not true. Booth rental is a business model, not a legal classification. Whether a booth renter is truly an independent contractor still depends on passing the applicable classification test (ABC in California, or the common law test in other states). Calling someone a "booth renter" on paper while exercising control over their work will not survive an audit.

AB5 Codified the ABC Test (With Some Exemptions)

California's Assembly Bill 5 (AB5), effective January 1, 2020, codified the Dynamex ABC test into statute. AB5 also created specific exemptions for certain professions. Unfortunately, hairstylists, barbers, estheticians, and massage therapists are not among the exempt professions for the ABC test.

However, licensed manicurists and certain other beauty professionals may qualify for a referral agency exemption under Business and Professions Code Section 9562 and Labor Code Section 2750.3, if specific conditions are met. This is a narrow exception that requires careful structuring.

Borello Still Matters

While the ABC test applies to wage order claims (minimum wage, overtime, meal breaks), the older S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 test still applies to other employment-related claims, including workers' compensation, unemployment insurance, and certain tax matters. Borello uses a multi-factor "right to control" analysis. You may pass one test but fail the other, creating liability exposure.

Not Sure How Your State Treats This?

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Pick Your State

Click your state to see the applicable classification test and key requirements

California

Strict - ABC Test

Primary Test: ABC Test (Dynamex/AB5)

All three prongs must be satisfied:

A - Freedom from Control: Worker is free from control and direction in performing work
B - Outside Usual Course: Work is outside the usual course of the hiring entity's business
C - Independently Established: Worker is customarily engaged in an independently established trade or business

Key Cases:
Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903
S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations (1989) 48 Cal.3d 341

Salon/Spa Impact: Prong B is nearly impossible to satisfy for stylists, therapists, and estheticians working at salons/spas. Most will be classified as employees unless specific exemptions apply.

Texas

Favorable - Common Law

Primary Test: Common Law Right-to-Control Test

Texas uses the traditional common law test focusing on control:

Right to control the manner and means of work
Furnishing of tools and equipment
Method of payment (hourly vs. job-based)
Right to hire and fire
Intent of the parties

Key Guidance:
Texas Workforce Commission rules (40 TAC 815.134)
Limestone Products Distribution v. McNamara (Tex. 2002)

Salon/Spa Impact: Texas is one of the most favorable states for independent contractor arrangements. Booth rental and IC relationships are common and generally accepted if structured properly with genuine autonomy.

Florida

Moderate - Hybrid Test

Primary Test: Economic Realities Test (with control factors)

Florida uses a multi-factor analysis:

Nature and degree of control
Opportunity for profit or loss
Investment in facilities and equipment
Permanency of the relationship
Skill required for the work

Key Statute:
Florida Statute 440.02 (definitions for workers' compensation)
Florida Statute 443.036 (unemployment compensation)

Salon/Spa Impact: Florida is moderately favorable. Booth rental arrangements are common, but workers' compensation and unemployment audits do occur. Ensure contractors have their own business licenses and client bases.

New York

Strict - Multiple Tests

Primary Test: Common Law (with strict application)

New York applies multiple overlapping tests:

Common law control test (degree of direction and control)
Economic realities factors
ABC test for unemployment insurance purposes
Special rules for construction industry

Key Authority:
NY Labor Law Article 25-B
Matter of Concourse Ophthalmology Associates (NY App. Div.)

Salon/Spa Impact: New York is aggressive about misclassification. The NY Department of Labor conducts frequent audits of salons. Booth rental arrangements are viewed skeptically and often reclassified.

Pennsylvania

Moderate - Multiple Tests

Primary Test: Common Law (varies by context)

Pennsylvania uses different tests for different purposes:

Common law control test (general employment)
ABC test for unemployment compensation
FLSA economic realities test for wage claims

Key Authority:
43 P.S. Section 753 (Unemployment Compensation Law)
Universal Am-Can Ltd. v. WCAB (Pa. 2010)

Salon/Spa Impact: Pennsylvania is moderately strict. The ABC test applies for unemployment purposes, making it difficult for in-salon service providers to qualify as ICs for those claims, even if they pass the common law test.

New Jersey

Strict - ABC Test

Primary Test: ABC Test

New Jersey adopted a strict ABC test:

A: Free from control or direction
B: Service outside employer's usual business OR outside employer's place of business
C: Customarily engaged in independent business or trade

Key Authority:
N.J.S.A. 43:21-19(i)(6) (Unemployment Compensation Law)
2020 amendments strengthened enforcement

Salon/Spa Impact: New Jersey is extremely strict. The ABC test applies broadly, and Prong B is very difficult for salon/spa workers. The state has imposed significant penalties on misclassifying businesses.

Massachusetts

Strict - ABC Test (Original)

Primary Test: ABC Test (since 2004)

Massachusetts pioneered the strict ABC test:

A: Free from control and direction
B: Service performed outside usual course of employer's business
C: Customarily engaged in an independently established trade, occupation, or business

Key Authority:
M.G.L. c. 149, Section 148B
Coverall North America v. Commissioner of Division of Unemployment Assistance (Mass. 2013)

Salon/Spa Impact: Massachusetts was the model for California's ABC test. Booth rental arrangements for in-salon services are extremely difficult to structure legally. Most stylists and therapists must be employees.

Other States

Varies - Check Local Law

Tests Vary by State and Context

Most states use one of three approaches:

Common Law Control Test: Most states (traditional, focuses on control)
ABC Test: CA, MA, NJ, VT, CT, IL (for certain purposes), and growing
Economic Realities Test: Federal FLSA standard, adopted by some states
Hybrid Tests: Some states combine elements

Important Notes:
- Different tests may apply for different purposes (wage law vs. unemployment vs. workers' comp)
- State law is evolving rapidly in this area
- Federal law (IRS, DOL) adds another layer

General Guidance: Even in "favorable" states, genuine independence matters. Control-based relationships will be reclassified regardless of what paperwork says. Structure the actual working relationship to reflect independence.

Red Flags Checklist

Interactive checklist: How many of these control factors are present in your arrangement?

Control Factors That Suggest Employee Status

You set their work schedule or require minimum hours

True ICs control when they work. Required shifts = employee indicator.

They can only work at your location

Exclusivity to one business location suggests employment.

You provide all tools, products, and supplies

True ICs typically invest in their own equipment.

You set the prices they charge clients

Independent businesses set their own rates.

You process payments and pay them a percentage

True ICs handle their own billing and keep their own revenue.

They wear your uniform or must follow dress code

Appearance control suggests employment relationship.

You require attendance at meetings or training

Mandatory participation in company activities = control.

Clients book through your system, not theirs

ICs typically maintain their own client relationships and booking.

They cannot hire helpers or substitutes

True ICs can delegate work or hire their own staff.

You dictate how services must be performed

ICs control methods; you can only specify the result.

They don't have their own business license or EIN

Independently established businesses have their own registrations.

They don't serve other clients outside your business

Working exclusively for one "client" suggests employment.

Red Flags Selected

Select the factors that apply to your arrangement.

Important Disclaimer

This checklist is educational, not legal advice. The presence of any single factor does not automatically mean misclassification, and the absence of all factors does not guarantee IC status. Classification depends on the totality of circumstances under the applicable state test. In ABC test states, even zero red flags may not save an arrangement that fails Prong B.

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What Your Agreement MUST Include

Section-by-section breakdown of essential clauses for independent contractor agreements

A well-drafted independent contractor agreement is necessary but not sufficient. The agreement must accurately reflect the actual working relationship. Courts and agencies look past the paperwork to the reality of how work is performed. That said, having proper documentation is the foundation.

1 Independent Contractor Status Declaration

Critical

This clause establishes the parties' intent to create an independent contractor relationship, not employment. While intent alone is not determinative, it sets the framework for interpreting the agreement.

"Contractor is an independent contractor and not an employee, partner, agent, or joint venturer of Company. Contractor shall not be entitled to any employee benefits, including but not limited to health insurance, retirement benefits, paid vacation, or workers' compensation coverage through Company. Nothing in this Agreement shall be construed to create an employment relationship."

Best Practices:

Include acknowledgment that contractor understands the tax implications (self-employment tax, no withholding)
Reference that contractor is responsible for their own licenses and insurance
Specify that contractor controls the manner and means of performing services

2 Scope of Services

Critical

Define what services the contractor will provide. Be specific enough to be clear, but avoid over-specification that implies control over methods.

"Contractor agrees to provide [massage therapy / hair styling / esthetician services] to clients. Contractor shall determine the specific techniques, methods, and procedures used to perform services. Company engages Contractor for the results of Contractor's work, not the means by which those results are achieved."

Best Practices:

Focus on outcomes, not processes
Do not include detailed procedures or protocols that contractor must follow
Clarify that contractor maintains professional discretion in service delivery

3 Control and Autonomy

Critical

This is the heart of independent contractor status. The agreement must establish that the contractor controls when, where, and how work is performed.

"Contractor shall have sole control over the manner, means, and methods of performing services. Contractor shall determine Contractor's own schedule and hours of work. Company shall not require Contractor to work specific hours or days. Contractor is free to provide services to other clients and businesses. Contractor may work at locations other than Company's premises."

Best Practices:

Explicitly state contractor sets their own schedule
Confirm no exclusivity requirement (contractor can work for others)
Avoid any language about required hours, shifts, or attendance
If booth rental, specify that space is leased, not assigned by company directive

Reality Check: This clause only helps if it reflects reality. If you actually schedule shifts, require exclusivity, or dictate methods, the agreement will not protect you.

4 Compensation and Payment Terms

Critical

How payment is structured significantly affects classification analysis. Independent contractors typically bear economic risk and control their own revenue.

"Contractor shall set Contractor's own prices for services rendered to clients. Contractor shall collect payment directly from clients. Contractor shall pay Company a booth rental fee of $[amount] per [week/month] for use of the premises and facilities. [Alternatively: Company shall pay Contractor [amount] per [service/project] upon completion of services, minus any agreed deductions for supplies used.]"

Best Practices:

Avoid percentage-of-revenue splits that look like commission (suggests employment)
Fixed booth rental fees are stronger than variable payments
If contractor collects from clients directly, specify this clearly
Include that no taxes will be withheld; contractor handles own tax obligations
Specify payment is by invoice, not payroll

5 Tools, Equipment, and Expenses

Important

Independent contractors typically provide their own tools and absorb their own business expenses.

"Contractor shall provide Contractor's own tools, equipment, and supplies necessary to perform services, including but not limited to [specific items relevant to the trade]. Contractor shall be responsible for maintaining and replacing such equipment. Company may make certain shared facilities available, for which Contractor shall pay the agreed rental or usage fee."

Best Practices:

List specific items contractor must provide (shears, massage table, products, etc.)
If company provides any equipment, characterize it as a rental or licensed use
Contractor should bear cost of consumable supplies they use

6 Right to Substitute and Delegate

Important

A key indicator of independent contractor status is the right to hire others or send substitutes to perform work.

"Contractor may, at Contractor's sole discretion, engage assistants, employees, or subcontractors to perform services under this Agreement. Contractor shall be solely responsible for compensating any such persons and ensuring they are properly licensed and insured. Contractor may designate a substitute to perform services, provided such substitute meets applicable licensing requirements."

Best Practices:

Even if rarely exercised, the right to substitute is valuable
Clarify that company can require substitutes meet licensing/insurance standards
If substitution is prohibited, this is a red flag for employee status

7 Insurance and Liability

Critical

True independent contractors carry their own insurance and assume liability for their work. This is both a classification factor and essential risk management.

"Contractor shall maintain, at Contractor's sole expense, professional liability insurance with minimum coverage of $[amount] per occurrence and $[amount] aggregate, and general liability insurance with minimum coverage of $[amount]. Contractor shall provide Company with certificates of insurance upon request. Contractor shall indemnify and hold harmless Company from any claims arising from Contractor's services or Contractor's breach of this Agreement."

Best Practices:

Specify minimum coverage amounts appropriate for the profession
Require proof of insurance before contractor begins work
For massage therapists, professional liability is essential
Include mutual indemnification where appropriate

8 Licenses and Compliance

Critical

Independent contractors are responsible for maintaining their own professional licenses and business registrations.

"Contractor represents and warrants that Contractor holds all licenses, certifications, and permits required by law to perform the services described herein, including [state cosmetology license / massage therapy license / esthetician license]. Contractor shall maintain such licenses in good standing throughout the term of this Agreement. Contractor shall provide Company with copies of current licenses upon request."

Best Practices:

Specify the exact licenses required for contractor's profession
Require contractor to have their own business license or EIN
Verify licenses before contractor begins and periodically thereafter
Include right to terminate if license lapses

9 Term and Termination

Important

Define the duration of the relationship and how either party can end it. Open-ended relationships can suggest permanency (an employee characteristic), while project-based terms support contractor status.

"This Agreement shall commence on [date] and continue until terminated by either party. Either party may terminate this Agreement at any time, with or without cause, upon [30] days written notice to the other party. In the event of termination, Contractor shall complete any services already scheduled or, if mutually agreed, refer such clients to another provider."

Best Practices:

Avoid indefinite terms without any endpoint consideration
Include provisions for renewal or extension as separate engagements
Specify what happens to existing client appointments upon termination
Consider whether notice period should differ for termination with cause

10 Client Relationships and Non-Solicitation

Recommended

This is a nuanced area. Overly restrictive non-compete or non-solicitation clauses can undermine contractor status by suggesting control over the contractor's business.

"Contractor acknowledges that clients of the Company's establishment may also become clients of Contractor. Contractor may service such clients at other locations or after termination of this Agreement. [Optional: Contractor agrees not to solicit Company's other contractors or employees during the term of this Agreement and for [period] thereafter.]"

Best Practices:

True ICs should generally be able to take clients with them (this supports Prong C)
Broad non-competes are inconsistent with IC status and may be unenforceable
Focus non-solicitation on employees/staff, not clients
Consider whether protecting "your" clients is worth the classification risk

California Note: Non-compete agreements are generally void under Business and Professions Code Section 16600. Attempting to restrict a contractor's ability to work is both legally problematic and harmful to IC status arguments.

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Related Resources

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California Labor Code Section 2750.3

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IRS Form SS-8

Use this IRS form to request a determination of worker status for federal tax purposes. Useful if you need clarity on federal classification.

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Legal Disclaimer

This page provides general legal information, not legal advice for your specific situation. Worker classification law is complex, varies by state, and is actively evolving. The information here is current as of December 2025 but may change. For advice on your specific contractor arrangements, consult with a licensed attorney in your state.