The answer depends on how the relationship actually works, not what you call it on paper. A true booth or chair renter who runs an independent business can often be treated as a contractor and receive a 1099. A stylist you schedule, pay by commission, and direct in how they do their work is an employee and needs a W-2.

A genuine booth rental arrangement looks like this: the stylist sets their own hours, builds and keeps their own client list, markets themselves independently, brings their own products and tools, and pays you a flat rent for the chair or station. They run their own business out of your space.

An employee relationship looks different. You set the schedule, assign clients, pay a percentage or hourly rate, provide supplies, and control how the work gets done. Even if you call that person a booth renter, the IRS and the state will treat them as an employee based on how the relationship actually functions.

Massachusetts makes this harder than most states. The state applies what’s called the ABC test and presumes that a worker is an employee unless all three conditions are met. First, the worker must be free from your control and direction. Second, the work must be performed outside the usual course of your business or outside your usual place of business. Third, the worker must be customarily engaged in an independently established trade, occupation, or business.

That second prong is the problem for salons and spas. A stylist cutting hair in your salon is doing work that falls squarely within the usual course of a salon’s business. That makes it very difficult to satisfy the ABC test even when the stylist otherwise looks independent. This is why Massachusetts sees so many misclassification disputes in the salon industry.

Getting this wrong is expensive. Massachusetts allows triple damages in wage and hour cases, meaning you could owe three times the back wages plus penalties, interest, and unpaid payroll taxes. The state takes misclassification seriously and audits can happen.

If you want to use a true booth rental model, the arrangement needs to genuinely meet the ABC test. That means documenting the relationship properly, collecting rent rather than paying commission, and making sure the renter actually operates their own independent business. If you have employees alongside booth renters, keep the arrangements clearly separated.

This is one of those areas where working with a CPA who knows the rules pays for itself. At Smart Outsourced Solutions, Simona Leppala is a CPA and Enrolled Agent who handles bookkeeping and tax services for salons across New England. She can review your current arrangements, help you classify workers correctly, run payroll for your employees, and prepare 1099s for your legitimate contractors. If you are not sure whether your setup passes the ABC test, a conversation now is a lot cheaper than a misclassification finding later.