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Thread: Dancers with Employee Status

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    Default Dancers with Employee Status

    I have a few questions regarding the rights of dancers who are employees. I was hoping you all could give me some advice.
    I work at a club in upstate New York, as an employee. My club just got private ld areas (although there is no contact, so it is more a private air dance area). For the past 6 months the cost of a dance in these rooms has been 20$. The dancer keeps all of this money. The club has decided to switch over to "dance dollars," raising the price of the dance to 25 dance dollars. The club would keep 5 and the dancer 20.

    Is it legal for the club to take a cut of an employee's tips? Online research says no.
    Is this no longer considered a tip anymore? Is this a question of legal language?
    What is the cut for? Are we renting the space from them? If so should we be allowed to give whatever kind of dance we like, within the legal limit?

    I realize the club isn't try to be greedy. The new policy of taking a cut of dances has come around the same time dancers minimum wage went up. However, this is the same price full contact clubs in my area charge for a dance. I can't help but think this will increase the difficulty of selling dances, and alienate current patrons.

    Sorry for the long post. I searched this topic, but didn't find anything. Any thoughts or resources you all could point me toward would be greatly appreciated. Thanks!

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    Default Re: Dancers with Employee Status

    A club can require an employee to contribute to the tip pool so as to assure all employees are paid the minimum wage but no more. Policing this is the problem. The club will be very reluctant to share pay information with anyone questioning the tip pool.

    HTH
    Z

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    Default Re: Dancers with Employee Status

    The tip pool? I don't really understand. If we are employees why would it be our responsibility to make sure all other employee's salaries are paid? Wouldn't that be the responsibility of the owner? Also minimum wage is only 5 and change. This means that if every dancer did one dance per hour, and the club collected 5 for each dance. The tip pool would be pretty much taken care of. Wouldn't this make the rest of their collection unethical/illegal? Also the club said they intend to use all the money collected for advertising. Thanks for the info.

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    Default Re: Dancers with Employee Status

    going back to some basic legal points about 'employee' dancer status ...

    - as an 'employee' dancer, your work product belongs to your 'employer' the club and not yourself. Thus any money you receive as a result of giving private dances etc. actually legally belongs to the club and not to you. Technically, a pre-agreed amount of money paid by customers in exchange for a particular service is not considered to be 'tip' income since it is not a 'voluntary gratuity' payment on the part of a customer. From a legal standpoint, only money that customers drop at the rail or put in your hand voluntarily is considered to be 'tip' income.

    - Legally speaking, the 'employer' club can choose to 'pay out' 100% or 80% or 50% or even 0% of customer dollars spent on private dances to 'employee' dancers in the form of a 'sales commission'. In the past the club has apparently chosen the 100% figure, but has the legal right to choose a lower percentage. In reality, it appears that your 'employer' club has actually chosen to ignore the existance of private dances altogether from a payroll / accounting / tax standpoint ... which is actually illegal for a situation with an 'employer' club and 'employee' dancers !

    - again legally speaking, 'tipped minimum wage employees' are required to channel their tip earnings through the club's payroll system in some manner in order to assure that all employees receive the net minimum wage plus assure that all appropriate 'employee' payroll taxes and insurance premiums are deducted. In New York, IRS and state tax dep't precedent re 'tipped minimum wage employees' ( mostly casino workers ) has 'forced' these employers to adopt a 'tip pooling' system of employee tip earnings accounting. In other words, all of the employees are required to drop their cash tip earnings into a 'jar' ... which the employer then adds up, divides into an equal share per employee, and adds into the employee's paycheck ( with appropriate 'employee' payroll taxes and insurance premiums deducted ). Obviously this drew complaints from employees who tended to earn large amounts of tips, while drawing praise from other employees who tended to earn less, since they all now earn the 'same' amount of pooled tip dollars.

    - from a legal standpoint, the club's switch from cash to 'funny money' is going to introduce a new wrinkle. Right now, customer payments that you receive from private dances essentially bypass the 'employer's' payroll system ... and in doing so also bypass official income reporting, payroll taxes, unemployment and comp insurance premiums, etc. on that income. When the club switches to 'funny money', customer payments will have to occur via the club's cash register. As such, when the club subsequently makes a cash payment to dancers as the 'sales commission' on private dances they have performed in exchange for 'funny money', in one way or another those cash payments will have to be officially reported as dancer income by the club.

    - it's possible that the club will choose to simply add dancer 'sales commission' payouts into dancer paychecks. But this will subject that money to employer and employee payroll taxes, to unemployment and worker's comp insurance premiums etc. on a weekly basis ... meaning that for every nominal $20 in 'sales commission' payouts some $8 would go towards taxes and insurance with the dancer actually receiving $12.

    - it's also possible that the club will treat dancer 'sales commission' payouts as non-payroll income ( which saves the employer money and arguably allows the employee to break even ) ... but which the dancer may not find out about until a 1099 form arrives in her mailbox in February of 2012. At that point, the dancer would be responsible for paying a 15.3% SSI tax on the total amount, plus paying perhaps another 13% in federal income tax and another 4% in state income tax on the total amount, out of her own pocket. While this is better than only keeping $12 of every $20 ... probably amounting to keeping $14 ... it still means having to pay out $6 on every $20 sales commission earned in 2011 ... and potentially having to do so all in one lump sum. Since the IRS also imposes a requirement for workers receiving 1099 income to pay quarterly estimated taxes, the club should disclose their intention to issue 1099's to dancers as soon as the 'funny money' system is implemented so that dancers can be prepared for making the necessary quarterly estimated tax payments and avoid the IRS penalties for NOT making them ( as well as avoiding a $10,000+ 'surprise' lump sum tax payment when doing their tax returns a year from now ).


    In terms of personal opinion, I chose never to work as an 'employee' dancer.

    These days, there are also additional risk factors waiting in the wings for 'employee' dancers. A major one is new ObamaCare mandates that 'employers' must provide health benefits for 'full time' employees or pay new fines if they don't. If ObamaCare 'survives' its court challenges, this is very probably going to serve as strong incentive for 'employer' clubs to limit 'employee' dancer working hours to 24 or less per week i.e. part-time worker legal status.

    It also sounds like there is a lot of potential for your 'employer' club to try and pull some 'sleight-of-hand' in regard to the new club / employer income tax plus unemployment insurance / worker's comp premiums they may legally be required to pay on private dance 'funny money' sales / earnings. This has a strong potential for attracting a future IRS or more probably NY state tax audit ... which will undoubtedly expand to include the 'employee' dancers along with the 'employer' club.

    You might want to seriously think about seeking work at other area clubs where dancers are still treated as 'independent contractors'. After all, if this club raises their private dance prices to $25 while the other clubs remain at $20, that's where you're likely to find many of your former customers !!!
    ~
    Last edited by Melonie; 02-06-2011 at 05:47 AM.

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    Default Re: Dancers with Employee Status

    Thank you so much Melonie! I knew you would have great info. I always appreciate your business savy posts.

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    Default Re: Dancers with Employee Status

    Quote Originally Posted by Melonie View Post
    going back to some basic legal points about 'employee' dancer status ...

    - it's possible that the club will choose to simply add dancer 'sales commission' payouts into dancer paychecks. But this will subject that money to employer and employee payroll taxes, to unemployment and worker's comp insurance premiums etc. on a weekly basis ... meaning that for every nominal $20 in 'sales commission' payouts some $8 would go towards taxes and insurance with the dancer actually receiving $12.

    - it's also possible that the club will treat dancer 'sales commission' payouts as non-payroll income ( which saves the employer money and arguably allows the employee to break even ) ... but which the dancer may not find out about until a 1099 form arrives in her mailbox in February of 2012. At that point, the dancer would be responsible for paying a 15.3% SSI tax on the total amount, plus paying perhaps another 13% in federal income tax and another 4% in state income tax on the total amount, out of her own pocket. While this is better than only keeping $12 of every $20 ... probably amounting to keeping $14 ... it still means having to pay out $6 on every $20 sales commission earned in 2011 ... and potentially having to do so all in one lump sum. Since the IRS also imposes a requirement for workers receiving 1099 income to pay quarterly estimated taxes, the club should disclose their intention to issue 1099's to dancers as soon as the 'funny money' system is implemented so that dancers can be prepared for making the necessary quarterly estimated tax payments and avoid the IRS penalties for NOT making them ( as well as avoiding a $10,000+ 'surprise' lump sum tax payment when doing their tax returns a year from now ).


    ~
    ^ I was wondering about the tax info. That will definitely stir things up. None of my coworkers seem particularly excited about the switch.

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    Default Re: Dancers with Employee Status

    Quote Originally Posted by Melonie View Post
    going back to some basic legal points about 'employee' dancer status ...

    - as an 'employee' dancer, your work product belongs to your 'employer' the club and not yourself. Thus any money you receive as a result of giving private dances etc. actually legally belongs to the club and not to you. Technically, a pre-agreed amount of money paid by customers in exchange for a particular service is not considered to be 'tip' income since it is not a 'voluntary gratuity' payment on the part of a customer. From a legal standpoint, only money that customers drop at the rail or put in your hand voluntarily is considered to be 'tip' income.

    - Legally speaking, the 'employer' club can choose to 'pay out' 100% or 80% or 50% or even 0% of customer dollars spent on private dances to 'employee' dancers in the form of a 'sales commission'. In the past the club has apparently chosen the 100% figure, but has the legal right to choose a lower percentage. In reality, it appears that your 'employer' club has actually chosen to ignore the existance of private dances altogether from a payroll / accounting / tax standpoint ... which is actually illegal for a situation with an 'employer' club and 'employee' dancers !

    ~
    I also work at this club. They've gotten into legal trouble before, so I doubt that they were doing anything that was explicitly illegal. I know the owner has everything checked and double checked by a lawyer...they would prefer for us to be independent contractors, but they want to mandate a schedule.

    For years, the club only had table dances and we weren't allowed to quote a price. After reading your post, I imagine that one of the reasons for that was to keep dance sales as involuntary gratuity. A few months ago, they installed booths in the back with a set price of $20 a song. It is possible that they are illegal now, but I think they may have jumped through a loophole. I have been stiffed for a dance a few times, and the club tells me that there is nothing that they can do. I just thought that it was them being jerks, because other clubs will threaten to call the police when that happens. I now wonder if their refusal to enforce the $20 price to keep dance sales under voluntary gratuity, and the $20 set price is only a "suggested" tip.

    Does anyone know the requirements for having independent contractors instead of employees?

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    Default Re: Dancers with Employee Status

    Does anyone know the requirements for having independent contractors instead of employees?
    In theoretical terms, determining 'employee' versus 'independent contractor' status involves a long list of factors ... which essentially revolve around the degree of 'control' that the club imposes on its dancers. The tighter the club's scheduling, and the stricter the club's rules, the more it favors 'employee' status.

    In real world terms, every DOL / court case involving house dancers being 'employees' versus 'independent contractors' has been decided on the 'employee' side. If this club has been the subject of a previous DOL / court case then the 'employee' status may be an aftereffect of that court ruling.

    In real world terms, the federal and state gov'ts benefit from 'employee' status because the dancer incomes are officially reported thus tax collection is much higher. In real world terms club owners benefit from 'independent contractor' status because there is no need for a payroll system, no need for the club to pay unemployment and workers comp insurance premiums, no need for the club to pay 1/2 of the dancers' SSI taxes etc.


    For years, the club only had table dances and we weren't allowed to quote a price. After reading your post, I imagine that one of the reasons for that was to keep dance sales as voluntary gratuity.
    yes this would fit the scenario. In fact the more you describe this club, the more it seems that I actually worked there briefly many years ago ( does Salina St ring a bell ? ).

    From the standpoint of potential tax problems, I'm less concerned about the actual setup re private dances than about the new adoption of 'funny money'. Follow the logic here. When a custy buys funny money this transaction gets booked through the club's cash register. So unless the club can show that this money eventually gets paid out to a dancer, ALL of it would be considered to be additional income to the club ( on which the club would be taxed at up to a 35% tax rate). Now if the club pays out $20 in cash to a dancer in exchange for trading in $25 in funny money, if the club doesn't document this payout then effectively the club faces a situation of $25 custy = $25 club income - $ 8 club income taxes - $20 cash to dancer = a loss of $3 on every private dance sold !!! The only way this can be avoided is if the club reports the dancer payout as a 'business expense' ( which automatically means it's also reported as dancer income ) ... in which case $25 custy = ($25-$20 to dancer = $5 club income ) - $2 club income taxes = a gain of $3 on every private dance sold !!! Of course in the latter situation, the dancers will later be hit with a bill for $6 in income tax for every $20 payout they received as the result of the club issuing 1099's reporting those $20 payouts to the IRS as a club 'business expense'.

    None of my coworkers seem particularly excited about the switch.
    in all probability, your co-workers have only been reporting their W2 incomes and 'pocketing' cash tips and cash payments for table dances. That will come to a screeching halt if, a year from now, a club 1099 form shows up in their mailbox showing $30,000 worth of total funny money payouts from the club throughout 2011 on which the dancers owe $10,000 in income taxes !!! Of course, if the club keeps its mouth shut, it can 'get away with' making cash payouts for all of 2011 before most of the dancers realize this money is going to be reported to the IRS and that they are going to have to cough up big bucks to pay the taxes due.

    This also leads to a whole bunch of possible scenarios in April of 2012 where some dancers try to ignore the 1099, or the club tries to ignore 'employer' taxes and/or insurance premiums due, all of which vastly increase the probability that the club and dancers will draw IRS attention. At that point, not only would the 2011 earnings and tax situation be open for audit, but the IRS could also look back at 2010 and 2009 ( thinking unreported cash tips and table dance money ). Personally, I would try to steer clear of this potential mess by removing my name from the club's 'employee' payroll ASAP. However, if you have already received a club paycheck in 2011 it may be 'too late' already since your 'employee' info is still going to appear on a 2011 club 'employee' summary that will be the first thing the IRS looks at if and when the IRS starts poking around.

    The other option if you have to continue working at this club is to immediately start setting aside $6 for every $20 funny money payout you receive ... to start filing estimated income tax vouchers and sending in estimated tax checks every 3 months ( funded by the $6 'self-withholding' of estimated income taxes you will be performing ) ... and to apply the estimated tax payments as credits against taxes due in April of 2012 after the 1099's arrive. You can also 'gamble' using the IRS first year exemption doctrine, and simply put the $6 'self-withholding' money in a safe or dedicated bank account until you actually see how all of this is going to shake out next February. At least with the latter you will have already set aside the $10,000 or whatever that's needed to pay the additional income tax liability.

    ~
    Last edited by Melonie; 02-07-2011 at 03:07 AM.

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    Default Re: Dancers with Employee Status

    Quote Originally Posted by Melonie View Post

    From the standpoint of potential tax problems, I'm less concerned about the actual setup re private dances than about the new adoption of 'funny money'. Follow the logic here. When a custy buys funny money this transaction gets booked through the club's cash register. So unless the club can show that this money eventually gets paid out to a dancer, ALL of it would be considered to be additional income to the club ( on which the club would be taxed at up to a 35% tax rate). Now if the club pays out $20 in cash to a dancer in exchange for trading in $25 in funny money, if the club doesn't document this payout then effectively the club faces a situation of $25 custy = $25 club income - $ 8 club income taxes - $20 cash to dancer = a loss of $3 on every private dance sold !!! The only way this can be avoided is if the club reports the dancer payout as a 'business expense' ( which automatically means it's also reported as dancer income ) ... in which case $25 custy = ($25-$20 to dancer = $5 club income ) - $2 club income taxes = a gain of $3 on every private dance sold !!!


    ~
    ^ I thought of this. It might be difficult to keep track of how much "funny money" each dancers is changing per night. My boss said we could exchange it through out the night rather than at the end, with the bartender or waitress. This seems like it will lead to an organizational clusterfuck for the club and dancers around taxes. For them to keep track of the exchanges they are going to need a major revamp of book keeping, and/or a really on point person in charge of making money exchanges. I wonder if they have considered of these logistical issues?

    I was wondering, is it legal to ask employees/dancers to sell drinks? I keep hearing different answers.

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    Default Re: Dancers with Employee Status

    ^^^ and that organizational / club bookkeeping clusterfuck is exactly the sort of thing that will draw IRS attention. Obviously the club has NOT considered the issues, since your latest description of the funny money system they are proposing will cause the club to 'lose' $3 on every private dance performed ( net of club income taxes next April ) - unless of course the club intends to ( illegally ) transact every customer funny money purchase in cash without running it through the club's cash register.

    As to 'employees' working behind the bar, in NY it's legal if they are age 21+.

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    Default Re: Dancers with Employee Status

    Yeah...so they aren't going to run the funny money through the register, cash only...
    hmmmph

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    Default Re: Dancers with Employee Status

    ^^^ but if customers want to buy funny money on their credit cards, the club has NO CHOICE but to run the transaction through their cash register !!!

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    Default Re: Dancers with Employee Status

    Quote Originally Posted by charlottepower View Post
    I was wondering, is it legal to ask employees/dancers to sell drinks? I keep hearing different answers.
    That depends on state law. In Indiana, requiring dancers, or anyone except wait staff and bar tenders to sell drinks is illegal. It's known as "taxi dancing." In Kentucky, taxi dancing is legal, on a county by county basis because each county in Kentucky determines its own liquor laws. Thus it is possible for there to be so called "dry" counties where all alcohol sales are illegal, some dry counties where liquor or spirits can be distilled, and sold wholesale but not for consumption and other counties where distilling is not legal, but bars, taverns and liquor stores are legal. And every permutation in between. In Louisville, taxi dancing is legal along with liquor stores, bars, taverns and distilling and wholesaling. The best way to know what is legal in your jurisdiction is get the bartenders license guide and study it like you are going to take the test to get a license.

    HTH
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    Default Re: Dancers with Employee Status

    ^^^ in the specific case of New York alcohol laws, and in the context of clubs setting 'quotas' for alcoholic drink purchases by customers for dancers ( which I assume was the basis of your question ), as an 'employee' dancer the 'employer' club can offer to pay you a 'sales commission' on these drinks but the 'employer' club cannot legally fine / penalize you for not meeting some arbitrary drink sales 'quota' during a given shift.

    However, the 'employer' club CAN legally fire you for failing to meet some arbitrary drink sales 'quota' repeatedly over some reasonably long time period ... on the basis of substandard 'employee' performance / poor 'employee' productivity. Legally speaking, the 'employer' club could also fire dancers who repeatedly fail to sell an arbitrary 'quota' of private dances per shift over some reasonably long time period, on the same basis of substandard 'employee' performance / poor 'employee' productivity. The NY-DOL has many precedents along these lines, and almost always sides with the 'employer' in cases where documented evidence of 'under-performance' by certain 'employees' is produced by the 'employer'.

    Ironically, in real world terms, this means that an 'employer' club is fully within their legal rights to fire 'employee' dancers who fail to provide 'extras' in the private dance area ... and as such repeatedly fail to sell X number of private dances !

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    Default Re: Dancers with Employee Status

    Thanks for all the info ladies!

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    Default Re: Dancers with Employee Status

    There are a couple of issues here that I think present a legal wrinkle.

    I spoke to the manager and she said that they were not planning on running any transactions through the cash register, so they were not going to add any dances onto our reported income. They said that they plan on claiming the $5 income they make per dance and paying taxes on that. And they were NOT going to allow costumers to purchase dances on their credit cards.

    This club HAS been sued before, so they get everything checked by their lawyer...they are interested in keeping everything legal. All in all, they are a pretty fair club and I think (for the most part) they treat us well.

    However, all of our dances have been under "voluntary gratuity." That is why for years there was no set price. Even when they set a price, the sign still said "$20 gratuity for backroom dances." Once they sell funny money, then it's a SALE. They can't jump through the voluntary gratuity loophole anymore. It's a sale, and they are effectively making a commission. I think they think that it is all legal as long as they claim whatever income they make, but I think that the way they intend on doing this is illegal. They are effectively making a sale and giving us commission, so, legally they should be obligated to report that income for us.

    Am I right?

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    Default Re: Dancers with Employee Status

    ^^^ since I'm not an attorney, all I can do is offer the following opinion ...

    If the club has told you that they are NOT going to run customer funny money purchases through the club's cash register, but that they ARE going to claim the club's $5 funny money share of every private dance as club income, 'sumpthin aint right' !

    Also, under IRS and NYDOL precedent, 'employee' income from tips / gratuities is supposed to be reported through the club's payroll system by the 'employees'. The statement from your club clearly indicates they won't be allowing this. In effect, this could create a legal situation where the failure to report gratuities received by dancers from backroom dances which correspond with the club's reporting of $5 club shares from the same backroom dances is the dancers' fault !

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