Employees or Independent Contractors?
Your time, studio operations, studio finances, and even business survival can be affected by whether or not you hire employees or independent contractors. Thankfully, you can choose confidently between the two! We’ve provided some helpful information to guide you in knowing what’s best for your studio.
Why you want to get this right:
Clearly, the IRS prefers employees to independent contractors, as they’re more likely to get their dues that way. Therefore, there are strict rules that define an independent contractor and strict penalties for mislabeling an employee as one, including liability of back due employment taxes. In some cases, misidentification has led to businesses having to close their doors.
What’s the difference?
Here are some general guidelines to get you started.
Signs you have an EMPLOYEE:
The instructor has signed a non-compete clause. Independent contractors are technically self-employed and generally speaking, cannot be restricted in terms of where they work. Independent contractors should however be asked to sign a non-disclosure clause.
You are understood to have the right (whether practiced or not) to control the manner in which the instructor performs their job.
The instructor is paid for their time.
Signs you have an INDEPENDENT CONTRACTOR:
The instructor is being brought on for a specific period of time, for instance to teach a six-month class.
They are in charge of their schedule.
You offer your instructor few and general instructions.
The instructor has the right to refuse any tasks you assign them.
The investment made in personal equipment needed for instruction, marketing, etc., is the responsibility of the instructor and is not reimbursed by the studio.
The instructor is paid a flat rate or for their time.
The pros of independent contractors:
Most people agree that the biggest win in hiring an independent contractor vs. an employee, is financially, in that you don’t have to cover their taxes, unemployment insurance, workman's compensation, benefits, and amenities. While independent contractors are often paid more, (as they are not hourly, rather paid by class or program) you may still find it more cost effective for your studio then hiring an employee.
Considering that independent contractors are fairly self-governing professionals, your responsibilities to them are much less as well. Lastly, there is much less to consider by way of state law, in terms of hiring, firing, communication, minimum wage, etc., as there is with maintaining employees. It is extremely important to be educated in those areas before choosing to employ.
The pros of employees:
This can be stated in one word…Control. You can control their uniform, what they teach, how they teach it, when they teach it. You can require an employee to substitute if another teacher is sick. You can require instructors that work over a certain amount of hours to sign a non-compete clause, preventing them from teaching at and leading students away to another studio. One of the biggest reasons that you would hire employees is if you have a very specific brand and you want to ensure a standard to maintain that brand.
Making the decision:
The information that we’ve provided is a simple guide to help you determine where your studio fits between the two options. Ultimately, the final decision is yours, and should take into account what will work best for you, personally, and what works best for your instructors and staff.