HELPFUL INFORMATION FOR YOUR BUSINESS DURING COVID-19

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Having employees is tough (and expensive). That’s why some fitness studio owners try to avoid the problem by classifying all their workers, including their instructors, as contractors. No payroll to process, no extra taxes, no employee paperwork. But have these owners solved their problem? Or created an even bigger one that could put them out of business?

How Not to Be Like Uber

Some high-profile stories have put the worker classification issue in the news lately. Companies such as Uber and FedEx are facing huge settlements for paying their employees as contractors. These are giant companies, but that doesn’t mean your small fitness studio shouldn’t learn from their mistakes.

The IRS and state labor departments are cracking down and audits are increasing for businesses of all sizes. The penalties are steep – they can add up to tens of thousands of dollars. Getting it wrong is the type of thing that could force you to close your doors for good.

How to Classify Fitness Instructors as Contractors or Employees

Classifying fitness instructors can be especially tough. They usually have irregular hours, they come with varying levels of certification and training, and they may have another job somewhere else. Unfortunately, the IRS doesn’t give us a magic checklist to help us make the decision. So, if you are going to pay your instructors as contractors, you need to create your own criteria.

Here are some questions we often see – you should add these to your hiring or on-boarding paperwork.

  • Does the instructor have a separate business outside of your gym (such as a registered business name and business cards)?
  • Does the instructor pay for his/her own equipment and supplies?
  • Does the instructor bring in his/her own clients?
  • Does the instructor set his/her own price for sessions?
  • Does the instructor design the workouts?

The more you answer “Yes”, the more likely your instructors are contractors.

5 Traps to Avoid

Since there are so many things to consider when you classify your workers, it can be easier to look at the things that shouldn’t be part of the decision.

  1. Relying on the number of hours worked. You can have part-time employees or contractors who work 40+ hours – the volume of work isn’t usually a factor.
  2. Thinking you’re safe because your instructors are friends. Some audits are triggered by disgruntled workers. But most are the result of an innocent disability or unemployment claim from someone who didn’t know they weren’t eligible for benefits.
  3. Making it a choice. Some workers will tell you they would rather be a contractor, and it seems like the cheaper choice for you too. But if you happen to get audited, that worker (and all your other workers) could get reclassified – and it is you who pays the price.
  4. Being inconsistent. If two workers perform the same tasks, they should be classified the same.
  5. Copying what the owner down the street is doing. Just because that guy hasn’t been caught doesn’t make it any more legal or less risky for you.

Now is the time to take a look at how you are paying your instructors. Create your criteria and document your decision-making process. If you are comfortable that your workers are contractors, by all means, pay them that way. But if you are worried that you might have some instructors who could be employees, ask yourself if the risk is worth taking.

About the Author

Andy Smith

Andy Smith

Andy Smith, Founder of Numberwise, has been a CPA since 2004 (pretty impressive, huh?). He leads the strategic vision of the company, signs all those fun tax returns, and tries not to get in the way too much. Learn more about Andy and the rest of the team on the About Us page.
Andy Smith

Andy Smith

Andy Smith, Founder of Numberwise, has been a CPA since 2004 (pretty impressive, huh?). He leads the strategic vision of the company, signs all those fun tax returns, and tries not to get in the way too much. Learn more about Andy and the rest of the team on the About Us page.
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