It’s not uncommon for yoga studio owners to hire teachers as independent contractors. However, some studio owners are finding themselves caught in legal battles over the classification of their teachers. Are they really independent contractors, or are they employees? It’s vital for studio owners to establish whether they are compliant with worker classification laws, otherwise they face potential hefty fines and legal battles.
Here are some insights to help you better understand how employees are classified. It’s important to note that these are simply guidelines to help you determine if your studio is compliant, not legal advice. We highly recommend talking to a lawyer if you’re concerned about your studio’s compliance.
Independent Contractor or Employee?
How do yoga studio owners know whether their teachers are independent contractors or employees? Worker classification laws differ from state to state, but classification depends largely on the employer’s ability to direct and control their workers. If a worker is an independent contractor, the “payer has the right to control or direct only the result of the work and not what will be done and how it will be done,” according to the IRS. If a payer can determine what work will be done and how it will be done by a worker, that worker is an employee.
However, there are instances where a worker might not be an independent contractor even when the payer does not have control over what and how work will be done. If the worker is economically dependent on the payer, they may be considered an employee regardless of the amount of control the payer has over their work. Studio owners should exercise caution and remember that there are several factors to address when classifying workers.
If state or federal governments determine that an employer has misclassified their workers, they may be liable for:
- State unemployment taxes
- Worker’s compensation insurance
- Unpaid payroll taxes
For example, a studio owner in New York found herself responsible for $70,000 in penalties after the Workers’ Compensation Board of the State of New York penalized her for failure to comply with worker’s compensation coverage for her teachers. She believed her teachers were independent contractors, so she filed for redetermination of her teachers’ classifications. She failed to reclassify her teachers as independent contractors, and now owes more than $150,000 in penalties. In addition, she needs to provide her workers with all benefits required for employees.
Compliance with Worker Classification Laws
Some yoga studio owners have classified their teachers as employees to avoid penalties, but that can be expensive for small studio owners. Employees usually require health benefits, sick pay, vacation time and salary or hourly pay – benefits which studio owners sometimes can’t afford.
Many studio owners would prefer that their teachers be classified as independent contractors. This benefits both the owner and teachers since so many yoga studios are small businesses. Owners can avoid the extra costs associated with employee benefits, and teachers can depend on these studios staying in business.
So how should studio owners ensure they are compliant with worker classification laws if they plan to classify their teachers as independent contractors?
- Studio owners should sign professional independent contractor agreements with their teachers. This agreement clearly states that the worker is not entitled to employment benefits, and it will be a key document in the case of an audit or legal battle.
- Research and understand state and federal laws in order to build a case that your employees are independent contractors. Even in the same industry, each business is different. The resolution of each case depends on the specifics of the business since the law does not have one concrete definition of an independent contractor.
- Avoid supervising teachers or requiring teachers to do specific jobs in the studio. You can remain compliant with classification laws if you limit your control of your teachers. The less control you have over your teachers, the lower the chance that you will be audited or penalized.
A great way to reduce tasks for your teachers to complete while on the job, ensuring they can remain as independent contractors, is by offering self-service capabilities to your students. Select a studio management software that allows students to:
- Check-in on their own
- Select and pay for retail items
- Purchase memberships and drop-ins
Interested in seeing how other successful studios are paying their teachers? Get your copy of our free Yoga Studio Benchmark Report.