When it comes to your teaching staff, an important decision needs to occur before you even hire them. Are they going to classified as Independent Contractors or Employees? Both federal and state laws require that workers be classified as employees unless certain test for independent contractor status are met. According to the IRS, the following definitions are used when classifying workers.
Independent Contractors: If you can direct or control only the result of the work done — and not the means and methods of accomplishing the result — then your workers are independent contractors.
Employees: If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.
Dawn Piper, owner of Free Range Yoga in Macomb, Illinois, explained they hire their teachers as independent contractors. That being said, she also explained it takes a specific type of person to be willing to put in the work it takes to have their own successful business.
“At Free Range, each teacher is an independent contractor and thus responsible for their own bookkeeping, marketing, deciding on the classes they want to teach, scheduling, registering their own students, etc.,” said Piper.
Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors. Knowing these definitions can save your studio time and money in the long run and the workers can avoid higher tax bills and lost benefits if they know their proper status.
Piper has set up a win/win situation at Free Range Yoga. Each teacher at the studio pays rent per class at a rate set by Piper. This helps in classifying them as independent contractors, rather than employees, because they are paying for the space they are using. This helps Piper and her business stay away from the fine print and gray area between employee and contractor.
“I go the extra mile to help the teachers succeed, because when they succeed, our students are served better and I also succeed,” said Piper. “I can’t do this without our teachers at Free Range and I let them know that I appreciate them. I give them free access to the studio to host free workshops to bring in new students, send them articles that are appropriate, use social media to highlight what they are doing, and send out a monthly newsletter highlighting what everyone is doing.”