Are Your Trainers Employees or Contractors?
In February 2015, Juliet Starrett, a Box Pro contributor, wrote an article titled Coaches are Employees, Not Contractors. Her opening line is, “Your Crossfit Coaches are employees, not contractors, and misclassifying them is not worth the risk. Seriously.”
In her article, she has some excellent points, but she also misses the boat completely. SERIOUSLY. I’ve always found her articles spot on and love the points she brings out to make affiliate owners better coaches and business people. Because I know Box owners put a lot of confidence in what she says, I feel the argument needs to be revisited. Otherwise, you will have some Box owners misclassifying their coaches AS employees.
Employees or Contractors?
Employee vs contractor is and will be a never ending debate. There are “roughly” 20 items the IRS would use in determining what the correct status would be. Some items have more importance than others. The major issue with this debate is that unless it is “clear-cut” the IRS will always say the coach is an employee. SERIOUSLY. With 20 items to look at, how often is the coach going to appear to be a clear-cut contractor. Never. It still doesn’t mean that you should throw your money away in unnecessary payroll tax dollars.
Juliet did point out that she has heard some ridiculous reasons as to why accountants have told Affiliates that the coaches are contractors. I agree that the reasons she listed are incorrect. I also agree that if you misclassify a coach as a contractor when they should have been an employee, the penalties are egregious and you could go out of business trying to pay them. But I disagree that just because the penalties are high and just because some accountants give bad advice, that they are for sure employees.
Juliet and the accountants she is referring to are missing the NUMBER 1 rule of taxes. “It Depends.” And in this case, that is the very reason why the IRS has been forced to have a 20+ checkpoint list for making this decision.
Affiliate gym owners could very well be treating their coaches as employees. If that is the case, you need to pay them as employees. But there are also scenarios where the Affiliate gym owner is treating their coaches as independent contractors.
The 5 questions Juliet Asks
Juliet is correct that the major overarching question the IRS is looking at is how much control are you exercising over your coach. She asks five questions that do in fact fall under the 20+ checkpoint.
- Do your clients pay the gym directly as opposed to paying the Coach?
- Do you have classes at set times (like 6 a.m.), meaning that a Coach is expected to show up at that time for the class?
- If new equipment is needed for the gym, do you buy it?
- Are your Coaches required to coach the CrossFit method during class or with their private clients?
- Do you pay the Coach a flat fee for coaching a class (i.e. pay them by the hour)?
For her box, she answers YES to all these questions. Therefore, he coaches are employees. So I want to address her questions and throw in another point of view.
The 5 questions in a different point of view
Do your clients pay the gym directly as opposed to paying the Coach?
The obvious answer is going to be yes. But this doesn’t make them employees. Do you think sales guys are getting paid directly when they make a sale? HELL NO! The company that has hired them is handling the money. When one of those pest control guys, or DirecTV sales guys comes to your door, your payment info is going through the mother ship. Not the sales guy. If you had a software company, you collect payment from your customer. It doesn’t matter if the contractor you hired to actually create the software is a contractor. You are still going to collect the money yourself. This is also not a factor listed on the IRS checkpoint list. I’m not sure why Juliet thinks it is so important.
Do you have classes at set times (like 6am), meaning that a Coach is expected to show up at that time for the class?
You of course have set class times. It’s vital to your clients being able to predict when they can come to your box and get in their WOD. Still, this doesn’t automatically make them an employee. Contractors are hired for performance. In this case, your coaches are hired to coach. You have a schedule of when your athletes can come to the gym for a workout. If the coaches have flexibility of their schedule then they are contractors. This means, the coaches can sign up to coach the specific classes they want to. If a coach signs up for the class, why wouldn’t you expect her to show up at that class? They were the ones that exercised their control of when they were going to teach. You are not dictating when they teach. Of course this means you run the risk of not having coaches for every class time. That’s one of the tradeoffs you have to accept if you want your coaches as contractors.
If new equipment is needed for the gym, do you buy it?
If you can convince your contractors to buy equipment for your gym, that would be sweet. Of course, it will never happen. You buy the new equipment for the gym. What’s getting overlooked here is who is deciding that new equipment is needed? As the Affiliate owner, you are aware of the needs of your athletes. If you feel that they could benefit from some type of new equipment, you would probably buy it (assuming your business is healthy and you have the cash flow). Does that mean your contractors are employees? No. You are buying the new equipment to provide a better service to your athletes. Coaches being employees or contractors is irrelevant to that decision. It always looks better when a contractor provides their own tools. But that is often not feasible. There is a reason the coach is a contractor and not the Affiliate owner. If he had all the tools, then he would probably have his own gym. If I had a coach who is a contractor, I’m going to charge her a rental fee to use my space and equipment. It helps in solidifying them as contractors.
Are your Coaches required to coach the CrossFit method during class or with their private clients?
Why the hell wouldn’t they be required to do that? You are a Crossfit affiliate owner. This doesn’t make them employees! Software developers hire independent contractors all the time. If the software is being developed in Java or C++, you better believe the company is going to require that the contractor they hired knows how to program in one of those languages. I have a client who has an ultra-successful translation company. It would kind of be ridiculous if he contracted a Japanese translator to work on his Spanish translation project. The CrossFit method is a language being taught in your box. You can require them to know CrossFit as a coach and they can still be contractors. If they have private clients outside your box, of course you have zero say in what they coach or train those people. Their private clients is also a scenario where the coach would receive the payments directly from the private clients. That is what private is after all. If the coach ever got her private client into your box, then of course you would pay a sales commission to the coach for selling her private client on becoming an athlete of your box.
Do you pay the coach a flat fee for coaching a class (i.e. pay them by hour)?
There are a lot of ways in which to structure the pay of a contractor. Paying them by hour doesn’t automatically make them employees. You could pay per class they coach. You could pay them a price per head in each class. You could even pay them a set amount each month. Contractors are paid for performance. And if you want them as contractors, they should be the ones invoicing you for the work they are doing.
It all depends
If you ever hear a CPA or accountant say that for sure your coaches are contractors, find a new one.
If you ever hear a CPA or accountant say that for sure your coaches are employees, find a new one.
You see what I did there? It all depends. It very well could be that you are exercising enough control over your coaches that they will be considered employees. There is nothing wrong with that, as long as it is a conscious decision. But you also could be giving the coach enough control over what you are paying him to do, that the coach will be a contractor.
If you want them to be a contractor, then you can structure the relationship in such a way that they are going to be a contractor. You just have to be willing to give up some control that you wouldn’t have to if they were going to be hired as employees.
You can learn more now with our newest free report. Decide confidently between employees or contractors.
GET THE REPORT
