| IHRSA Report | In Brief W
Employee or Independent Contractor? How to Satisfy the IRS
hen hiring an aerobics instructor or tennis pro, many health club operators consider making use of an independent contractor, espe- cially for teaching a specific class or exercise. On the one hand, doing so costs less money and reduces the possibility of exposure to liability claims related to negligent acts by employees while on the job.
But, on the other, it can prove problematic. At the close of 2012, the Internal Revenue Service (IRS) will complete its
National Research Program, which involves the random selection and auditing of 6,000 employers. For years, the IRS has intentionally made it more difficult to classify workers as independent contractors (independents). For that reason, club operators who decide to treat workers as independents risk being audited and found in violation of the IRS tax code, which has costly repercussions. (Some sources say an improperly classified worker costs an employer an average of $3,000 in back taxes). Therefore, a growing number of club operators have been reluctant to take on workers as independents. But this doesn’t necessarily mean that hiring them at your club is inadvisable; it
just means that, in order to do so, you should take great care and cover all bases. Here’s a summary of what you need to know when it comes to hiring independents rather than regular employees:
Who is, and who isn’t, an independent contractor?
While there’s no clear-cut answer to this question, the key factors that distinguish employees from independents are: (1) the degree to which the club company controls the job the worker performs and how they do it—for instance, employees take their orders from club management, while independent contractors use their own discretion as to how they perform a task or provide a service; (2) if financial aspects of the worker’s job are controlled by the company (i.e., how the worker is paid, expense reimbursement); and (3) whether there are written contracts or employee-type benefits, such as health insurance or vacation pay. Some factors may suggest that the worker is an employee, while others may
indicate they’re an independent. According to the IRS, “there’s no ‘magic’ or set number that ‘makes’ the worker an employee or an independent contractor.” Therefore, it’s in your best interest to examine the entire relationship between
your business and an individual worker and consider how much right you have to control the way in which they perform the designated service or task.
How do other clubs classify aerobics, fitness, and racquet sport instructors?
The majority of IHRSA clubs compensate their aerobics, fitness, and racquet sports instructors as employees. However, about 31% pay their racquet sports instructors as contractors; 22% classify their aerobics instructors as contractors; and 10% compensate their fitness instructors as contractors.
What if I’m not sure?
The conservative approach is to compensate workers as employees to avoid the risk of an audit and back taxes. If you remain unsure, you can ask the IRS for a determination by filing Form SS-8. The IRS will use the information provided to determine how certain workers should be classified. The IRS does allow for relief from federal tax obligations for businesses as long
as three requirements are met: (1) you had a reasonable basis for not treating workers as employees (i.e., advice from a lawyer, a court case, or an IRS ruling); (2) you treated all previous and similar workers the same way; and (3) you filed a 1099-MISC form for each worker. If your club is audited, strengthen your case for hiring independents by doing
your homework. Research IRS rulings on situations similar to your own, and, most importantly, be sure to commit to writing each of the factors you used to determine whether to classify workers as employees or independents. —|
.org 90 Club Business Internat ional | JULY 2011 |
To read IHRSA’s complete briefing paper on independent contractors, log on to
www.ihrsa.org/briefing-papers.
www.
ihrsa.org
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100 |
Page 101 |
Page 102 |
Page 103 |
Page 104 |
Page 105 |
Page 106 |
Page 107 |
Page 108 |
Page 109 |
Page 110