10 Things Every Studio Owner Needs to Know About Legally Classifying Yoga Teachers
By Julia Judish, special counsel and Gary Kissiah, Esq., RYT 200
Published: July 19, 2016
- Make an educated decision about how to classify yoga teachers and workers. To explore more resources and information, visit our Worker Classification Resource Center.
- According to the Department of Labor, there are six factors to determine whether yoga teachers should be classified as independent contractors or employees
To see if these six factors apply to your yoga teachers, please visit the U.S. Department of Labor: Wage and Hour Division page.
- The Internal Revenue Service and the states both have different tests used for income tax purposes and tax audits. The IRS uses this three-factor test, Topic 762 - Independent Contractor vs. Employee, when classifying a worker as either an independent contractor or an employee. For more information on how the IRS distinguishes these two categories as separate entities, please read the IRS Employer Supplemental Tax Guide.
- Most states have adopted rules that are based on the IRS method of classifying workers. You will need to comply with both the IRS and the rules of your home state in order to properly classify your workers to ensure you are not audited by the IRS and the state taxing authorities.
- It is important that you build your strongest case for correctly classifying your teachers as independent contractors if that is the business model that you wish to pursue. Although there are no guarantees, if you have a strong case you may win your audit or escape with modest penalties.
- Using a strong independent contractor agreement is important in building your strongest case. Your actual business practices must be reflected in your independent contractor agreement and those practices must track the IRS and state tests. Consult your legal counsel for more information.
- The language used to classify employment status of yoga teachers is important. On websites and marketing materials, yoga teachers who are not employees should not be identified as employees. They can be called “visiting teacher” or “contractor teacher” or other terms that indicate to the public that the teacher is not employed by the studio.
- Yoga studios must pay payroll taxes for employees and incur costs such as unemployment insurance contributions, workers compensation insurance and provide any benefits that the studio chooses or is required to provide to employees, as well as reimbursing employees for job-related expenses. Those costs are not applicable to independent contractors, but independent contractors usually demand higher rates.
- The same worker classification laws for yoga teachers apply to both nonprofit and for-profit businesses.
- Worker classification laws apply to all studio workers: yoga teachers, bookkeepers, directors and managers, etc.