To Employ or Contract?

Your time, gym operations, gym brand, finances, and even business survival can be affected by whether or not you hire employees or independent contractors. Thankfully, choosing between the two doesn’t need to give you a headache. After reading this overview, you should know right away what’s best for you.

Why you want to get this right:

The IRS prefers employees to independent contractors. They’re more likely to get their dues that way. The rules for what defines an independent contractor are strict and if you mislabel an employee as an independent contractor, you will be liable for paying employment taxes. In some cases, misidentification has led to gyms having to close their doors.

Staying on the IRS’s good side:

Here as some general rules of thumb to get you started.

Signs you have an employee:

1. The trainer has signed a non-compete clause. Independent contractors are technically self-employed and cannot generally be restrained in where they work. Independent contractors should however be asked to sign a non-disclosure clause.

2. You are understood to have the right (whether practiced or not) to control the manner in which the trainer performs his job.

3. The trainer is paid for their time.

Signs you have an independent contractor:

1. The trainer is being brought on for a specific period of time, for instance to teach a six month class.

2. You give your trainer few and general instructions.

3. The trainer has the right to refuse any tasks you assign him.

4. The trainer makes investments in his own gear, marketing, etc that are not reimbursed by the gym.

5. The trainer is paid a flat rate or for his time.

The pros of independent contractors:

The biggest win with hiring an independent contractor is probably that you don’t have to cover the taxes, unemployment insurance, workman's compensation, benefits, and amenities you would with an employee. At the same time, independent contractors are often paid more, but you may still end up saving money, plus time and headache. Also, independent contractors should be fairly self-governing, so all in all you won’t have as many responsibilities. Lastly, with employees you have to consider the law of your state in hiring, firing, communication, minimum wage, etc. When you choose to have employees, you must get yourself educated.

The pros of employees:

This can be stated in one word. Control. You can control their uniform, what they teach, how they teach it, when they teach it. You can require an employee to substitute if another teacher is sick. You can have your trainers sign a non-compete clause so fans of that trainer won’t get sucked away to another gym. The biggest sign you should hire employees is that you have a very definitive brand and you want everyone fully on board behind the same vision.

Making the decision:

We’ve covered the main factors in considering whether an employee or independent contractor is best for your business and it should be obvious that you should also consider what’s best for you personally. The final piece of the puzzle is to consider what works best for your trainers. After all, keeping them is what keeps your business running.