The Role of Independent Contractors in the Fitness Industry
When a personal trainer is hired by a health and fitness club, there are two options. The first option is for the personal trainer to be classified as an employee of that health and fitness club. The second option is for the personal trainer to be classified as an independent contractor of the health and fitness club. There are different attributes for each option, and these different attributes can be important in determining how that health and fitness club is required to treat that personal trainer. For example, if the personal trainer is an employee of the health and fitness club, the health and fitness club will be required to withhold certain federal and state taxes, and pay for FICA on behalf of the employee. In addition, the personal trainer would not be entitled to certain employee benefits from the health and fitness club such as unemployment, health insurance or retirement plans. On the other hand, an independent contractor will file a W-9 form with the health and fitness club, and the health and fitness club will issue a 1099 form to the personal trainer at the end of the calendar year. The personal trainer is responsible for paying all federal, state , and self-employment taxes on the income he or she receives from the health and fitness club in exchange for providing personal training services. Similarly, the personal trainer is not entitled to any fringe benefits from the health and fitness club such as unemployment, health insurance or retirement plans. In determining whether a personal trainer is an employee of the health and fitness club, there are certain factors that will be considered by the Internal Revenue Service, California Employment Development Department, and Department of Labor. These agencies will consider: In analyzing whether the personal trainer is an employee or an independent contractor, the most important factor is whether the personal trainer is subject to the control of the health and fitness club not only as to what shall be done for whom it shall be done and how it shall be done. This inquiry will focus upon whether the personal trainer is subject to the supervision and control of the health and fitness club over the performance or manner of doing the services which have been hired. On occasions, a personal trainer will be required to work from the health and fitness club’s location as a condition of employment. When this is a requirement, the advisor recommend that a formal office-sharing agreement be executed by both parties.
Essential Terms to Include in an Agreement for Personal Trainers
Scope of Work
This section of your personal trainer independent contractor agreement should document the overall duties and responsibilities of the independent contractor and outline the general level of performance that is expected. All of the work that the personal trainer will perform and the parameters of that work should be incorporated into the scope of the work. For example, this section may include that any work related to any requested shifts or requested hours of availability that is not explicitly set forth in the contractor agreement will be considered voluntary and unpaid.
Schedule
A schedule of the parties’ expectations for the hours and shifts that the personal trainer is expected to work should be included in the personal trainer independent contractor agreement. By providing a schedule, both the personal trainer and the employer will have a clear understanding of the expectations and requirements of the contractor’s work. An hourly pay schedule should also be set forth at this point, stating what obligations the personal trainer has in terms of checking time cards in and out.
Job Duties and Responsibilities
The type of work and duties that the independent contractor is expected to perform and fulfill should be set forth in the form of a detailed list in the personal trainer independent contractor agreement. The amount of detail that this list goes into and the extent of the list will depend on the employer and the expectations of the job. A hiring factor which some companies incorporate into their personal trainer independent contractor agreements is a test or evaluation. Pre-employment evaluations and tests can help improve overall fitness facility and client safety and this Section of the personal trainer independent contractor agreement would outline whether pre-employment evaluations or tests will be required for employment with the employer.
Provisions That Protect Both You and Your Trainers
Whether you’re a gym owner bringing on independent trainers or a trainer working with a client at their home, you need clauses in your agreement to protect both you and the other party. Liability protection and guarantees of confidentiality are always important when working with clients. You’ll also want to spell out the conditions under which either of you may terminate the contract, and whether you’re going to include a non-compete agreement. Either way, be sure to err on the side of over-inclusiveness: if you aren’t sure whether you should include something, go ahead and put it in the contract; it’s better to have info that you don’t end up needing than to not have anything you do need. Also make sure to spell out which state’s laws will apply to the contract (the location where the client is receiving services), and what jurisdiction the parties will use to resolve any disputes that may arise.
Ensuring Compliance With Tax Regulations
Legal compliance and tax considerations are crucial aspects of any independent contractor agreement for personal trainers. As someone who works closely with personal trainers, fitness instructors, and fitness studios, I want to help you understand the legal requirements that apply to your relationship with independent contractors, as well as the tax obligations that you need to be aware of.
Regarding legal compliance, it is important to consider:
- state and federal labor laws;
- employee versus independent contractor status;
- wage and hour requirements; and
- insurance issues.
It can be tricky to determine the level of control that may be necessary in order for a trainer to be considered an independent contractor. If a trainer operates under significant control, this is likely to result in employee status rather than independent contractor status. On the other hand, the less control you exert over the way a trainer runs their business, the more likely it will be that they will be considered an independent contractor . Guidance from state and federal agencies will help you to determine if a trainer should be classified as an independent contractor or an employee.
It is important to ensure that your trainers understand tax filing requirements. They need to know how to file taxes and handle their expenses and revenue. If you plan to provide 1099s to your trainers, you should ensure that you have the necessary information to complete them. You should ask trainers for their Social Security number or federal employer identification number (FEIN), as well as their address, phone number, and email address. It is also a good idea to communicate the importance of proper bookkeeping and accounting for trainers because it is possible (and likely) that they will be responsible for paying self-employment tax. This means that they are required to file Schedule C and Schedule SE, and pay their share of Social Security and Medicare tax on earnings from your studio.
Preventing Misclassification of Personal Trainers
Proper classification of personal trainers as employees or independent contractors is essential for employer compliance and to avoid potential liability under Federal and State misclassification laws. Federal and State tax authorities, the U.S. Department of Labor, and state labor departments have special criteria used to determine whether someone is properly classified as an independent contractor or an employee. When looking at whether a worker was misclassified, each authority will analyze the same set of employer-employee factors, but will weigh them differently.
At the federal level, the IRS has many activities that it treats as indicia of employer-employee misclassification. These include:
• the extent to which the services performed by the worker are a key aspect of the regular business of the company;
• the extent of the company’s control over the worker’s time, place of work, work schedule, and the extent to which the worker works full-time for the company;
• the permanency of the relationship;
• the degree of skill and independence of the worker;
• how the work is paid and whether the payment structure resembles a salary;
• whether the company hires employees and provides benefits to employees;
The Internal Revenue Service ("IRS") developed a 20-point test to determine whether a worker is an employee or independent contractor. If the worker is a contractor for any of the 20 factors/issues listed below, the worker is likely an independent contractor, but if the worker has many responses that fit with being an employee, then that worker is not likely an independent contractor:
Under the Fair Labor Standards Act (FLSA), an employer has violated overtime requirements if an employee meets the legal definition of employee, but the employer claims the person is an independent contractor. In the eyes of the FLSA, it doesn’t matter whether the worker subjectively believed he was an independent contractor or whether the employer reasonably believed the worker was an independent contractor. The economic realities of the relationship control, not the subjective belief of the employee/employer. The FLSA misclassification analysis focuses on the degree of control exercised by the employer over the worker. The FLSA considers several factors or "economic realities" to determine whether a worker is an independent contractor, including:
• the nature and degree of control by the alleged employer;
• the extent of the worker’s investment in facilities or equipment;
• the skill required in performing the job;
• the permanence of the relationship;
• the method of payment;
• the extent to which the worker’s opportunity for profit or loss is determined by the employer;
In addition to the IRS and FLSA, most states have similar requirements and tests that must be used in the classification of workers. For example, New York, in its analysis, has a very similar definition and test to the IRS to determine whether the worker is an employee or independent contractor. Similarly, California has similar tests that assess:
• whether the person or organization for whom the service is rendered dictates the manner of work to be done, when to do it, where to do it, how to do it;
• whether the service rendered is an integral part of the business of the person or organization for whom it is performed;
• whether the person for whom the service is rendered has the right to control the employee only as to the results of the work and not as to the means by which it is accomplished;
• whether the person performing the service is engaged in a distinct occupation or business;
• whether the work is performed under the direction and supervision of the person for whom the services are rendered; and
• whether the person for whom the services are rendered is engaged in a course of conduct requiring skill.
If found liable for misclassification, employers can be subject to various penalties:
By misclassifying a worker, the employer exposes itself to many negative consequences. Furthermore, the misclassification of a personal trainer could expose the company to liability under OSHA standards for health clubs and gyms.
Making Your Agreement Effective: Tips and Recommendations
Drafting an effective independent contractor agreement for personal trainers can be complex, but it’s impossible to overstate the importance of this document to your business. Consider these simple tips when preparing and solidifying such an agreement for your organization:
- Understand and comply with federal and state laws – Laws regarding independent contractors vary from state to state, so it’s critical to ensure that your agreement meets both federal and state standards. States with stricter requirements for classifying employees are likely to take a dim view of broad independent contractor use by employers.
- Tailor your agreement to specific circumstances – All businesses are different , and tailor-made agreements are generally better for addressing the unique needs of each one. Review existing agreements and make revisions as needed. Some of the basic elements you might wish to address with a solid independent contractor agreement include a detailed description of expected tasks, ownership of work product, fees, duration of the contract, compensation and legal compliance provisions.
- Communicate clearly and often – Be transparent with independent contractors if changes are made to the contract over time, and be clear about any "do and don’t" rules, including the type of work those contractors can be expected to handle and how they must relate to your company and other employees.
- Periodically review and revise the agreement – Laws and regulations covering ICs are continually in flux, so it pays to review and revise your independent contractor agreements on a yearly basis.