Recital season is nearly over! It's time to start thinking about next year (if you haven't already). This month's blog is all about the hiring status you chose at your studio. I've noticed that there seems to be a controversy over a dance instructor's work status in the United States. In the past, I've heard many studio owners chose their classification based on what they could afford. While every state has its own guidance to classification, this blog will lay out facts the IRS provides. It will also provide you with specific dance industry questions to consider when determining the employment status of your teachers.
Definition of Employee - An individual who performs services that are controlled buy an employer (what and how it will be done).
Definition of Contractor - An individual or entity who offers their services to the general public under an agreement. A contractor retains total and free control over the what and how the services will be performed.
As you see by the definitions, the amount of control is an indicator of the work status. When determining control, the IRS has three categories to examine: Behavioral, Financial, and Type of Relationship. Each category has many factors to consider, and businesses must weigh them all together when determining work status. This is where the confusion and "grey area" steps in. Unfortunately, there isn't one factor alone that determines work status. Luckily, several places provide a clear 20-factor test to help you determine where the majority of your control and relationship lies. I linked a couple below. However, the following section provides you with specific dance industry formatted questions for you to consider.
Important dance industry questions to consider:
Is there a contract that the instructor provides?
Bonus: Unsure what an independent contractor contract should look like? Check out our template in the documents section of "Behind the Teaching". https://www.danceteachersupport.net/behind-the-teaching
Scheduling: Does your instructor pick what days and times he/she works?
Curriculum: Do you let your instructor provide his/her own curriculum and methods for instruction?
Integrated Services: Without the instructor, can your business still function successfully? Or does your business rely on the success of your instructor?
Assistants: Is your instructor allowed to hire anyone to come in and complete the job? If he/she has student assistants, who compensates them?
Is there a continuing relationship with the instructor? Is the instructor hired as a short-term guest artist? Are you continually hiring the instructor year-after-year?
Pay: Are you determining the pay of your instructors and paying on a set schedule? Who has the potential to profit or suffer loss?
Materials: Do you pay for or provide the music, props, sound equipment, mats, etc. needed for the instructor to complete the job?
Is your instructor able to work anywhere for anyone at any time?
Termination: Are you able to discharge your instructor? Can he/she quit at any time without liability?
Penalties
In the past, independent contractor status has been a way for businesses to reduce costs and avoid legal responsibilities. While it may appear beneficial on the surface (the pay can be higher), the truth of the matter is, misclassifying your instructor's work status could lead to serious penalties. Besides negative publicity, the following are potential penalties you could incur:
FICA taxes (Social Security and Medicare) penalties
Failure to have an I-9 on record for the employee
Failure to file W-2 forms and back taxes owed
Unemployment tax and workers' compensation penalties
Class-action lawsuit from disgruntled workers
If the IRS suspects fraud or intentional misconduct, it can impose additional fines and penalties.
In summary, only you and your legal counsel can determine the work status at your establishment. If you are unsure, I urge you to gain knowledge, examine your practice and make changes if necessary.
For more information on this topic, visit the IRS website at:
Need help determining your status? One option is to file form SS-8 with the IRS to request a “worker status” determination. https://www.irs.gov/forms-pubs/about-form-ss-8
20-Factor Test Resources:
Link to independent contractor template: https://www.danceteachersupport.net/behind-the-teaching