To Employee or Not Employee? That Is The Question
By Cory Sterling
As a lawyer who has built most of my legal practice around advising clients who operate yoga studios, yoga teacher trainings, and yoga retreats, I am often faced with the same questions over and over again. Some of these questions are easy, like: “Do waivers really work?” to which my answer is an unequivocal, “Yes, they do! That is why we get people to sign them!”
But, the one question which I am hearing more and more often from yoga professionals is: “Are my staff contractors or employees?” Now, this question requires me to dig deep and provide the most typical and unsatisfying lawyer answer: “It depends.”
My goal in writing this blog post is to turn your mind, in a FUN and easy way, to when and why your staff should be classified as either contractors or employees. I’m going to pose three questions which you can use to consider this important determination for yourself:
*Important to note: Each state and province has its own set of tests for determining proper classification, so what is shared here are just general guidelines. I’d highly recommend speaking with a lawyer before acting upon this information*
Question 1: Do they run their own business?
The way you should think about a contractor is like a person who runs their own business and is providing a service to your business (which, ideally, is different than a service your business offers as well). Here are two examples to illustrate the point:
I run a law firm but I have a graphic designer on my staff. She has her own graphic design business, has other clients and while I draft contracts and negotiate settlements for a living, she makes awesome logos and designs for my websites. She works from where she wants, she works with her own equipment, she works when she wants (I just give her a deadline) and I don’t tell her how to do the work. Mallory is a contractor and we have signed an Independent Contractor Agreement to outline our expectations working together.
I run a yoga festival and we have someone on staff who is the Festival Organizer. We have an office, where the Organizer comes into M-F from 9-5 which is outlined in our Employment Agreement. The computer used by the Organizer is owned by the Festival and each week we have a meeting where the Organizer is told what must be done for the job and how it must be done. The Festival’s business is organizing a festival and the Organizer who is the one who does this work for us. The Organizer wears a staff uniform while in the office and has a fixed salary.
In looking at these two examples, is it clear to see the differences between a contractor and an employee? The contractor is offering services outside of what the law firm does in the normal course of business (entirely on her own terms) where the services the employee offers are in the course of our normal business, entirely on our terms.
A great first question to ask when thinking about if someone is a contractor or employee is: are they running their own business on their own terms or are they working for your business on your terms?
Question 2: How much control do you have over them?
Throughout all of the jurisdictions, the pervasive theme concerning the distinction between a contractor and an employee usually comes down to one word: control. The more control you have over the way in which a worker provides the services, the more likely they are an employee. The less control you have, the more they are a contractor.
Here are some factors to consider when thinking about the degree of control you have over the services provided:
- Does the worker set their own schedule?
- Does the worker use their own equipment?
- Does the worker need to wear a uniform?
- Does the worker have to work from a specific location or can the services be rendered anywhere?
- Does the worker have a fixed payment (more like an employee) or is the payment incentivized on performance (more like a contractor)
- Does the worker offer the same service as your business or do they offer something completely different to your core services?
- Does the worker run their own business and have as many other clients as they’d like?
Please remember: there is no single determination that will conclusively decide whether or not someone is a contractor or an employee. The government will always look at all of the factors of the situation and weigh them in ultimately coming to a decision.
Question 3: What does your agreement say?
This is a big one and an easy one to have in your favor. Even though calling an employee a contractor will not make them such, one of the considerations made by the deciding body in the determination of this question is: what were the intentions of the parties? The indication is clear; if parties have a written agreement supporting a preferred type of working relationship (ie: contractor vs employee), it will be taken into consideration in the determination.
All this means is: if you want to hire a contractor, have a contractor agreement. If you want to hire an employee, have an employment agreement. One of the biggest issues that business owners/contractors come across is that they don’t have any form of written agreement which shows to the government that they never had an intention of the type of relationship they wanted.
Pro Tip: Craft the role around your intention
Part of the value of working with a lawyer is that you are able to draft the role of your staff based on the type of classification you want them to have. If you want them to be a contractor, there are things you can do to ensure they will be classified as such. If you want them to be an employee, there are things you can do to ensure they will be classified as such. These are the benefits of working with a lawyer instead of just winging it without mindfulness.
Legal disclaimer from the author: Hey world! I'm so stoked to be sharing the following information about the law with you, but I want you to know that you SHOULD NOT take these words to be legal advice. There is no lawyer/client relationship created by us in you reading this. Also, what I am sharing may not be the law per se, but more so my interpretation of how law applies to small studio owners. You understand you use and act upon any of this information at your own risk and you'll be responsible for your own actions in acting upon this information. Lastly, the law changes from jurisdiction to jurisdiction, so it can make sense to check in with a lawyer in your province or state to verify the accuracy of the information above.