I need to make sure I do the correct paper work. I am starting a studio and would like to know what is the best route for fitness instructors? Employee? or Contractor? It seems it might be employee but if they get paid $30 for a class then would they get all there tax taken away from that? My state is Texas but they are very vague about the requirments here. Any advice would be great!
First of all, let me say that as a former tax accountant, I agree with all the previous advice about seeking professional help for your staffing decisions. You’ve probably already started your studio by now, but here’s some quick summary-level info
The easiest business model may be to rent out your space. Then you don’t have to deal with employment taxes. You’d need a rental agreement and you should probably require that your renters have their own insurance unless you intend to add them to yours.
Independent contractors are relatively simple to hire, because you pay them a flat amound and they pay both the employee and employer share of payroll-related taxes on their own tax returns. If you pay anyone more than $600 in a year, you need to send them a 1099 for their taxes. (the income is taxable no matter how much they make, but you have a paperwork requirement at $600)
Employees, you need a bit more paperwork because you have to withhold federal and state taxes and provide W-2s.
Whether a worker is an independent contractor or an employee is a facts and circumstances test, based on your studio’s own situation. Generally, the more control you have over the work that your worker does, the more likely they are to be an employee. The more control they have over their work product / times / marketing / formats, the more likely they are an independent contractor. A savvy worker will ask you to be paid more if they are being paid as a contractor rather than an employee.
If you go to www.irs.gov, you can do a search on employee vs. contractor. There are free publications that will help you understand the issue better. Absolutely go to a professional for advice and help with your contracts, but it helps to know a little bit going in.