Personal Trainers: Independent Contractor vs. Employee
An often overlooked component of the personal training business is the status of independent contractor vs. employee. Many trainers and club owners do not fully understand the differentiation between the two, nor how detrimental it can be to make a mistake when determining the status of a personal trainer. Personal trainers can be literally abused if they do not know what their classification truly is. Club owners can become tangled in a legal battle with disgruntled trainers who learn the law and use it against the owner, resulting in enormous expenses and fines. Simply put, whether you are a personal trainer or a club owner, you must know the difference between these classifications and what separates them legally.
Internal Revenue Service
Most of us know that an independent contractor is responsible for paying their own state and federal income taxes after receiving full payment from the contractor. Likewise, it is widely known that an employee status requires that the employer withhold federal, social security, and Medicare tax, as well as match employer social security and Medicare tax, pay unemployment tax, issue W-2 forms at the end of the year, and report all paid wages to the IRS. However, there is much more to the determination of status in personal trainer employment than these factors.
The IRS determines the status of an independent contractor by how much control the employer exerts over the worker in the performance of any tasks. According to the IRS, the employer “has only the right to control or direct the result of [the independent contractor’s] work, not what will be done, or how it will be done.” In the case of personal training, the trainer must have the right to control the details of the training sessions and the specific methods of training if they are to maintain independent contractor status. While this may sound simple, it is not.
The Common Law Test
The IRS does differentiate between the amount of freedom given to a trainer and the amount of control which can be exerted on the trainer. In other words, even if the trainer is given free rein, the IRS will look at how much control could legally be impressed upon the trainer at any given time, and will judge the status of the trainer partially on the results of that test. This analyzing of the level of control the company exerts over the trainer is known as the Common Law Test. The findings of sufficient control over the trainer could result in the status of common law employee, and the company could be held liable for any payroll taxes paid to the employee and owed to the government.
In determining the status of a worker between contractor and employee, the courts have divided the determining facts into three categories:
- Behavioral Control
- Financial Control
- Type of Relationship
This category is broken down into the subcategories of instruction and training to show whether the business owner has the right to direct and control the trainer’s actions through direct instructions or specific training. If the company instructs the trainer on such things as when, where, how, and in what order the work will be performed, who will assist with the work, and who will perform specific tasks, and/or offer any training or instruction in the performance of the job, then the trainer can be considered an employee.
In this category, the IRS looks at how much control the company or management has over the business aspects of the trainer’s job. Basically, if the trainer has expenses not reimbursed by the company, and makes investments of his or her own money, then the trainer is operating more like an independent contractor. However, if the company controls advertising the trainer’s service exclusively, and purchases or reimburses the trainer for advertising, assessment tools, office materials, etc., then the owner is treating the trainer like an employee.
Type of Relationship
The final criteria is solely based on any written contracts describing the relationship, what employee benefits the trainer is supplied with, the length of relationship, and how important the trainer’s services are to the operation of the owner’s overall business. Whatever plan you start out with should be the plan for the long run. While it may be easy to convert an independent contractor to an employee, converting an employee to an independent contractor is scrutinized very heavily and most often will not be a legally defensible move on behalf of a company.
Contracts: Who is in control?
Another important fact to consider is a non-compete agreement or other exclusivity contract between trainer and facility. In most cases, an independent contractor cannot be precluded from seeking training opportunities at other facilities or anywhere else, while simultaneously working for a particular company. The independent contractor also has the right to refuse assignments from the company. While most trainers are not aware of these intricacies, these are the areas most often abused or exploited by club owners.
An employee can legally be barred from training at other facilities, in clients’ homes, etc. They also can not refuse assignments and can be instructed to use specific methods and programs exclusive to the employer’s gym or studio.
The independent contractor can, however, be held to a form of non-compete called a non-disclosure. The contract will forbid the independent contractor from pursuing the clients or members of a particular facility, and from the luring away of the trainers, employees, and staff of the facility. The contract will also forbid the trainer from revealing or utilizing any information he or she learned during their tenure with the facility that would not be otherwise publicly available.
In other words, the trainer will come into contact with membership lists, advertising plans, client personal information and addresses, and other information or methods used by the company exclusively and privately—information that is not available for public disclosure. The non-disclosure forbids the trainer from using or employing any of the information or business methods outside of the facility. This type of contract will be for a length of time extending beyond the termination of the relationship.
Non-compete and non-disclosure contracts are often viewed lightly by trainers and club owners alike. However, there are many instances where both parties have been on the losing end of one of these contracts. The business world is a hostile one, and you should always cover your blind spots and protect your hard work and investments. Judges will not allow anyone to deny another person the “right to work,” so the language and stipulations in any agreement should be realistic; if it is not, don’t sign it! A company should only seek to limit someone’s actions that would directly interfere with that company’s act of doing business. Most contracts are dated for between six-months to two years following termination of the relationship and hold a reasonable geographic limitation.
While it is not necessary, it is advisable that you have an attorney review any contracts you use or consider signing in your business. Successful trainers combine great personal training with strong business knowledge, and in today’s fast-moving fitness industry, that knowledge can be the key to your longevity in this industry.
To learn more about becoming a certified personal trainer, check out the ISSA’s certification program.
December 7, 2018