One of most frequent subjects for debate in the health club industry involves the discussion of employee vs. independent contractor. Many club owners attempt to reduce their exposure of employment related costs and potential liability, by utilizing independent contractors rather than have employees. This is very common with personal trainers and group exercise instructors. There are advantages and disadvantages no matter what method of payment the club owner decides to use to compensate their people.
One of the most common misconceptions that club owners have, is that if they “1099” their trainers and/or instructors rather than have them on the payroll, that they do not have to carry workers compensation coverage. Most of the time, the “independent contractor” status does not hold up in the eyes of the States that regulate workers compensation laws. The fact that club owners are booking or monitoring appointments, telling instructors when to work, and how to dress, constitutes an employee/employer relationship. Most club owners do not have written agreements with their independent contractors that clearly separate the club’s business from the trainer. This agreement should also contain a waiver or hold/harmless wording separating the liability issues between the club and the trainer or instructor.
If you are trying to decide if you should have your trainers and instructors as employees or independent contractors, you need to address the following advantages and disadvantages.
The Pros for 1099’s:
- It is easier for the club to compensate the trainer. By paying a trainer or instructor a flat fee or predetermined split on services, the club is compensating the trainer ONLY when revenue is being generated.
- Saves on employment taxes and workers compensation costs. This is true only if there exits a clear agreement signed by the club and the trainer that recognizes the relationship as an independent and separate entity.
- Reduces the club owner’s liability for the actions of trainer. The club owner’s insurance carrier may be able to subrogate against the negligent act or error created by the trainer, but it only works if the club maintains current certificates of liability insurance from the trainer that names the club as an “additional insured” on the trainer’s policy.
- Easier to terminate an independent contractor than terminate an employee. Again, this is only true if there is a written contract that demonstrates this relationship.
The Cons:
- Lack of control. In a true independent contractor relationship, the club owner has very little “say” about how the trainer conducts their business. Strange teaching techniques and bad attitudes are tougher to monitor if the trainer is not an employee.
- The club owner is often still responsible for the trainer’s workers compensation benefits. Most states do not recognize the “independent contractor” relationship in health clubs. If a trainer is injured at the club, it is unlikely that they carry their own workers compensation insurance coverage and most trainers do not have health insurance. As a result, they look to the club to compensate them for their injury. The courts are more likely to side with the injured party.
- Loss of revenue. Many independent contractors will conduct personal training sessions outside the club. They will also sell supplements and diet plans to their clients. The club owner receives no compensation for these areas of service.
- You may be creating a competitor. Independent contractors, by nature, are more entrepreneurial than employees. A great trainer can turn into your toughest competitor. They know the club’s strengths and weaknesses. They also often have access to the club’s entire membership base. If you end up tossing the trainer out of your club, don’t be surprised if he/she opens a personal training studio across the street from you.
In the areas of massage therapy, physical therapy, and day spa operations, it is often better to utilize independent contractor relationships or a sub-lease arrangement. Again, it is important that you have a well written contract signed by both parties. Some of the key elements that should be part of the independent contractor agreement are; 1) a clear understanding of the separate relationship, 2) a requirement that the contractor maintain their own insurance, and 3) a hold/harmless statement or waiver that indemnifies the club for the negligent acts of the contractor.
Trainers and group “X” instructors are much tougher to classify as independent contractors. If your members are paying their training fees to the club, if you are telling your trainer how to dress, if you hold “meetings” with the trainers, if you schedule their appointments, they are NOT independent contractors. If you still decide that the independent contractor method is best for your club be sure to get it in writing and make sure that you receive a certificate of insurance from these trainers naming your club as an additional insured.
For a free copy of our recommended Independent Contractor Agreement, please email my assistant Jennifer Dangar at jldangar@clubinsurance.com.
Ken Reinig is Senior Vice President of Association Insurance Group, a Division of Thompson Insurance Enterprises, LLC.
