Your studio as employer … or contractor?
Running a teaching studio is a great service. Collecting teachers, offering classes and lessons, coordinating schedules, events and policies — it makes total sense to organize it all as efficiently as possible.
But it’s important to keep in mind how you decide to organize it all. There are others who want to know, namely, the IRS and your state departments of revenue and labor. Okay, they can be a pain but why not look on the bright side: can you imagine how completely disorganized most businesses would be if they didn’t have to keep track of things for their tax returns? (Always looking for the silver lining!)
Let’s talk about why the government cares about your studio’s relationship with your teachers. This can help you manage your studio better, by clarifying the rights and responsibilities of the studio toward its teachers, and vice versa. First I need to make the disclaimer that although I hope this discussion is very useful to you, it’s important to check with a local professional such as an accountant or a government agency about your own situation, because each state has slightly different laws on this.
The bottom line is that if you treat your teachers as employees, then you’re obligated to give them certain benefits. If your teachers are renters or independent contractors, you can still work together, but you don’t have the same obligations, and they don’t have the same responsibilities.
Fortunately, Studio Helper can work with you in any of these situations, and can help you document how you run your studio.
Personally I’ve worked on all sides of this question: as a business owner with employees, as an administrator for a studio with teachers as independent contractors, as a teacher who was an independent contractor, and as a teacher who simply rented space at a studio.
There are three basic categories of teachers that a studio is most likely to deal with: renters, independent contractors, and employees.
Many studios rent teaching space to teachers. The rent can take the form of a flat monthly fee for use of a studio for, say, every Wednesday of the month, or for all the days of the month. The rent can also be a percentage, say 15%, of the teacher’s income each month.
If you rent space to teachers, most likely you’re not paying them; they are collecting their fees directly from the students. The teacher takes in students, is paid by them, and then pays rent to you. You can still set studio-wide policies for rates and cancellations, though, and work out other cooperative plans. For example, I’ve taught in a music store where they give discounts to students who pay on time, and on occasion they ask us teachers to split the cost of a free lesson for someone who buys an instrument. The store also takes gift certificates for lessons, and redeems them in cash to teachers when the students hand in the certificates to teachers. The main point here is that the money remains in the control of the teachers; this means they are definitely not your employees.
The store where I teach has a computer network to coordinate scheduling. Store employees can schedule new students for teachers, but the transactions from there on out are up to the teacher. Teachers are expected to keep their schedule up to date.
However, the system is crude–they don’t use Studio Helper, and the lack of this service is obvious to me because I’m familiar with it. For example, important communications at the store are sketchy, often with missed messages or duplicated effort, as opposed to centralized messaging that can be received from anywhere you log in. Teachers have told me they wish they could have the automated student reminders, use mass emails for teacher messages, policy changes, or recitals, and be able to allow both teachers and students to log in from home to maintain and check on schedules, payments, etc. Online invoicing and payments would also be a huge plus.
None of these Studio Helper features change the fact that when teachers pay rent, they control their own finances and are clearly not employees or independent contractors. Yet their activities can be coordinated, and working as part of a studio can be a clear benefit compared with going it alone. Fortunately for me, although the studio I teach at doesn’t use Studio Helper, I have Music Teachers Helper, which allows me many of the same benefits (though I have to duplicate some efforts to work with the store’s system).
Independent Contractors vs Employees
Independent contractors are paid by the studio but are not employees. Students sign up and pay the studio, and the studio pays the teachers. However, teachers can still be independent if they set their own schedules, and if they submit requests or invoices for payment. If the teacher logs in to enter lessons and reconciles them in Studio Helper, this can count as being in charge of payment requests.
Here’s where definitions can get a little tricky, so let’s look at some of the official guidelines for determining whether a teacher is an independent contractor or an employee. Keep in mind that the word “contractor” doesn’t mean the teacher has to have a written contract. It could be a verbal contract that is supported by months of customary ways of working together.
Here are several questions that, if all of them are answered “yes”, indicate that your teacher is an employee and not an independent contractor:
- Behavioral: Does the studio control or have the right to control what the teacher does and how the teacher does his or her job?
- Financial: Are the business aspects of the teacher’s job controlled by the studio? (these include things like how the teacher is paid, whether expenses are reimbursed, who provides supplies, etc.)
- Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
I have found, in addition, that my state revenue department has its own criteria — very similar, but with slightly different emphasis — and they do need to be consulted if you’re not sure your teachers are employees or not. If you get it wrong, the state can also penalize you, so when in doubt, ask for their assessment.
How this affects your studio
If your teachers are renting space from you, then in your tax accounting, the teachers’ rent payments are tracked as studio income. Some of your dealings with the teachers, including marketing and maintenance, will be business expenses of the studio.
If your teachers are independent contractors, this means students pay the studio for lessons and classes and the studio pays the teachers, but the teachers are not employees under your control, as the three questions above will show. For the fees you pay the teachers, you will need to supply them with a 1099 tax form by the end of January each year if you pay them more than a certain amount ($600). An accountant or payroll service can do this for you, or there are some online services which are fairly inexpensive and can help you submit info electronically.
If your teachers are employees, you will have to cover payroll taxes, and various benefits as the law requires, which typically add about 13% to salary costs. You should also speak with your state Labor and Human Services departments to find out if they have any requirements for you, such as worker’s comp or registrations of various kinds. Usually your Chamber of Commerce can give you a list of requirements and contact information for the right agencies.
I hope this information is helpful, and that it helps you clarify your thinking about your relationship with your teachers, and how you wish to organize your studio. Make sure that you and your teachers are on the same page about your relationship. This is sometimes a good reason for a contract.
If you have questions to submit in the Comments below, I can try to help with some answers but always with the disclaimer that a local accountant will help you most because they’ll know your local laws and can take into account your personal circumstances.