How should you employ staff at your yoga studio? Employee vs independent contractor
What’s the difference between employees and independent contractors? Essentially, the difference is that employees work in and are a part of your business, whereas independent contractors run their own business – and use your studio to do so.
In the early stages of business, it can be difficult for business owners to afford to hire their staff as employees.
The way you should choose to employ your staff will depend on your particular business model, as there are benefits and disadvantages both ways. Working out whether someone is employed as an employee or independent contractor in the yoga industry is currently a grey area in Australian law. Each case needs to be assessed on an independent basis to determine if the relationship between hiring studio/business and the yoga teacher is more akin to an employee or independent contractor relationship.
Only a court can determine this – even if the employment or contractor agreement states a certain relationship, the following factors are used to determine the true nature of the relationship:
- who provides class props and equipment;
- who pays workers compensation;
- who pays the Yoga Australia annual fee for the teacher;
- whether there is PAYG withholding by employer;
- whether extra pay is awarded on public holidays;
- whether there is personal sick, annual, and/or long service leave available, or other benefits such as health insurance;
- whether a subscription to a yoga journal or other resource material is paid for by the employer;
- who organises a fill-in teacher if the teacher is unable to teach (and whether the teacher is able to sub-contract);
- who determines how the class is run in terms of style and plan;
- who bears the commercial risk – professional indemnity and public liability insurances;
- who pays for education expenses that related to current teaching and that maintain or improve skills – such as post-grad teacher training, CPD courses, cost of attending Yoga Australia annual conference;
- who pays for and supplies the materials used in class – such as blocks, bolsters etc;
- whether there is a financial reward for full classes; and
- whether the yoga teacher is free to take on work elsewhere, or if this is restricted.
Benefits of employing yoga teachers as independent contractors:
This may cut significant costs for your business, which is always important, but especially so when starting up a new yoga studio in order for it to be commercially viable. Costs relating to insurance and workers compensation, education or relevant membership fees may not need to be budgeted for. You will not need to organise tax payments for contractors (which take time to administer), and you will not need to pay for professional advice about correct PAYG withholding.
Benefits of employing yoga teachers as employees:
This way you (or the studio) will have more control over job performance and the way the class is run, rather than allowing the teacher to instruct as they wish. You may control things such as dress code; who teaches the class; minimum notice when requesting time off; and certain stylistic requirements of the yoga taught in class. This will provide students with a more consistent yoga experience with you, and builds a stronger business.
However – your administration expenses and tax payments will increase if the teachers are employed as employees, and you will need to streamline this process to make your business more efficient.
Employing your teachers as employees also takes away the chance of being penalised for misclassifying a worker. The penalties for doing so can be steep, and include liability for unpaid federal and state employment taxes, as well as fines, interest and late fees, in addition to any unpaid insurance such as workers’ compensation. In two relatively recent cases, the Federal Circuit Court imposed significant penalties on employers found in contravention of the ‘sham contracting’ provisions of the Fair Work Act 2009 – misrepresenting an employee relationship as an independent contracting arrangement. Back pay was required, and penalties were imposed against the directors of the employer companies – this can be up to $51,000 for companies and $10,200 for individuals for each contravention.
Do you need to pay your yoga teachers superannuation?
According to the ATO, even if the relationship is considered to be an independent contractor one and your payment to the person is wholly or principally for their physical labour, mental and artistic effort, then you must pay super contributions for them – even if that person uses their own ABN. Therefore if you are paying your yoga teacher $450 or more before tax in a calendar month, you have to pay their superannuation on top of that.
Opening your own yoga studio and want to get things right? Let’s chat. We will ask questions so we fully understand your business model, then make sure that your employment contracts are suitable for your business, that you are representing your particular employment relationships correctly, and that you are complying with all relevant tax and employment laws.
This is general advice only. Liability limited by a scheme approved under Professional Standards Legislation.
Published Nov 1, 2016Go back