Gym Lawyers PLLC was a guest recently on Run a Profitable Gym, the Two Brain Business Podcast. Check out the full episode on Apple Podcasts:
The topic of the episode was the distinction between employees and independent contractors. However, we did not cover the tired old conversation regarding the proper tax designation of W2 employees vs 1009 independent contractors. Instead, we talked about the legal liability considerations with each classification. We even added a third.
From our perspective, there are three potential classifications for people working at your gym: Employee, independent contractor (as we commonly know them), and third party services (real independent contractors). Your exposure to liability is a sliding scale.
You maintain a high level of legal exposure when your staff are employees. Fortunately, this is where your insurance will be the biggest help. If your staff are employees, then anything they do is a direct reflection of you. If they mess up and hurt a client, your company is responsible. It’s the name of the game when you have employees. Unless you have a strict code of conduct, and your employee was in direct violation of that strict code, it will be really hard for you to avoid liability for an employee’s actions. However, your insurance policy is there to protect you from employee screw ups. So, while you maintain a high level of liability, you are also the most protected for your insurance.
What gym owners call independent contractors are not usually true, by definition, independent contractors. That is why there is so much content out there involving this topic and proper classification for the IRS. This is your standard arrangement where the gym pays the group coach $20 per hour and claims it doesn’t maintain any control over the coach and then issues the coach a 1099 at the end of the year. The tax issue here is between you and your accountant. We are concerned about your legal exposure. Most gyms do not treat these staff members as independent contractors from a legal perspective. Why? Because most gym owners assume the independent contractor will be covered under the gym’s insurance policy if that group coach messes up.
The gym is essentially treated that staff member as an employee for legal purposes. If the coach is truly an independent contractor, then he/she should have their own insurance policy. If the gym’s insurance policy does cover the coach, then the gym has an issue with providing a benefit to the coach. Benefits = employees. In the alternative, if they gym owner doesn’t want to run the risk of the coach being considered an employee, then the gym owner can’t cover the coach with its insurance. That means the gym is directly exposed to a lawsuit if the coach doesn’t maintain a policy adding the gym as an additional insured.
Third Party Services
These are your true independent contractors. We are talking about massage therapists, physical therapists, nutrition coaches, etc., who use your space for their business. These individuals have and maintain their own business, but they are using your space to promote and build their business. Some gyms provide space for a physical therapist to service the gym’s clients. The physical therapists pays the gym a flat fee every month (i.e. rent) to have access to that space to build a business. Generally, speaking this third party business is an LLC or corporation, has isn’t own waivers, and maintains its own insurance. Gym owners are quick to say, “If there is a problem, it has nothing to do with us. They caused the injury, so they are liable.” This is a true independent contractor. If the gym owner uses a contract, like a Facility Sublease Agreement, the gym owner can drastically limit legal exposure.
These categorizations are hard to grasp sometimes. We can easily get caught in a web of, “Well, it depends,” and “If you look at staff that way, then it is different.” Each gym is unique and each gym owner treats staff slightly different. There is no right or wrong way to do things. We are simply concerned that the gym owner fully understands the potential legal issues that come with each choice.