“Independent Contractor or Employee” Matters More Than You Know

by | Aug 4, 2022

Category: Business
19 min read

Working with a team is beyond a joy for some music teachers.

Some teachers love to collaborate, mentor/co-mentor, manage, team-build, create community.

Some of us have dreams to be part of a team based business, or own one.

This article is for the lovers of being a paid team member of another team. It’s also for those who know someone who is running or seeking to run a team based business – like a multi-teacher studio.

My hope is to shed a little bit of light on how we determine worker classification so that both workers and employers are sure they are making the most legal and ethical sense of their arrangements, which allows them to run more sustainable businesses.

NOTE: This is long, so grab a beverage and a snack, go pee, and settle in to a comfy chair for some truthy-ness. (Bookmark this sucker!)

What is a team based business?

A team based business is any business that accomplishes its mission and vision and makes money with a paid (duh) team. Many people, with specific yet sometimes overlapping roles, all moving toward the goals and of the business they work in and with.

What kind of team, however, is what I want to talk a little bit about today. Because I am finally ready to put in writing my tender calling in to team-based business owners everywhere.

In the music world, the team based business model is best exampled in the Multi-Teacher Studio world. (From here on out, I’m going to call it MTS for short)

I know SO. MANY. PEOPLE. who own multi-teacher studios (MTS’s), or work for them, who have a deep desire to serve teachers and clients.

They want to (and I quote) “change the industry” and “be the MTS that doesn’t screw people over”. YAY! ME TOO!

Sadly, many accomplish the exact opposite of this goal because they haven’t set up their business with the appropriate business model.

The decisions that MTS owners make about how their business is supposed to run are, unfortunately, under-informed. This often leads to what is called the “misclassification of workers”.

“Misclassification of workers” is when we hire people as independent contractors but treat them like employees, or vice versa. It’s when, according to law, we are not treating people the way they should be treated for the type of working relationship they have with our business.

This misclassification of people in multi teacher studios leads to the systemic underfunding of MTS’s and the systemic mis-management of humans, and it places an undue burden on both teachers and MTS owners to have a role in the overall music education economy that they were never intended to have. Read that again, please.

Now, I am not an employment lawyer (although I have a GREAT ONE! Thanks, Jeffery!), and each state has very different employment law, so if you are going to have a team, you MUST MUST MUST meet with an employment lawyer to talk over everything I mention in this email. Ultimately, it’s each business owner’s responsibility to be legal. And, in my opinion, ethical.

Knowing the Business Model is the First Step: Agency or Corporation?

At its most basic, there are two ways a multi teacher studio can run: as an agency or a corporation.

Technically, an agency is a type of corporation, and words can be tricky, so just go with me here so the point is made clearly.

This next section is intentionally simplified and leaves out complicated nuances. We are going over nuances in our new multi-teacher studio program, The MTS TapRoom, which began this week.

An agency model connects teachers to students so that teachers have students.

It’s like going to a match-maker. The agency owner wants to be sure to have experienced, quality teachers on the roster to offer the clients, and the teachers want to be sure the agency can provide high quality, if not always, consistent clients. The clients expect to be matched with someone that they will then build their own policy, scheduling, and teaching relationship with. The agency is the manager of marketing, connecting, and a bit of money handling. The teacher is the manager of everything else. An agency sells the creation of relationships, not lessons. Lesson experience is delivered by the teacher, not the agency.

This is the MTS model that works with independent contractors as teachers.

A corporation model sells lessons to clients so that they can be served by a specific culture of learning.

It’s like going to a [insert national chain] coffee house. The corporation owner wants to be sure to have collaborative teachers, trained under a common philosophy/culture to offer the clients, and the teachers want to be sure the corporation can provide vetted and consistent clients. The clients expect to have a consistent experience regardless of the teacher they work with, and look to the corporation to provide a consistent “recipe” – the billing, scheduling, marketing, culture, and teaching quality is created by the owner of the business. The corporation is the manager of almost everything – marketing, policies, scheduling, team-culture, money handling, conflict resolution, mission and vision. The teacher shows up, teaches, and does whatever else is on their job description. They are the manager of delivering the experience to the client. A corporation sells lessons, not the creation of relationships. Creation of relationship happens within the lesson and is manifested with the teacher, with the oversight of the corporation.

This is the MTS model that hires employees to teach for the studio.

After working with hundreds of teachers, I can say with great confidence that many multi-teacher studios are mix and matching these two models in ways that muddy the legal waters of worker classification. In doing so, shenanigans ensue, and humans are either underfunded and overworked or overpaid and underdeveloped. This leads to unhappy people all around.

What is the difference between an independent contractor and an employee?

*I am not here to give legal advice. I do want to point out some differences between an independent contractor and an employee in the United States, so that you have a basic understanding of each, and can begin to self-assess if you are in a situation (as a worker or a business owner!) that needs to be adjusted. Again, I AM NOT A LAWYER AND THIS IS NOT LEGAL ADVICE – GET THEE TO A LAWYER.

All of this information is gathered from a variety of sources, including conversations with employment lawyers, the IRS website, classes on employment law, and working with many multi teacher studios and their lawyers to transition their business models into the legally appropriate model for the business owners goals. The following statements do not release you from doing your own due diligence.*

In the USA, there are three categories looked at to determine if someone is an independent contractor or employee.

These categories are (from the IRS Website):

  1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her or their job?
  2. Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
  3. 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?

Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.

Examples of factors (but not all!) to review in the Behavior Category

  • When and where to do the work. For the MTS: who does the scheduling?
  • Which tools and equipment are used? For the MTS: Does the studio own the piano/computer/guitar, music stands, music, etc. or the teacher?
  • Degree of Instruction: More detailed instructions indicate that the worker is an employee.  Less detailed instructions reflects less control, indicating that the worker is more likely an independent contractor. For the MTS: How much training are you getting as the teacher? How much are you, the MTS Owner, demanding be taken by the teacher?
  • Evaluation system: An IC is evaluated on the end result only. An employee on the process and details of how work is performed. For the MTS: Are teachers guided through how to teach well? Or are the expected to be fully formed teachers with their own businesses at time of hire?

Examples of Factors to review (but not all!) in the Financial Category:

  • Opportunity for profit and loss. This means that if a worker is investing a lot in order to do that job, they are increasing their risk of loss. This is usually the case in an independent contractor situation. For the MTS: If the teacher is risking making less at the job than they are in investing in the microphones, keyboard, and sheet music to do that job, they have opportunity for profit and loss. Employees will have all needed supplies covered for them, so they don’t incur the loss for that job.
  • IC’s are allowed to (encouraged even!) to sell their services outside of the job they are doing. They market their own thing, maintain some sort of business doing the thing they do, elsewhere. For the MTS: IC’s will work with you AND have their own side gig(s), will advertise, and can take clients with them – yep – look up that “non-compete” – usually, it’s not actually enforceable with an IC. In some states, it’s not even legal.
  • How one gets paid. An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time. That wage has been determined by the employer. An independent contractor is usually paid by a flat fee for the job. That fee has been negotiated by the IC. (Some professions, like law, will pay hourly to contractors, too, though.) For the MTS: Are you (the teacher) being told/telling what they rate of pay is, or are you being told a budget and therefore negotiating your wage? IC’s will generally make a higher wage because they are doing a LOT on their own and are responsible for themselves. Employees will generally make a lower wage because they are not as responsible for operations or the finances associated with running a business.
    • SIDE NOTE: Don’t assume one will always take home less as an employee, annually. Double check the numbers – chances are there is a touch less per-pay check cash flow, but at the end of the year, the taxes wind up being about the same for the worker, depending on the wage.
  • Are you getting paid reimbursements? If so, you’re most likely an employee. If not, you’re most likely an IC. IC’s don’t automatically get reimbursed for expenses incurred by their work. For the MTS: If the teacher is buying sheet music and they are an IC, they won’t get reimbursed for that sheet music. If they are an employee, they can purchase the sheet music and turn in the receipt to be reimbursed, or the MTS will have a purchase ordering type option.
  • Who is paying taxes? IC’s are self-employed and will pay income and self employment tax. Employees will pay part of the their income tax and the employer will pay the other part. For the MTS: This is pretty straight forward, I won’t belabor (HAHAHA GET IT?) the point.

Examples of Factors (but not all!) to review in the Type of Relationship category:

  • Services Provided as Key Activity of the Business. ****If a worker provides services that are a key aspect of the business, it is more likely that the business will have the right to direct and control their activities.  For the MTS: If a studio that sells music lessons hires a teacher, it is likely that it will present the teacher’s work as its own and would have the right to control or direct that work.  This would indicate an employer-employee relationship. If the MTS hires a photographer to take brand photos, this person is most likely an independent contractor because their service of taking brand photos isn’t a key aspect of the MTS.
  • How long will the person work? If one is hired with the expectation or idea that the relationship will be going on indefinitely, that’s usually an employee. If one is hired by project or for specific periods of time, that is usually an IC. This is called “permanency of the relationship”. For the MTS: Think of it as the difference between a teacher getting hired to teach three one-week summer camps from June 1 to July 1 and a teacher hired to give ongoing lessons as part of the business model of the MTS.
  • IC’s don’t get benefits, health insurance, paid vacation, worker’s comp, sick days. Not all employees do, either, but it is way more of a possibility when one is an employee! For the MTS: This is 100% a talk with your state lawyer thing, if you have employees or are an employee.

One other important note, directly from the IRS website:

Written Contracts. Although a contract may state that the worker is an employee or an independent contractor, this is not sufficient to determine the worker’s status.  The IRS is not required to follow a contract stating that the worker is an independent contractor, responsible for paying his or her own self employment tax.  How the parties work together determines whether the worker is an employee or an independent contractor.

In short:

Independent Contractor

An independent contractor is a person who is fully capable of doing the required work without the input of the business owner at the time of hiring. Other than learning the systems that the business uses, they need no training or guidance. They are able to teach, run their own schedule, use their own equipment and training, make decisions for their clients and decide when and how they work. They negotiate their own pay rate and scope of service. They are their own business, in their own right, and do not rely on one gig to pay their full salary.

Employee

An employee is a person who may or may not be fully capable of doing the required work without the input of the business owner at the time of hiring. They provide what the business needs in order to have a business. They are responsible for learning the culture, brand, desired outcomes, systems, etc of the company and putting them into practice. They are people who enjoy extra support in paid-for-them training, like to have a cohesive system to follow, and want to show up and teach and leave the money/marketing/etc to others.

Why all this matters, anyway, for us ALL

Being properly classified/classifying properly is not just a legal issue. It’s an ethical issue and an industry wide economic issue.

Multi-Teacher Studios sometimes have a tough reputation. They are often accused of underpaying, for providing too few hours. They can be toxic work environments that do not honor the worker or the worker’s time.

Teachers sometimes have a tough reputation. They are often accused of asking for more pay without having experience or investing back into the business or for asking for a lot of time off. They can be demanding about how they are treated while lacking knowledge of how the overall business works.

I believe we have co-responsibility in the creation of these reputations.

  1. There is the responsibility of the MTS for toxic and poor behavior, lack of business acumen to continually make the required budget, lack of marketing skill, and the misclassification of workers.
  2. There is the responsibility of the teacher working at the MTS for accepting positions from a place of ignorance. They do not understand the difference between how their role will be made manifest as either an independent contractor or an employee and therefore allow the toxic and poor behavior while demanding things that are not theirs to demand.
  3. There is the responsibility of our entire industry for misunderstanding the very important role of multi teacher studios in the career path of the teacher, the basics of business ownership and how MTS’s pay the bills, and building up expectations around what it means to be a gig worker vs an employee based on shitty business-ing.

I believe we have co-responsibility in the healing and transformation of these reputations. Here’s how we can begin:

  1. MTS owners need to take a good hard look at their business model to determine what they desire their business to be in the world and if their current worker classification aligns with this mission and vision.
    1. If an MTS owner wants to train up teachers, mentor them, and create community around shared pedagogy, training, brand, and vision, if they want to own a building and provide pianos and music stands and a scheduling system with regular hours, if they want to increase capital/profit margin in the business in order to keep growing the business … they are most likely hiring employees.
    2. If an MTS owner wants to gather experienced and “fully formed” (for lack of a better term) pedagogues to share them with the world, market for them, have little input or control over the teachers’ actions, and make less capital and simply maintain with a “finders fee” of sorts … they are most likely hiring independent contractors.
    3. Please, please, please, UNDERSTAND YOUR MODEL and how this AFFECTS YOUR PRICING and COST OF DOING BUSINESS. When you’re a jet, you’re a jet all the way. If you’re a company, treat your employees with care, training, health insurance, workers comp, mentoring, top-notch management… and don’t overpay the teachers and leave yourself in a place where your entire business has to fold because you do not have enough money to sustain yourself as the owner or the growth of the business – it’s your duty to keep the business running. If you’re an agency – pay those contractors well and then deal with any worries you have about control – create a fluid and dynamic conversation about how to best empower them to do their work without you getting in the way. Plan to make less per transaction, while also investing less brain space so that the business can run sustainably.
    4. If you are an MTS owner reading this, and you find yourself mixing and matching – i.e, Wanting to train/mentor, have a consistent brand, increase profit margin, but trying to do this with independent contractors – please, you must meet with a lawyer right away and either change your business model to the appropriate level of engagement with the IC, or you must convert the IC’s to employees. (Yes, this is messy, hard, and changes everything. I’ve walked through it with many clients. STILL: PLEASE, Let me tell you – the pain in the ass and money it costs to re-classify workers pales in comparison with the fees and back taxes an MTS will pay if it gets audited and it is discovered they have been misclassifying workers.)
  2. Teachers need to take a good hard look at their contracts and their expectations.
    1. If you suspect you are being misclassified, and you have a good relationship with your boss, have a kind, thoughtful, and curious conversation with them about this. Ask questions about how they determined what your classification should be.
    2. Many MTS owners are not trying to be asshats. They are simply unaware of what they want or what they should have done from the beginning and are going with the flow of what they learned from other MTS owners who were not trying to be asshats but made the same mistakes. (Reminder that independent teachers do this same “I’ll just do what everybody else does” thing too, so no judgey!)
    3. Educate yourself about your money – don’t assume that you’ll take home less as an employee. Remember, if you are in a well-run MTS, and you are an employee, you aren’t paying for many of the things that your rate would have to cover as a business owner/IC. Chances are, if you do a deep dive into your business budget, your take home after expenses and taxes is very similar (for a lot more work, sometimes! haha!)
    4. Educate yourself about the difference between an agency and a corporation in the MTS world, and make some decisions about what you value as a worker. Understand what the business is paying for and what you as the IC or employee pay for. Don’t ask businesses to change for you – you can always decline a position, or walk away from one, if you are no longer in alignment.
    5. Along that line – Get realllllllly honest about why you would even take a job at ANY MTS. It’s not fair if you use someone else’s business to get trained and then immediately bail to do your own thing. It’s not right to demand that you be paid the same thing in an MTS that you would in your own business. It’s not right that you expect an agency-style MTS to do all the admin work for you.
    6. Do not expect an MTS to be your lifelong, full-time career, unless the job description has specifically told you that is the plan.
  3. The entire industry needs to take a good, hard look at what we think we know about MTS’s.
    1. Stop insisting that Multi-Teacher Studios need to be places where teachers can or should have a life-long career. Very few MTS’s have the business model in place to offer full time salary, benefits, etc to more than a few people. Before you gawk, take a look at an academic music department – they don’t have the budget either.
    2. Begin to insist that the best thing a fresh outta college/grad school person who wants to teach and perform can do is get hired at a well-run, employee-based MTS. This is the PERFECT place to further develop their pedagogy – under a watchful and loving support system – AND GET PAID FOR IT.
    3. Begin to insist that a great place for a new to teaching person (whether they are college-educated or not) is under the supportive eye of an employee-based MTS.
    4. Begin to insist that teachers know how to ask questions in the interview process that will allow them to quickly determine if the MTS 1) has their sh*t together financially and 2) understands their workers classification and rises to the occasion regardless of what that classification is.
    5. Teach people about money and/or economics. Or, point them to people who can. Teach them why they get paid less when they are on a team (either as an IC or an employee). Teach them about budgeting, and business models, and what to expect from these things.
    6. Teachers who do not work in or own MTS’s need to stop telling people that MTS’s need to “pay you more” without a very clear understanding of the business model that teacher has chosen to be a part of.

I know what I am asking. I know we can rise to the challenge!

This blog article is a direct response to a growing problem I’ve seen manifesting over the past several years. I imagine that this information will be confronting for some folks, and I imagine that some people may feel anger when confronted.

What I’m asking here is threefold:

  1. For multi-teacher studio owners to develop knowledge that allows them to build sustainable businesses ethically and legally so they are not inadvertently exploiting workers. This will enable them to make the money they need to to create incredible experiences for their teachers.
  2. For teachers who are would-be-workers at multi-teacher studios to know if they are willing and able to be independent contractors or employees, and why. And to know the difference when they are presented with an offer so they do not get exploited.
  3. For the industry to recognize how valuable the role of employee-based multi-teacher studios are in the landscape of the teacher training so we are not against the model – rather, we are supporting the model and appropriately guiding people to it. And to recognize the importance of the agency independent contractor model so that we are getting more students in touch with their perfect-fit clients.

And this change may require all of us to change many things.

Change is hard – and if you’re an MTS owner, you may be thinking, “Well, I haven’t had a problem yet. How is the IRS gonna know?”

If you’re asking that, I humbly ask that you consider how ethical it is to intentionally break the law. How ethical is it to ask your workers to forgo the benefits of an employee-based business on the myth that it’s “better” to be an independent contractor? And why has this myth, based on other poorly-run businesses, so deeply permeated our field?

Also, practically speaking – here is how they are “gonna know”: someone who is an independent contractor is going to apply for unemployment. This is going to cause an audit of the business. The IRS (remember that paragraph I quoted wayyyyy up near the beginning of this?) doesn’t care what your contract says; it cares about how they view the relationship. The IRS is going to determine that you’ve been misclassifying. Then, you’ll pay back taxes for as long as you’ve been doing that, plus fees.

This happened over and over again in 2020 when people in all industries were applying for unemployment, and the government learned about businesses who were not classifying properly.

It’s a lot, I know. If you’re only familiar with the contractor MTS model, the notion that it’s reasonable—and right—to hire employees or be an employee can be daunting. Still, I know we can rise to the challenge. We can bring our businesses and our teaching into alignment with our values—classifying correctly and ensuring that those who work for us—and those who hire us— have the best experience possible. When we do this, we’ll stand prouder, we’ll sleep sounder, and we’ll make life a whole lot easier for a whole lotta future voice teachers and business owners.

I’ll leave it at that for now, as there’s a lot to process through here.

Thanks for reading – I imagine this will be a continued conversation and I look forward to being a soft place to have it.

All My BeastyBoss,

Michelle Markwart Deveaux blog signature

P.S. Remember, I am not a lawyer – so if there is anything in what you’re read that has you wondering about your own or your workers’ status … please, please, please, speak with an employment lawyer in your state – each state has different laws around this as well.

P.P.S At a future date, I will be discussing the idea of “just because it’s legal doesn’t make it ethical and just because it’s ethical doesn’t make it legal” – and I want to acknowledge that legal and ethical are not always copacetic. For this writing, however, I am leaving it be so that we could potentially have a shared understanding and language before moving into the nuances – those of you in The SpeakEasy Cooperative and the MTS TapRoom are already part of those nuances, and I applaud you.

Michelle Markwart Deveaux

Michelle Markwart Deveaux (116)

As CEO of FaithCultureKiss Studios, LLC, I lead underestimated humans through the personal and professional development needed to create successful solo and team-based businesses.

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