One of the most common, and troubling, questions I receive on a regular basis from flight schools is whether they need to carry workers’ compensation insurance on their CFIs. These policies protect workers if injured on the job.
The answer to that questions starts with another question—is the CFI an employee or an independent contractor? In order to avoid trouble with the government, including huge fines and penalties, you must clearly establish the line between employee and independent contractor. Under IRS rules, an independent contractor has the ability to direct what work they perform, how they complete it, and when they perform their work.
The primary litmus test to tell the difference between an independent contractor and employee is how you manage them. If you find yourself wondering if you’re crossing the line while working with an independent contractor CFI, just keep in mind that while you can dictate what the end result of their work should be, you cannot direct when, how, or what actions they take to complete it. For example, although you are allowed to provide many resources and tools for your students and their independent contractor CFIs to use in training, you cannot dictate the materials they are required to use; nor can you mandate that they utilize the school’s standardized records for the benefit of the school or other independent contractor CFIs in relation to their own work product.
To illustrate how easy it is for a well-meaning flight school manager to get himself into hot water, here’s an example. Let’s assume our a flight school allows instructors to use whichever curriculum they wish, and pick and choose which students he or she wants to work with. But the school also requires instructors to be available between 9 a.m. and 5 p.m. five days a week, whether by phone or in person at the school.
In this case, the CFIs are being told when to perform their work, and are thus no longer being treated as true independent contractors. Consequently, the school would be required to provide a salary and otherwise treat the CFI as an employee, including workers’ compensation insurance and overtime pay. Failure to follow the proper rules here could result in stiff back taxes, overtime pay, and fines and penalties. This may also result in increased monitoring and continued auditing of the school’s business practices over several years with regard to its policy of independent contractors.
Answer the question of how your employees are classified and the answer to the workers’ compensation insurance question becomes clearer. Remember, if you as the flight school owner or manager dictate the terms, you should also be prepared to classify your CFIs as employees, and provide the necessary benefits as a result.