Employee or Contractor? How to Classify the Teachers at Your Yoga Studio

In a lot of yoga studios, paying teachers as 1099 contractors is just how it is done. It is the default across the industry, and the reasons are easy to understand: no payroll to run, no employer taxes to cover, no benefits to administer. You agree on a rate, you pay it, and the tax side is the teacher's problem.

The catch is that none of those reasons are what decides whether a teacher is a contractor or an employee. The government does not classify your teachers based on what is cheaper or simpler for you. It classifies them based on the facts of the working relationship. And when I look at how a lot of small studios actually operate, the 1099 they are relying on would not hold up if anyone looked closely.

This is one of the more expensive things a small studio can get wrong, and it is far easier to set up correctly than to fix later.

Why 1099 feels like the obvious choice

The appeal is real. An employee costs more than the rate you pay them. On top of wages, you cover the employer half of Social Security and Medicare, federal and state unemployment insurance, workers' compensation, payroll processing, and any benefits you offer. A contractor costs you the agreed rate and nothing else. For a studio watching every dollar, 1099 looks like the responsible choice.

But that savings only exists if the classification is correct. If it is not, the money you thought you saved comes back later with penalties attached. So the real question is not which one is cheaper; it’s what the relationship actually is.

How the IRS actually decides

The IRS uses what it calls the common-law test, which sorts the question into three categories: behavioral control, financial control, and the type of relationship between you and the worker.

Behavioral control asks whether you direct how the work gets done. If you set the class schedule, expect teachers to follow a particular style or sequence, train them in your studio's method, require subs to be arranged through you, and have expectations about how a class should run, that is significant control over how the work is performed. The IRS reads that as pointing toward employee.

Financial control asks who runs the business side of the work. You provide the space, the props, the sound system, the booking platform, and the students. The teacher shows up and teaches. They are not investing in their own business or carrying a real risk of profit or loss on the class. That points toward employee too.

The type of relationship asks how permanent and how central the work is. A teacher on your weekly schedule, indefinitely, doing the exact thing your studio exists to do, is about as ongoing and integral as it gets.

Put those together and a regular studio teacher often looks like an employee under the IRS factors, even when both of you would rather use a 1099. The obvious contractor case is something like a guest teacher who brings their own following for a one-off workshop, sets their own terms, and promotes it themselves. Most of your weekly schedule is probably not that.

The labor-law side of this has been shifting. The Department of Labor proposed rolling back its independent-contractor rule in early 2026, and that process is not finished. Your state has its own tests as well, and New York's can be stricter than the federal ones, with workers' compensation and unemployment insurance both in play once someone is an employee. None of that changes the basic point: the facts decide, not your preference. If you’re really unsure, you can file Form SS-8 and ask the IRS for a determination.

What each choice means for your books

If a teacher is correctly a contractor, the bookkeeping is light. You pay the agreed rate, withhold nothing, and issue a 1099-NEC at year-end if you paid them $2,000 or more during 2026. That threshold used to be $600, so under the new rules fewer of your contractors will need a form, though you still record every dollar you pay them either way.

If a teacher is an employee, the bookkeeping changes shape. You run payroll, withhold federal income tax based on their W-4 along with Social Security and Medicare, pay the employer share of Social Security and Medicare plus federal unemployment tax, and file payroll tax returns on a schedule. You also carry workers' compensation and unemployment insurance and account for any benefits. Payroll becomes its own section of your books rather than a single line for contractor payments.

The cost of getting it wrong

The reason this matters so much is that the two mistakes are not symmetric. Treating a real contractor like an employee mostly just costs you more than you had to spend. Treating a real employee like a contractor is the one that can really add up.

If that classification gets challenged, you can be on the hook for the back payroll taxes you should have withheld and paid, plus failure-to-file and failure-to-pay penalties and interest. Under federal labor law, a misclassified worker can also be owed back wages and overtime, and there are separate exposures around unemployment insurance and workers' compensation. A studio running on thin margins does not want to meet that bill.

There is the fairness piece too. A teacher classified as a contractor carries the full self-employment tax themselves and gets none of the protections an employee receives. If they are functioning as an employee, paying them like one is the right thing to do. Paying people fairly is not only a question of values; it happens to line up with staying out of trouble.

What to do before you hire

Look at the relationship you actually have, or are about to have, against those three categories, and write down your reasoning so you have a record of how you decided. When the call is close, that is the moment to spend an hour with a tax professional or an employment attorney rather than guessing, especially with the federal rules mid-change. If you land on employees, set your books up for payroll from the start instead of bolting it on later.

And if your studio's books are already a tangle of teacher payments, owner draws, and class income that nobody has sorted, that is fixable. I have written about cleaning up a studio's books before. When the bookkeeping starts to feel like more than you want to manage on your own, here is how to tell if it’s time to bring in help.

For a closer look at the classification factors, the onboarding paperwork each type of worker needs, and the penalties for getting it wrong, my Contractors vs Employees guide lays it out in one place.