Contractor vs. Employee

Van_Hoolio

Van_Hoolio

Well-Known Member
I found out first hand a benefit of being an employee for the school you instruct for. I applied for a new health insurance policy as a stop-gap until I have been with my company long enough to sign up for their health plan. There is a rider that I am going to have to sign that basically says I am not covered if I am injured in any way around an aircraft. Even if I trip and fall while climbing out of one. Since I'm an employee, workman's comp comes into play. If I were a contractor, I guess I'd be screwed. I hate insurance companies.


Mike
 
Van_Hoolio said:
I found out first hand a benefit of being an employee for the school you instruct for. I applied for a new health insurance policy as a stop-gap until I have been with my company long enough to sign up for their health plan. There is a rider that I am going to have to sign that basically says I am not covered if I am injured in any way around an aircraft. Even if I trip and fall while climbing out of one. Since I'm an employee, workman's comp comes into play. If I were a contractor, I guess I'd be screwed. I hate insurance companies.


Mike
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Don't hurt yourself around airplanes. :)
 
This employee vs. contractor thing affects a lot of CFIs but I don't think people give it much thought. Some of the ramifications:
  • No workplace protections against discrimination or other unlawful employment practices (failure to pay overtime, required work breaks, eligibility for unemployment insurance, etc) In fact, none of the laws governing employment apply since you're not technically an employee.
  • No workers' comp protection should you be injured on the job--and most places will require you to sign a "hold harmless" waiver as part of the contract, absolving them of any liability should you be injured. In fact, should you die in an accident while flight instructing, your estate and/or heirs could be--and most likely would be--sued for damages by both the FBO and their insurance company.
  • Effectively doubles your Social Security tax liability from 7.65% to 15% of your gross income as you are essentially self-employed and thus have to pay both the employee and employer shares of this tax.
I'm sure there are others, this is just off the top of my head. I know all of ATP's instructors are "independent contractors" and suspect that many other places operate similarly. Anyone operating as an independent contractor would do well to investigate establishing themselves as an LLC (limited liability company) for the purpose of offering their services.
 
aloft said:
Anyone operating as an independent contractor would do well to investigate establishing themselves as an LLC (limited liability company) for the purpose of offering their services.
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you got that right. tons of other tax benefits, too, if you play smart. LLCs are inexpensive, except in texas ($300, wtf). other places it's anywhere from $15 to $150. much less hassle than starting and maintaining a corporation.
 
aloft said:
This employee vs. contractor thing affects a lot of CFIs but I don't think people give it much thought.
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If you are an "independent contractor" CFI with a flight school ask the flight school if you may instruct with the across airport/across town flight school while you instruct with the current flight school. If the flight school tells you no how, no way, ask for the answer in writing.

IOW, the average flight school using "independent contractor" CFIs is breaking the law (IRS law, that is).
 
aloft said:
I'm sure there are others, this is just off the top of my head.
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That was a pretty good run-down of the high spots but
Anyone operating as an independent contractor would do well to investigate establishing themselves as an LLC (limited liability company) for the purpose of offering their services.
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Why? It won't give them any liability protection in case of an accident.
 
MidlifeFlyer said:
Why? It won't give them any liability protection in case of an accident.
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It should protect their estate, IIRC (such as a broke CFI would have, but still...). In the event of an accident, an FBO/flight school could sue an indepent contractor's estate for the hull loss, lost revenues, damage to reputation, all kinds of crap that they couldn't necessarily sue an employee for. With an LLC in place, I don't think they have recourse to go after a principal's estate.
 
I've been using this guide that I received from the FL Dept. of Labor:

For the following questions, a "yes" answer means the worker is an employee.

1. Does the principal provide instructions to the worker about when, where, and how he or she is to perform the work?

2. Does the principal provide training to the worker?

3. Are the services provided by the worker integrated into the principal's business operations?

4. Must the services be rendered personally by the worker?

5. Does the principal hire, supervise and pay assistants to the worker?

6. Is there a continuing relationship between the principal and the worker?

7. Does the principal set the work hours and schedule?

8. Does the worker devote substantially full time to the business of the principal?

9. Is the work performed on the principal's premises?

10. Is the worker required to perform the services in an order or sequence set by the principal?

11. Is the worker required to submit oral or written reports to the principal?

12. Is the worker paid by the hour, week, or month?

13. Does the principal have the right to discharge the worker at will?

14. Can the worker terminate his or her relationship with the principal any time he or she wishes without incurring liability to the principal?

15. Does the principal pay the business or traveling expenses of the worker?

For the following questions, a "yes" answer means
the worker is an independent contractor.

16. Does the worker furnish significant tools, materials and equipment?

17. Does the worker have a significant investment in facilities?

18. Can the worker realize a profit or loss as a result of his or her services?

19. Does the worker provide services for more than one firm at a time?

20. Does the worker make his or her services available to the general public?
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Remember that there is no such thing as a 1099 employee!
 
aloft said:
It should protect their estate, IIRC (such as a broke CFI would have, but still...). In the event of an accident, an FBO/flight school could sue an indepent contractor's estate for the hull loss, lost revenues, damage to reputation, all kinds of crap that they couldn't necessarily sue an employee for. With an LLC in place, I don't think they have recourse to go after a principal's estate.
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You can NEVER avoid your liability as an individual for acts you perform as an individual. So an LLC won't protect YOU when YOU doing something for which somebody else wants to hold you liable.

If there are 4 CFIs and they want to form an LLC together then the LLC protects CFI's B, C and D when CFI A screws up. But CFI A has no protection under the LLC for their individual negligence.

As an employee your additional protection is that you are "acting at the direction" of your employer - so make sure you are. Because if your employer has a policy that says "don't do X" and you do X then you don't have that protection any longer. Of course the defense can be more complicated, if you've been doing X for 6 months and your employer should have known about it and stopped you then you're probably still protected - but it gets complex.

Hope that helps.
 
The factors listed by Mr. Tenney (who is, in fact, Creepy) are similar to those used by nearly every state (and the feds) to determine whether someone is an employee or an independent contractor. I somewhat doubt that the classification of CFIs as independent contractors by most FBOs would survive any sort of determined legal challenge -- that is, unless the CFI really were freelancing (working for multiple persons/companies). But most CFIs seem to work for only one FBO, they are directed in their work and schedule by the FBO, and they use equipment primarily supplied by the FBO. In other words, they really look like employees.

CFIse is correct on liability issues. No corporate structure can protect you or your estate from liability for your own personal negligence.

Midlifeflyer: what the heck is AFAIK?
 
CFIse said:
You can NEVER avoid your liability as an individual for acts you perform as an individual. So an LLC won't protect YOU when YOU doing something for which somebody else wants to hold you liable.
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Absolutely correct. That's why I asked.

This may be the most misunderstood part of the whole thing about creating a business entity.
 
Well, you are right that as an IC you arent protected by employee laws, butt.....


Lets say you have an oral agreement (or written, even better) to work for BANANNA FBO in bla bla Texas. You agree to work for them as an IC for one year, in return, they agree that you will earn at least $500 per week.


Now, yes you are an IC, but if they terminate you for no reason, you can argue a breach of contract and sue their asses.

So, while employers use the IC to avoid employee restrictions, there are benefits.

First, you can sue for breach of contract if they terminate your services from no fault of your own.

Second, you can work anywhere else you want

Third, they cant exercise direct supervision. Non of this, "sweep the carpet when your done teaching and be sure to teach lazy eights before chandellas".
 
I'm not disputing what you're saying, but its probably safe to say that it doesn't much go down that way in practice. I've worked for several years as a contractor, and I've never worked under a contract that didn't give one or both parties the right to terminate the agreement at any time. I've certainly never worked for one that "guaranteed" a certain level of compensation; it was always tied to hours worked.

Looking at ATP's model, they don't directly supervise because most of their offices consist of one or two instructor-contractors and that's IT. They can and do, however, require instructors to follow training syllabi. As for working anywhere else you want, an FBO could require a non-compete agreement as a condition of the contract, and in the case of ATP, you're working 12-16 hours a day, 7 days a week anyway--and even if you weren't, you're still bound by the 8 hrs per day limit.
 
Propilot said:
Lets say you have an oral agreement (or written, even better) to work for BANANNA FBO in bla bla Texas. You agree to work for them as an IC for one year, in return, they agree that you will earn at least $500 per week.
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Anyone here know of =anyone= who has a cronract like that as an independent CFI?

Doesn't have to be Texas.
 
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