In recent years, the IRS has intensified its review of the role of employees in relation to independent contractors. If the IRS determines that you mistakenly classified an employee as an independent contractor, the tax consequences, penalties, and attorneys` fees for defending your case could be a financial fiasco for you and the CFI. In short, “independent contractors” must have a sufficient degree of real independence. Factors include whether the employee offers services to multiple clients, behaves like a separate company, and has the autonomy to decide how to carry out the assigned assignment. Another factor may be whether the employee provides their own equipment for the work. Pilots don`t have much autonomy because of their work. They must fly at the times and places specified by their employers, and employers provide the most important work equipment: the plane. Since most employers want their pilots to be available when needed, many pilots only fly for one operator. Therefore, the typical pilot would not qualify as an independent contractor. If you classify workers as independent contractors, can you find details and more complete information about the regulations directly on the IRS website, Independent Contractor (Self-Employed) or Employee? By preparing and organizing these recordings right now, you can make sure your business isn`t getting unwanted surprises that you`re not equipped with and capable of. Some of the most obvious factors that an IRS auditor can look for in their investigation are often those that are easily overlooked or considered trivial for surgery as a whole. For example, do you require all “employees” to attend regular meetings? If so, make sure it doesn`t include workers who are classified as independent contractors.
Instead, you should only send them an invitation. Do you provide your IFCs with business cards with your logo or school names with their names printed on them? You shouldn`t do this, but if you insist that they have cards, ask the CFI to fill out the order form and make sure they indicate on the card that they are a freelance teacher, personal phone or email address in addition to the school one and pay for printing the cards. Do you have a website? Make sure that any FCI that appears on it or in an advertisement appears as an independent instructor. An example of a big no was a flight school that required its independent KICs to participate in mandatory meetings with employees as well as mandatory uniforms. This is where the IRS would no longer consider the CFI as independent, but as an employee where that school would now be required to pay taxes on its salaries. Also, determine if your insurance covers losses caused by an independent contractor pilot. There are many good reasons for someone to want to be an independent contractor. But just because the owner of the rental fleet says you`re one doesn`t mean you do it that way. It is actually illegal.
The majority of flight schools prefer an agreement with instructors who classify them as independent contractors. If done right, a school can usually save money because it doesn`t have to withhold deductions, pay workers` compensation insurance, or labor taxes (Social Security and Medicare taxes on wages). As an aircraft operator, you already know that the simplest solution is not always the best. For this reason, before you jump on the independent contractor`s bandwagon, you should investigate specific issues related to your flight operations with professional advisors and conduct a thoughtful risk-benefit analysis on how to classify your pilots. While there`s nothing wrong with choosing your IFCs as independent contractors, it can become a problem if a flight school doesn`t properly establish the working relationship from the beginning. When issuing a Form 1099 to your instructors, it would be in your best interest to standardize a method by which these instructors should be treated in order to minimize confusion among staff. For example, the mere language or treatment of an independent contractor by an employee of the school might be sufficient for an IRS auditor to consider the CFI to be an employee. This can be a great relationship for both, as schools provide the physical tools for both the flight instructor and the student, and the flight instructor provides valuable pedagogical skills, a good reputation and, most importantly, the ability to bring as many students there for training as they want, creating their own income and flow of hours.
How risky is it to hire pilots as independent contractors? What happens if the pilot signs an independent contractor contract? While this sounds good in theory, it may not work in practice. Auditors may disregard these contracts if the facts show that the pilot is not acting as an independent contractor. .