Employee? Contractor? Avoid Costly Misclassification Errors

Employee classification at wellness franchises

myHRcounsel Guides Wellness Franchises on Tricky Employee Classification Rules

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Franchisees often find it difficult keeping up with the governments’ constant rule changes when it comes to their employees, which is why they may need expert advice. Many franchisees turn to myHRcounsel as their resource for legal answers to their HR and employee questions. The company provides unlimited subscription-based legal advice on everything from worker classification, hiring and retaining employees, termination, and creating legally compliant employee handbooks. myHRcounsel also alerts clients to rules changes that may affect their businesses.

Correct worker classification is particularly challenging within the wellness industry. Salons, spas, gyms, weight-loss and nutrition clinics, and other wellness services – common in franchising – seldom have 9-to-5 work schedules for manicurists, massage therapists, fitness instructors, nutrition counselors and so on. And the problem will grow right along with the wellness industry, which hit $5.6 trillion in revenue in 2022, Bloomerg reported in November 2023, citing Global Wellness Institute statistics. The institute projects 8.6% average annual growth, with the wellness economy reaching $8.5 trillion in 2027. 

Mikel Johnson, senior attorney at myHRcounsel, outlines some ways that wellness services (and other business owners) go wrong. “Worker status as an employee or independent contractor is not determined by what someone ‘has always done,’ what ‘seems right,’ or what a similar business in the industry is doing. Instead, worker status is determined by law at federal and state levels. An employer needs to know all rules, starting at the federal level, and then working down to each geographic location where they operate. This is especially important for positions where a worker may be scheduled to work only periodically or on a very limited part-time schedule.”

Key Misunderstandings 

He cites two major misconceptions regarding worker classification. The first is that a franchisee or other business owner can hire someone as an independent contractor, or 1099 worker, because they pull only a few shifts a month – perhaps a massage therapist or nail technician. The employer thinks someone who works just a few hours each month can’t be an employee. “That’s incorrect. Frequency of work, job title or labeling by a business do not determine whether a worker is an independent contractor or employee. Wellness franchisees, especially, will need to evaluate all laws relating to employee classification for their work location.”

A second misunderstanding arises from states’ independent contractor rules. “Under some states’ rules, a worker must perform services that are completely different from the services offered by the business where they are working. An illustration would be a carpenter hired to remodel the break room of a software company; that carpenter would be an independent contractor because carpentry is completely different from software development. But if the software company hired a programmer to work on its software, even if only part time and with minimal direction, that worker would be an employee in many states because their main work was not separate from the hiring company’s services.”     

Confusion is rampant, but that’s no excuse, Johnson says. “Compliance is not an option – it’s a requirement.” 

Ramifications of Errors

There’s little downside to misclassifying an independent contractor as an employee, he says, because employees typically receive more benefits such as insurance and paid leave. The big risk is misclassifying an employee as a contract worker, which can trigger payment of back wages, overtime, lost benefits, and retroactive contributions for taxes, workers compensation claims, fines for violation of workers compensation laws and other penalties. 

He also warns that “a misclassification claim might bring an investigation of the business by state agencies beyond the classification issue. For example, if a state department of labor starts looking at a misclassification issue in a business, they might call their friends in the department of revenue to make sure the employer’s payroll and business taxes are all up to speed. In addition, a state safety inspector could be called in if a misclassification investigation shows possible safety issues. The list could go on to any government regulatory authority at the federal, state and local levels.” 

He issues one final caveat: “Risk of a class action lawsuit also exists if a shrewd plaintiffs’ attorney bands employees together.”

myHRcounsel’s ASK HR for Wellness

Classification has become such a thorny issue for wellness businesses that myHRcounsel offers ASK HR for Wellness, which also includes membership agreements and liability waivers. ASK HR for Wellness provides subscribers:

  • Unlimited Access to experienced HR/Employment attorneys knowledgeable about employment law issues specific to wellness businesses
  • Expertise in helping franchisees navigate the complex employee classification rules in all 50 states
  • ASK HR forms Wellness business owners use to reduce liability
  • And more . . .

“We ensure our clients have the right documents in place for their employees,” Johnson says. Offer letters and employee handbooks are among the documents that help determine workers’ status; these are just a few of the documents subscribers also receive with ASK HR for Wellness.

To avoid misclassifications, Johnson advises franchisees and other business owners to be proactive about identifying potential areas of liability and eliminating them. “Timing can be extremely critical when a wellness franchisee worker is threatening to walk out the door. The wellness employer can reach out to us with both soft-skills questions and questions that will avoid costly legal pitfalls. We guarantee to answer subscriber’s questions within two hours during business hours.”

myHRcounsel Serves Franchisors, Too

Wellness franchisors can provide ASK HR services to their franchisees through myHRcounsel, Johnson points out. “myHRcounsel then becomes the firewall to protect franchisors’ businesses from too much interaction with franchisees on employment law issues such as worker classification. Having myHRcounsel be the solution for wellness franchisees provides peace of mind to franchisors that professionals are handling their franchisees’ employment questions with actual legal answers. Wellness franchisees using myHRcounsel also reduce the involvement by wellness franchisors that could lead to an unfavorable finding of joint employment between a franchisor and its franchisees.” To learn more about myHRcounsel’s ASK HR for Wellness, visit www.myhrcounsel.com.

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Mary Vinnedge is an award-winning journalist who has served as editor in chief, managing editor and senior editor at national and regional publications, including SUCCESS and Design NJ magazines. She also held reporting and editing roles at The Dallas Morning News and Charlotte Observer newspapers.

Before Mary began covering franchise news and trends as a staff writer for FranchiseWire and Franchise Consultant Magazine, she developed articles on topics ranging from lifestyle, education, health and science to home projects, horticulture, gardening, interior design and architecture. These articles included her reporting on academic news at her alma mater, Texas A&M University, when Mary worked in the marketing department of the Texas A&M Foundation. She continues to be a news junkie and subscribes to several publications.

Today Mary and her husband are empty nesters living on Galveston Island near Houston. The couple’s blended family – scattered around the United States – includes five children, four grandchildren and two very spoiled, very barky miniature schnauzer rescues.
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