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Independent Contractor or Employee: What’s Best For My Club, Facility or HOA?

W2 or 1099?

This question rears its ugly head every time there is a change at the head of the tennis, and sometimes golf, programming. As the country club industry in the USA contracts and clubs look to minimize costs, more and more often Directors of Tennis and, indeed, assistant professionals, are independent contractors and not employees. But, this savings in costs can come with a heavy loss in control over the tennis staff. This must be weighed by any Board or Committee before deciding whether to have your tennis staff as independent contractors.

Don’t Fall Foul Of The IRS!

It’s simpler in legal terms, and for the IRS,  if the Director and his staff are indeed all employees of the club. For the club’s owners, whether a member-owned, equity club or a business operation for profit, this action brings the entire department under the umbrella insurance policy covering the club’s facilities and brings the tennis staff under the worker’s compensation policy as well, which is indeed an important benefit to any worker. Clubs in recent years are preferring this easy method of controlling, insuring and employing their Directors of Tennis.

When tennis staff are employees, it’s easier for the club to track and record remuneration and compensation. Billing and revenues go through the Club – often, when the Director is an independent contractor, he or she bills the members directly for all revenues and leaves the Club without the knowledge of what the position may be worth financially. This is a tough situation when it comes time to hire a new Director. In many instances clubs are left without information, usage numbers and financial profit and/or loss reports.

When housing is involved, especially at seasonal clubs, technically housing paid for and provided by the club is a benefit in kind and is taxable. If an independent contractor is in the housing provided by the club, this becomes a liability if the independent contractor  doesn’t claim the housing as a benefit and it is found out later that this housing was indeed provided. It is quite easy to deduct this taxable benefit if the professional is an employee.

Basically, as an employee, the Director of Tennis and his staff are far more under the control of the country club or facility hiring them. Whether on the clock (and that is another issue we will look at in the coming articles) or salaried, the Director and his staff must be on duty a certain number of hours and have to answer to an employment contract and usually an Employee Handbook. As an employee, the Director can be told when to take time off, how to teach, and when it might be needed to attend departmental head meetings and management conferences.

Independent Contractors

The classification of independent contractors is in and of itself a bit tricky. There is a 20-point test that the IRS will put any club through to prove that their tennis staff are indeed contractors, and not employees of the club. In many cases, we would say in the majority of cases, clubs have mis-classified their independent contractors who are essentially employees.

There is a three-question simple test:

  1. Behavorial Control – Who keeps the schedule of the independent contractor? If the schedule is kept by the Club, then they are exerting control over the worker and that worker is an employee and not allowing the contractor to pursue work elsewhere. The Club cannot at any time tell the independent contractor when or how to work. Does the Club in any way tell the independent contracted professional how to teach or who to teach at certain times? And does the Club dictate what tools to use or provide tools (baskets, balls, etc). If any of the above questions are “yes” then you are most likely falling foul of the independent contractor classification. Remember, the view of the IRS is that the member taking a lesson or clinic from an independent contractor is a client of the contractor, not of the Club or the Director (if an assistant professional is teaching the lesson or clinic).
  2. Financial Control – Does the independent contractor stand to lose money in the teaching at the Club? This would mean that your tennis professional could lose money as an independent contractor through un-reimbursed expenses. In most cases, especially with assistant professionals, this is not the case. In most cases as well, the independent contracted tennis professional will have several facilities at which they are teaching and therefore the reliance on one facility or Club would often point to mis-classification.
  3. Business Relationship between The Parties – The IRS will often look at whether the work being offered is “indefinite” or by “project” and will also look at if there are benefits usually reserved for employment status: housing, along with employee food offerings, can run a Club afoul on classification.

Perhaps where clubs misunderstand the difference between independent contractors and employees in a tennis shop is the so-called “lesson” book. By law, an independent contractor is required to keep his/her own schedule. A club cannot dictate when or how long an independent contractor must be on-site or teach, or even discuss how to teach. In reality, the IRS would say that a club tennis shop cannot book a lesson for a member with an independent contractor – that member is a customer of the independent contractor and must book directly with the professional under this classification and pay the independent contractor directly to avoid any wrongdoing. When faced with this issue, there are many ways clubs may give incentives to the independent contractor to make the club and its members a priority, but again,  it is easy to fall on the wrong side of the tax law and classification.

So the Club must weigh the loss of control as noted above with the savings gained by not having costs associated with employees: tax, 401k, food and housing benefits, worker’s compensation and other costs. The decision should not be taken lightly but can easily be changed if needed by revising contracts and employment status and housing leases.

At Beyond the Baselines we work within the club structure to help management and member-filled committees which would be best for their facility – employee vs independent contractor. Often it is the environment and the ethos of the club that will make the decision for us, but sometimes the decision is more about financial and time controls. What will your club offer? A W2 or 1099

Coming next week:
Exempt versus non-exempt tennis professionals.

Coming in October:
How to create incentives for independent contractors. 

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What is a Director of Tennis

Not more than a few years ago, the department head at a country club was the Head Tennis Professional. Terminology gives us a hint as to what has happened in the country club industry over the past two to three decades.

The Head Tennis Professional is a position, as guessed by its title, usually focused on teaching and on-court instruction. In the past, this position was the Department Head at the club management level. In today’s modern country club employment tree, Head Tennis Professionals exist usually in a role just under the Department Head.

These days, most clubs now have an extra layer of management within the tennis department – The Director of Tennis now serves as the Department Head. With the cost of club membership rising and the actual number of country club memberships declining over the past two decades, the need to service the elite memberships with a concierge level of service is more and more expected in line with higher membership costs  Many clubs, which offer the growing sports of paddle tennis and pickleball along with the traditional racquet sport of squash, may indeed have a Director of Racquets above the Directors of Tennis, Squash and Paddle.

The Director of Tennis is a largely undefined role as we move into the next quarter of a century. What we are seeing as the industry changes is that the Director picks up the pieces across the department. Whereas the Head Tennis Pro was really just a glorified head instructor, the Director wears several different hats, all of which require training and competence in not only tennis, but tennis and social programming, marketing via email, email, texting and website, along with knowledge in insurance liability and payroll processing and employment law.

Perhaps the most notable statistic in any Director’s job description is that almost 100 percent of the job descriptions for Directors limit the amount of time the Director should be spending on court. This limitation in effect leaves time for the Director to be the “in-house” concierge, administrator and cross-marketer that is necessitated at any club, no matter size or location. The focus in hiring a good Director of Tennis should not only be on his or her tennis playing and teaching skills, but those skills the candidate possesses in relations to running a business – as the racquets department in any club is now seen more and more as a separate business within the club as a whole, with cross marketing between the various businesses (food and beverage, golf, and spa) as an integral ingredient to a successful club operation.

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Working With Committees

Business Boardroom

Functions Of The Tennis Committee

The tennis committee is in reality an extension of the Board and usually, at a country club, an executive committee which has its formation and power emanating from the by-laws of the club. It really has several functions within the organization. The committee, in the first place, is responsible for deciding and implementing policy in their department. Secondly,  they provide a method of oversight on behalf of the main board in relation to policy and implementation as well as overseeing long term strategic goals that fall within the tennis program. Finally, committees are there to recruit new members for the committee and eventually the Board for future work which safeguards the future of the Club and the tennis program.

Working With Committees

The philosophy behind a standing or executive committee is an important one. Clubs cannot be run (or ruled!) by committee but should work hand-in-hand with the Board, the club manager and the Director of Tennis. But this is not always the case as committees often become an oligarchy of a sort. And, in many instances, the chairman or chairwoman of the tennis committee will rule with an air of petulance. In addition to this, when looking at the duties of the tennis committee within most by-laws and club handbooks, rarely does it show the responsibility of recruiting and hiring the Director of Tennis.

At all times the makeup of the committee is a significant factor. Oftentimes, the by-laws allow the chairman or chairwoman of the committee to hand-pick the members of the committee. We feel this may not always be the wisest way forward. It is imperative that the committee, along with the Board Of Directors, be comprised of members from various demographics who have various interests within the club and, especially, see the tennis program from various viewpoints. Too often, friends of the chair, will have the same viewpoints and thoughts on the tennis program as the chair that reached out to add them to the committee.

Committees Rarely Have A Chance To Hire The Director

With many Directors of Tennis remaining in the position for five to ten years, even twenty to twenty five years in certain circumstances, the tennis committee rarely has an opportunity to go through the process of researching a possible new hire, let alone recruiting and hiring that new hire. Most committee members serve for just two to three years, so there may a total turnover of committee members since the last hire, even if that hire was just five years ago. Therefore, the committee has the chance to go through the hiring process of its leading employee very infrequently and is largely ill-prepared for such a process.

During a transition between Directors of Tennis there are numerous influences on a search or tennis committee assigned with hiring. Fellow members push forward their own, favorite professional for the position. Ladies Teams, which can often consume a Director and a committee, add their input and sometimes threaten to take their spending and team elsewhere. Indeed, management often has an ulterior motive in the candidate that is selected.

Industry standards are constantly changing as well, in terms of salary and stipends, allowable expenses within the department, health and insurance benefits, housing benefits and more. Here at Beyond The Baselines, we are on the cutting edge of the industry and constantly researching and experiencing what is new inside and outside the committee rooms and in the industry across the nation and the world.