CFI - contractor vs freelance?

Banjo33

Banjo33

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Banjo33
I've been a CFI for a year and a half (military convert) and have only instructed one student for their instrument ticket. I've recently moved and am now renting out of a Part 61 flight school (I was in a club before). I queried the owner a couple months back, asking if he permitted freelance instruction. At that time, he said yes, as long as I was qualified and current. I've got coworkers (also military) that have expressed interest in different levels of training, including a young lady that has just booked me to start PPL training. I went to the flight school today to fly a little and reconfirm that it was OK for me to instruct in their aircraft. The answer again was "yes", but when I went to leave after my flight, the owner gave me a packet of papers to bring back when I was ready to start. I didn't get a chance to look at them at the time, but he did ask me if I wanted to be a full time or part time employee...I replied that I was merely interested in freelancing...that I would only be instructing those that I personally recruited and on my own schedule and would even provide my own insurance if that would be a problem. His reply was no, that I'd have to go on their insurance regardless and it was no big deal...just a phone call. He said I'd be a "contractor". I reiterated that I only wanted to freelance and his reply again was that I'd be a contractor. I assumed it was the same thing and left. However, now that I've had a chance to look at the paperwork, I'm not sure at all that it's the same thing anymore.

Here's what I have:
1. An Instructor Data Sheet...pretty standard asking about certificates and such
2. An Application for Employment that also has my name written across the top and "Contractor CFI -1099" are they handling my instructor fees?
3. Consent form for random alcohol testing...pretty standard
4. Flight instruction manual...basically outlining attendance requirements, dress code, attitude, forbidding ground instruction outside of the school (?), etc.
5. A policy letter requiring signature that forbids "moonlighting". ???
6. Two contradicting letters that explain instructor pay rates
7. And a copy of the syllabus outlining student checkout requirements for the school.

The employment app/1099, rule against instructing outside of their office, and pay rates sheets lead me to believe I'm applying for a job, not freelancing? I have no experience with this so I would appreciate some education, before I call him. I assumed as a freelance instructor I would be paid directly by the student...similar to how it worked in my club and the student would be responsible for the aircraft rental fees paid directly to the school. I'd even be ok with paying for my share of the insurance rates...but I'm not sure I'm ok with them charging my students $65/hr for instruction, then paying me $25.
 
Obviously two parties can agree upon whatever terms they wish to agree on. Typically, you agree on a rate per hour and they collect from the student and pay you your rate. It's the limitations on instructing outside the school that I'd make sure you're both clear on so you're both on the same page.
 
Sounds like someone who wants the benefits of employing someone without the obligations that go with it:

This is how I understand it:

'Free lancing': You work on your own billing, providing your own insurance instructing customers who have a business relationship with you for the instruction and the FBO for rental of the aircraft. They receive invoices from you as 'Banjo33, CFI' and pay you for the instruction. If they have an issue with how much ground time you charge, they deal with you. If the rented plane has a flat tire, they deal with the FBO.

'Independent contractor': You work on the FBO/flight-schools billing and act as part of the school. The student gets a bill from the FBO for both your services and the use of the aircraft. The school routes the payment for instructional services minus maybe an admin fee to you, issues a 1099 in january and you are responsible to pay self-employment tax etc. You are careful to maintain IC status by fulfilling IC requirements such as using your own tools, working without direction of another in how you do your job, getting paid for a defined service rather than your hours, etc.

'Employee': The FBO schedules you, directs how you provide instruction e.g. by requiring adherence to a syllabus and bills the student for your services. Student pays the school, school pays you an hourly wage and is responsible for the employer share of payroll tax, making unemployment contributions, fulfilling state workmans comp requirements, filing quarterly witholding returns with the IRS etc. At the end of the year, you get a W2 for the wages paid to you. School provides liability insurance for your activities, if your student augers in, the school is liable for your actions as an employee.



It sounds like the flight-school owner wants to have control over your instructional activities as if you are an employee but evade his responsibilities when it comes to tax and pseudo-tax collections like unemployment and workmans comp.

If you are truly 'free lance', you have no contractual relationship with the owner of the aircraft. He provides the plane, you provide instruction. You instruct who you want, how you want, and when you want.

If you are a 1099 IC, you are independent if you instruct someone in their private plane, it has nothing to do with the FBO, you instruct on your own schedule using your own tools etc.

If you are a W2 employee, the flight school can require you to do things like adhering to a dress code, require you to provide 'full effort' (no outside instruction) etc.
 
Weilke is correct about being a 1099 contractor. What I don't understand is why you see a big difference between being a 1099 contractor and being 'freelance'. From a tax point of view there really isn't any difference.

As the school's contractor the school will get a cut of the income you generate, but really, isn't that fair?

Now if the school interprets 'contractor' as being a person who has to show up at certain times, take specified breaks, perform janitorial functions in addition to aviation tasks, then the school is leaving itself wide open for a big fine when the 'contract employee' files a form SS-8. And more important, that's not fair the 'contractor'.
 
The biggest difference as I see it is the flexibility to charge what I want for my services. As I understand Weilke's description, as an IC, the flight school gets rental rate ($113 wet for a runout -172) plus about $45/hr for instruction BEFORE my cut. I didn't even charge that much with my last student, nor did I intend to charge that with future students. I'm not in it for the money or the flight hours, but $160/hr for instruction before the CFI gets paid is ridiculous. Regardless, that's not what this thread is about...I just want to make sure that before I go talk to the owner, I know what I'm talking about.

Edited to add:
I'm not asking to be covered by the insurance, workman's comp if I get hurt, unemployment if I get fired, an employee discount, or for him to provide me students...better yet, I'm bringing clients to the school and keeping his aircraft flying. $10-15/hr to the school (in addition to the rental rate), at the most, seems more than fair to me. Am I off base?
 
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They would pay you out of the $45. How much is up to negotiation.
 
No, they charge $65/hr for instruction. As best I can tell, $45 goes to the flight school. As I mentioned, there's two forms that state Instructor Compensation rates...one says $18 and one says $33. Not really sure how to read them.
 
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Let me be more clear, one is titled "Pay Rates for Instructors ($33/hr)". The other says "Compensation for Flight Instruction ($18/hr)".
 
I think they want the benefit of you recruiting, working for them, and not paying your social security and medicaide payroll taxes. You will ultimately be responsible for self employment tax and filing a schedule C on your return if you don't incorporate whether you are truly a freelance instructor or work solely for them. If you do incorporate you will be responsible for payroll tax returns and a corporate return. It seems to be one sided. The IRS has a list of what makes someone an independent contractor as opposed to an employee. Ultimately it's your decision but it seems that the deal as explained is not all that equitable. Just my 2 cents....
 
Wow asgcpa, I hadn't really considered the tax implications. About what percentage of that do you think would go to taxes? If I were to consider reimbursing a student my share of the instructional rate, how much would I need to hold on to to cover the taxes?
 
Banjo33 said:
Wow asgcpa, I hadn't really considered the tax implications. About what percentage of that do you think would go to taxes? If I were to consider reimbursing a student my share of the instructional rate, how much would I need to hold on to to cover the taxes?
Click to expand...

If you either free-lance or 1099, 15% of your income will go to 'self employment tax' which is your share of payroll tax plus the share that your employer would pay if you were employed. In addition, of course you own federal income tax at whatever marginal rate you would pay for any additional dollar you make, e.g. through overtime.

You will have to file a schedule C with your federal tax return. The upside of having to do this is that you can put some of the expenses you have every year to maintain your flight instructor certification as ordinary business expenses. Also, if you have any travel or overnight expenses related to your instructing, those can be included on the schedule C.

If you are a W2 employee, your employer would pay his share of the payroll tax and withold your share of the payroll tax + whatever you tell him to withold based on your form W4.
 
weilke said:
If you either free-lance or 1099, 15% of your income will go to 'self employment tax' which is your share of payroll tax plus the share that your employer would pay if you were employed. In addition, of course you own federal income tax at whatever marginal rate you would pay for any additional dollar you make, e.g. through overtime.

You will have to file a schedule C with your federal tax return. The upside of having to do this is that you can put some of the expenses you have every year to maintain your flight instructor certification as ordinary business expenses. Also, if you have any travel or overnight expenses related to your instructing, those can be included on the schedule C.

If you are a W2 employee, your employer would pay his share of the payroll tax and withold your share of the payroll tax + whatever you tell him to withold based on your form W4.
Click to expand...

The only other correction is that 50% of the SE tax is an adjustment to AGI which reduces your income for income tax purposes. 100% of the SE tax is reported as a tax. Additionally the 15% is roughly the amount of SE in all material respects.
 
If the flight school really had you sign and 'employee handbook', and imposed the same rules on 'contractors' as their actual employees then they are cruising for bruising. It will only take one employee filing an SS8 to cost them thousands in refunds of Social Security payments and fines.
 
Oh lovely the independent contractor CFI gig. Up to you, but probably not worth the pain. If I was you I'd look for a club or a flexible non equity partnership arrangement of some sort(last one brings up some insurance issues with students.)
 
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