Reliance on contractors creating unwelcome ‘grey area’

While many businesses espouse the benefits of contractors over in-house employees, a fitness company has shelled out thousands to bring its trainers in-house as a means of de-risking its operations.

Aaron Smith is the founder and CEO of boutique fitness company KX Pilates, which was launched in Malvern, Victoria seven years ago. In 2017, the company has since grown to 37 studios, some of which are franchised, spread across five states.

By the end of 2017, it is on track to have 50 studios and an annual revenue of $15 million.

This impressive growth could be at risk, suggests Aaron, if the “grey area” of whether trainers are employees or independent contractors is not permanently resolved.

“Employing trainers as contractors is the accepted norm in the fitness industry. It’s easier for the employer to set up, quicker on pay day, and things like WorkCover, superannuation, private indemnity insurance are expenses that do not have to be taken into consideration,” Aaron tells My Business.

“[But] simply put, even if our trainers were under independent contractor agreements, from the ATO and Fair Work Australia’s point of view they are employees.”

It follows a Queensland court case in which a customer sued a gym and a trainer for causing him serious injury, but the case hit a snag when the parties could not definitively agree whether the trainer was an employee or a contractor.

Aaron says there is a great deal of risk for businesses that have blurred lines of responsibility and accountability, and he believes this could be limiting business growth.

“Our trainers are integral to the success of our business, and we wanted to ensure they were well looked after and given the benefits they deserve and had been missing out on,” he says.

Having begun paying its trainers superannuation and WorkCover in 2015, KX Pilates changed all of its trainers to employee contracts as of 1 July 2017 to standardise operations across its network.

“Since 2015, superannuation and WorkCover alone for each studio has been in excess of $15,000 per annum. The recent costs for advice, customised employee contracts and assistance with communication, policies and processes for KX HQ has been in excess of $10,000. Add in private indemnity insurance, and additional bookkeeping admin, I’d estimate an additional cost of approx $5,000 pa in expenses per studio. Across the network, we currently have 37 studios (soon to be 42), so you do the maths – but it has not been a cheap exercise!” explains Aaron.

“[But] I believe this will have a flow-on effect to the quality of the trainers we attract in the future, which ultimately is great for our brand, our customer service and continued company growth. That’s a great feeling.”

According to Aaron, the vast majority of trainers have welcomed the move, although a few who have worked as contractors their entire careers were disappointed at what they saw as the company “clipping their wings”.

“I think our trainers value our commitment to them and appreciate it is all about building long-term relationships. Our culture was already very strong, but this change has really solidified the relationship between owner-trainer in the KX family,” he says.

“With this move, we are in the minority of the Australian fitness industry, so I am very proud to be leading the way.”

 

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