S/O Landry Academy - What about Classical Conversations?

[bethben]

If Landry Academy can close due to not classifying their teachers correctly (if that indeed what is happening), couldn't classical conversations also have this happen to them?  They are basically doing the same thing - the tutors (and directors - I can't remember) are independent contractors despite the tutors having to do their job a certain way with pretty strict parameters.  From what I know, the CC tutors have less autonomy in how their class is run than any online teacher I've ever known.   I wonder if CC as the head organization is exempt from harm in this case and the problems will be forced onto the backs of the directors who will have to pay the outrageous fees if the IRS attacks them next.  

 

 

[Guest]

I'm no expert but this argument has been batted around about CC for so long, with enough disgruntled former tutors that I would think it's impossible no one has brought them to the IRS's attention previously via complaint. They're still here and growing like crazy though which makes me think nothing has come of it......I find it hard to think they haven't drilled into this issue. They're huge. I'm not sure how big Landry was, but CC is boasting over 100k students a year. I don't think Landry was that big, were they? 

[itsheresomewhere]

From something that was said on another place, I believe the IRS already did look at them awhile ago.

[maize]

Apparently Potter School teachers are also independent contractors?

Edited December 30, 2016 by maize

[snowbeltmom]

Apparently Potter School teachers are also independent contractors?

Has it been officially announced that Landry's IRS problems are due to classifying its teachers as independent contractors? 

 

There are some teachers that work for more than one online provider simultaneously.  I would assume that they are classified by both providers as independent contractors. 

[maize]

Has it been officially announced that Landry's IRS problems are due to classifying its teachers as independent contractors?

 

There are some teachers that work for more than one online provider simultaneously. I would assume that they are classified by both providers as independent contractors.

Though they could equally be classified by both as employees. Employee vs. contractor status isn't really about how many hours or how exclusively you work for one person (many people are employees in more than one job). From what I understand, a key criterion is how much control the individual has over where, how, and when they do the job.

[The Governess]

Now that I am thinking about it, CC has an odd business structure. They actually don't pay their tutors anything. The individual families pay the tutors, and then the tutor is required to pay CC a percentage of their revenues. This must be how they get around the IC vs. employee issue with all of the strict rules that tutors must adhere to.

[snowbeltmom]

Though they could equally be classified by both as employees. Employee vs. contractor status isn't really about how many hours or how exclusively you work for one person (many people are employees in more than one job). From what I understand, a key criterion is how much control the individual has over where, how, and when they do the job.

Good point. The bolded is my understanding as well.  My H has been an independent contractor for decades.  He also has both employees and other independent contractors working for him.  That is why I am wondering if the issue with the IRS has to do with the independent/employee classification or something else.  

 

If the teacher at Landry has control over the contents of the class and determines the hours each week the class meets, it would seem that the teacher would be an independent contractor.  

 

I don't have a dog in this race, but feel bad for all of you who are dealing with this.   

[OneStepAtATime]

Now that I am thinking about it, CC has an odd business structure. They actually don't pay their tutors anything. The individual families pay the tutors, and then the tutor is required to pay CC a percentage of their revenues. This must be how they get around the IC vs. employee issue with all of the strict rules that tutors must adhere to.

I suspect this IS how Landry ran into issues and CC apparently has not.  Good point.

[Another Lynn]

Now that I am thinking about it, CC has an odd business structure. They actually don't pay their tutors anything. The individual families pay the tutors, and then the tutor is required to pay CC a percentage of their revenues. This must be how they get around the IC vs. employee issue with all of the strict rules that tutors must adhere to.

 

Might come back and delete this later:  The above is true for the upper levels (Challenge) but for Foundations, a Foundations Director does "contract" "tutors" and pay them.  So I wonder if Foundations Directors are at risk for this issue?  Also, CC recently (couple years ago) reduced the maximum number of kids enrolled in Foundations (at one campus).  Would a smaller number of tutors "contracted" by a Foundations Director change the way the law applies to them?  

[OneStepAtATime]

Good question.  Anyone have a strong grasp of IRS ins and outs?

[maize]

Might come back and delete this later: The above is true for the upper levels (Challenge) but for Foundations, a Foundations Director does "contract" "tutors" and pay them. So I wonder if Foundations Directors are at risk for this issue? Also, CC recently (couple years ago) reduced the maximum number of kids enrolled in Foundations (at one campus). Would a smaller number of tutors "contracted" by a Foundations Director change the way the law applies to them?

I don't think the number of workers should impact contractor vs. employee status, the relationship between worker and the business/individual using their services is what matters.

 

CC's set up does seem ambiguous at best.

 

Here's some information on the topic:

https://www.irs.gov/taxtopics/tc762.html

Edited December 30, 2016 by maize

[maize]

I do wonder if each campus director is the one assuming the risk; maybe the IRS is less likely to go after a bunch of small "businesses" rather than one large one?

[maize]

Here's a podcast discussing employee vs. contractor classification in homeschool organizations. CC is addressed if you scroll down to the comments.

http://ultimateradioshow.com/paying-workers-part-1/

Edited December 30, 2016 by maize

[TarynB]

Good point. The bolded is my understanding as well.  My H has been an independent contractor for decades.  He also has both employees and other independent contractors working for him.  That is why I am wondering if the issue with the IRS has to do with the independent/employee classification or something else.  

 

If the teacher at Landry has control over the contents of the class and determines the hours each week the class meets, it would seem that the teacher would be an independent contractor.

 

I don't have a dog in this race, but feel bad for all of you who are dealing with this.   

 

My impression is that Landry teachers did not have as much control over content as many people think. For courses where there were multiple sections, with different teachers, the syllabi were basically identical. (I compared many of them, in different subject areas, LOL.) Choice of textbooks/resources, pacing, order in which material is covered, how assessments were completed and when (homework, quizzes, tests), etc. were essentially the same across multiple sections/teachers. The courses were standardized. So that tells me that Landry DID control the content of the classes, which adds more weight to the argument that the teachers were actually employees . . . they did not seem to have much (any?) freedom in how to conduct their classes.

 

And I've seen/read that since so-and-so was the developer of a certain Landry course a year or two ago (but had left Landry in the meantime) then that person could easily pick up any former Landry students left without their original teacher after the Christmas break. Meaning, the syllabus used by a Landry teacher wouldn't have been changed, so that there would be no gaps or overlaps.

Edited December 31, 2016 by TarynB

[Another Lynn]

IIRC CC has non-compete agreements which keep tutors from doing anything similar outside CC.  Perhaps it's a fine line between "You cannot use proprietary information" vs. "You are an IC and therefore free to provide service to other "customers."  

[maize]

IIRC CC has non-compete agreements which keep tutors from doing anything similar outside CC. Perhaps it's a fine line between "You cannot use proprietary information" vs. "You are an IC and therefore free to provide service to other "customers."

I had heard that directors have to sign a three year non compete agreement (a friend of mine used to be a director) but have not heard this for tutors. Directors are more like franchisees, I'm guessing non compete is standard in such situations.

Edited December 31, 2016 by maize

[...................]

Now that I am thinking about it, CC has an odd business structure. They actually don't pay their tutors anything. The individual families pay the tutors, and then the tutor is required to pay CC a percentage of their revenues. This must be how they get around the IC vs. employee issue with all of the strict rules that tutors must adhere to.

 

This is how our homeschool "academy" does it.  We pay the teachers directly, individually. They pay the director for use of the facility and they figure out on their own about their taxes and such.  The director does not dictate their curriculum, hours, or anything.  She organizes the schedule, takes insurance payments for the church, organizes everyone for the study hall, supervises, and she accepts a yearly registration fee for all her efforts.  But she does not pay a single dime to the teachers.

[Loolamay]

Since Classical Conversations' corporate lawyers threatened to sue me in a cease and desist letter in June for discussing some of these things, I have to be very careful here. I am not a lawyer. I'm a homeschooling mom. I am not giving legal advice nor am I telling you what I know to be a fact - just what I have experienced and my opinion of what I have experienced with regard to CC. If anyone would like to see a copy of the official legal threat letters made against me by CC, please pm me, and I will share a copy of the letters. Note: I never signed a contract with CC, so I am not under the obligation of their nondisclosure agreements or confidentiality clauses.

 

I was a member of a CC community for 4 years. I tutored in the 2014-2015 school year. I never signed a contract because by CC's own policies I worked for my director, not CC. I didn't like the contract they instructed my director to have me sign, and I didn't sign it. I was hired as an independent contractor and I paid self-employment tax. This has been CC's business model. The director hires the tutors. And, it is my understanding that, yes, the IRS may audit a director to see if she has misclassified her workers. I only know of one IRS investigation directly - it was a director who felt she had been misclassified as an independent contractor. She filled out the IRS form to inquire a out her classification. Because parents pay directors (and directors pay the hefty "registration fees" to CC) but CC never directly paid the director, the IRS responded that it could not make a ruling as to whether the director should have been a CC employee or not. However, since the director hires her tutors, presumably the IRS *could* investigate a director personally. My point here is that just because it's big and been around a long time does not mean the IRS has investigated and cleared CC's business model. I don't really know how the IRS would deal with a director who hires her tutors as independent contractors and then tells them where and when and exactly how ("stick in the sand") to teach. This Landry Academy deal makes me feel like CC directors may be at risk.

Edited February 4, 2017 by AprilDianne

[bethben]

That's been my big wondering over the years. I'm wondering if all the risk is put into the backs of the directors. I would hate to see those directors get into IRS trouble. I was a director 6 years ago and did as they said about the tutor classification. But knowing how stringent the rules were for a tutor about how their day was to run, I can't imagine how they could be classified as anything but an employee.

 

 

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[Guest]

Our CPA says that a big determination is whether a teacher can choose to decline classes that are offered for him/her to teach. Some of our teachers are regular employees, HAVE to teach a certain number of classes every semester, and we pick the times and subjects. Our independent contractors tell us how many classes they want to teach, when they want to teach them, and what the classes are. So control over the work has a great deal to do with the classification.

 

It's an increasingly complicated subject, which is why good financial advising is SO important.

 

SWB

 

P.S. To my knowledge, no one has confirmed that the Landry Academy issues were caused by employee reclassification. From what I've seen of their business model, selling all of those low-priced generics HAS to have been a major issue. 

[G5052]

 

P.S. To my knowledge, no one has confirmed that the Landry Academy issues were caused by employee reclassification. From what I've seen of their business model, selling all of those low-priced generics HAS to have been a major issue. 

 

That's what I've heard too. It was a factor, but their business model caused the landslide.

[Loolamay]

Carol Topp, via her webinar on this issue posted here: http://www.virtualhomeschoolgroup.org/calendar/view.php?view=day&time=1484420400#event_161

seems to think the classification investigation was very influential in Landry's failure. And essentially that *is* the 'business structure". As Cadam pointed out, CC directors "technically" have a lot of autonomy but that was not my campus's experience in practice. Our director was being told by our support manager and area manager (erm... representatives) what to do and how to tell her tutors exactly what to do - right down to our being required to hand-write information on the board rather than use a computer printout. In my opinion, that's a pretty granular level of control. And I'm with others here. I would *never* agree to be a Foundations director, because I would bear all of the tax liability (of possible misclassification) even though, in our case, our director was clearly being instructed on what to do. I wouldn't be flippant about sharing this info. CC has already threatened to sue me. But, this is the truth about what happened to our campus.

On another post someone indicated that it seemed the "IRS crackdown on ICs" seemed targeted at Landry, I present the landmark Microsoft case: https://www.google.com/amp/mobile.reuters.com/article/amp/idUSTRE53063S20090401

"Tiny" homeschooling groups aren't being targeted any more than giant corporations. The fact is, if you hire ICs and then treat them like employees, the IRS is likely to find you eventually. The is also this case from Ohio about a homeschool group that got back-taxed and fined to the tune of somewhere around $15,000. Please click the link. It's eye-opening: http://homeschoolcpa.com/update-on-teachers-as-independent-contractors/ Landry is not getting picked on. The IRS is serious about worker protections. They get their taxes either way - either the independent contractor (the 1099 bearer) pays the extra FICA tax or the employer does. Even if you include business deductions, someone gets to take them. From my perspective the IRS gets paid either way - but the hiring of employees and then calling them independent contractors is bad for our economy.

Edited February 21, 2017 by AprilDianne

[Loolamay]

And when I say "serious about worker protections" here's a good article about what I mean in terms of worker protections that ICs don't get: http://m.huffpost.com/us/news/independent-contractors