Here's a question that keeps program directors up at night: are the people coaching your teams actually employees, or are they independent contractors?
The answer feels like it should be obvious. You call them "contract coaches." You pay them per session. They set their own schedule, sort of. They're definitely not on your health plan.
But what you call them doesn't determine their legal classification. What determines it is the actual nature of the relationship: who controls the work, how integrated they are into your operations, and whether they're genuinely running their own business or just working for you without the paperwork.
Get this wrong and you're looking at back taxes, penalties, overtime claims, and the kind of audit that ruins your quarter. The Department of Labor updated its worker classification rule in 2024, and the IRS has its own set of criteria that don't perfectly align. If you haven't reviewed your coaching arrangements recently, now is the time.
This isn't legal advice. You need an actual employment attorney or CPA for that. But this is the conversation you should be having, the questions you should be asking, and the risks you should understand before someone else asks them for you.
Why Classification Matters
The difference between an employee (W-2) and an independent contractor (1099) affects almost everything about how you manage and pay coaches.
Payroll taxes. For employees, you withhold income tax, Social Security, and Medicare. You pay the employer portion of FICA. You file quarterly payroll reports. For contractors, you issue a 1099 at year end and they handle their own taxes. Misclassify an employee as a contractor and you owe all those back taxes plus penalties.
Overtime and minimum wage. Employees are covered by the Fair Labor Standards Act. If they work more than 40 hours in a week, you may owe overtime. Contractors aren't covered by FLSA, but if they're misclassified, you could face wage claims for all the overtime you never paid.
Benefits and protections. Employees may be entitled to benefits, workers' compensation coverage, unemployment insurance, and various workplace protections. Contractors aren't, which is part of why misclassification is tempting. But the savings evaporate fast when you're hit with penalties.
Control and expectations. How much can you direct when, where, and how a contractor works? Less than you think. If you're treating someone like an employee while calling them a contractor, you're creating legal exposure.
Audit risk. The IRS, DOL, and state agencies all have an interest in finding misclassified workers. It's a revenue issue for them. Audits can be triggered by a disgruntled worker filing a complaint, a random selection, or patterns in your filings.
The stakes are real. Programs have faced five and six-figure back-tax bills when classification was challenged. The "we've always done it this way" defense doesn't work.
What the 2024 DOL Rule Changed
Effective March 11, 2024, the Department of Labor finalized a new rule updating how worker classification is analyzed under the Fair Labor Standards Act.
The new rule moves away from a simplified test that emphasized just two factors (control and profit opportunity) and returns to a broader "totality of the circumstances" analysis. Six factors are considered, with no single factor being determinative:
Opportunity for profit or loss depending on managerial skill. Can the worker earn more by working smarter, not just harder? Do they make decisions that affect their bottom line? A coach who just shows up and runs your curriculum has less profit opportunity than one who builds their own client base, sets their own rates, and markets their own services.
Investments by the worker and the employer. Does the worker have meaningful capital investment in their business? Buying their own cones and whistle doesn't count. Investing in a training facility, marketing, equipment, and insurance might.
Degree of permanence of the relationship. Is this an ongoing, indefinite relationship, or a project with a defined end? Coaches who work for you season after season, year after year, look more like employees than someone hired for a six-week clinic.
Nature and degree of control. How much do you control when, where, and how the work is done? Setting practice schedules, requiring attendance at games, dictating curriculum, and reviewing performance all point toward employment.
Extent to which the work is integral to the employer's business. Is coaching a core part of what your organization does? If you're a youth sports program and coaches are delivering your core service, that integration weighs toward employment.
Skill and initiative. Does the worker use specialized skills in a way that reflects business-like initiative? A coach who markets their own services, serves multiple clients, and operates independently looks different from one who just shows up when you tell them to.
The rule emphasizes that all factors must be considered together. There's no bright-line test. That ambiguity is frustrating, but it's also the reality you have to work within.
The IRS Looks at This Differently
The DOL rule governs wage and hour issues under the FLSA. But the IRS has its own classification criteria for tax purposes, and state agencies may have yet another set of rules.
IRS guidance focuses on three categories:
Behavioral control. Do you control what the worker does, when they do it, how they do it, and where? The more control you exercise, the more it looks like employment.
Financial control. Does the worker have unreimbursed expenses, opportunity for profit or loss, make services available to the market, and get paid by the hour versus by the job?
Relationship type. Are there written contracts? Benefits? Is the relationship expected to continue indefinitely? Is the work performed a key aspect of your business?
If you're genuinely uncertain about a worker's status, the IRS offers Form SS-8, which you can file to request a determination. The downside: it takes months to get a response, and you might not like the answer. The upside: it demonstrates good faith if you're later audited.
Red Flags That Suggest Misclassification
Look at your coaching arrangements honestly. These patterns often indicate that someone is really an employee, regardless of what you call them:
You set their schedule. "Practice is Tuesday and Thursday at 5 PM" is employer language. True contractors control when they work.
You require attendance at specific events. Mandatory coaches meetings, required presence at games, non-negotiable training sessions all point toward employment.
You provide the tools and curriculum. If you're handing them practice plans, equipment, uniforms, and telling them what to teach, you're exercising significant control.
They work exclusively or primarily for you. Independent contractors typically serve multiple clients. If someone coaches only for your program, season after season, the "independent business" argument gets weaker.
You evaluate their performance and give feedback. Performance reviews, improvement plans, and supervision are employer behaviors.
They can't hire substitutes without your approval. True contractors can typically delegate work. If you control who actually shows up to coach, that's a control indicator.
The relationship has no defined end. "You're our U12 coach for as long as you want the job" sounds like employment.
None of these individually determines classification. But if several are present, you should be concerned.
Three Approaches Programs Actually Use
There's no one right way to structure coaching compensation, but there are three common approaches, each with tradeoffs.
Model 1: All employees (W-2). You treat coaches as part-time employees, withhold taxes, pay employer payroll taxes, and provide whatever benefits your policies require. This is the cleanest from a compliance perspective. The downside is cost (employer taxes add roughly 7.65% to wages, plus administrative burden) and the expectations that come with employment.
Model 2: All contractors (1099). You engage coaches as independent contractors, issue 1099s, and they handle their own taxes. This is simpler administratively and shifts tax burden to the worker. The downside is compliance risk. Unless the relationship genuinely meets contractor criteria, you're exposed.
Model 3: Hybrid based on role. Some positions are clearly employees (your program director, full-time staff). Others might legitimately be contractors (a specialist who runs a four-week clinic, serves multiple organizations, and sets their own methods). This requires careful analysis of each role but may best reflect reality.
Whatever model you use, apply it consistently. Treating similar roles differently creates inconsistency that auditors notice.
Structuring Contractor Relationships to Reduce Risk
If you determine that certain coaching roles can legitimately be contractor relationships, structure them properly:
Use a written contract. Define the scope of work, payment terms, and the contractor's responsibilities. Include language acknowledging their status as an independent contractor responsible for their own taxes.
Give them real autonomy. Let them determine how to run their sessions, within broad program guidelines. Don't micromanage curriculum or methods.
Allow them to work for others. Don't include exclusivity clauses. If they want to coach for another program simultaneously, that's their business.
Pay by the project or deliverable, not hourly. "You'll be paid $500 for the six-week clinic" looks more like a contractor arrangement than "You'll be paid $25 per hour for however many hours we schedule you."
Don't provide employee-type benefits. No paid time off, no health insurance, no retirement contributions. These blur the line.
Let them invoice you. Contractors bill for their services. Employees get paychecks. The paperwork should match the relationship.
Even with all this, the relationship might still be deemed employment if the totality of circumstances points that way. Structure reduces risk but doesn't eliminate it.
When to Get Professional Help
This is complex enough that you should involve professionals at certain points:
When setting up your structure. Before you decide how to classify coaches, consult an employment attorney or HR professional who knows your state's rules. Get it right from the start.
When something changes. New DOL rules, state law changes, or shifts in how you use coaches all warrant a fresh review.
When you're uncertain about a specific role. If you genuinely don't know whether someone is an employee or contractor, get advice. The cost of consultation is much less than the cost of penalties.
When you receive an inquiry. If a government agency asks about your classification practices, involve legal counsel immediately. Don't try to handle it yourself.
The Paperwork Doesn't Lie (But It Might Not Match Reality)
Somewhere in your files, there's a stack of 1099s or W-2s that represent a decision someone made about how to classify your coaches. Maybe that decision was intentional. Maybe it was inherited. Maybe no one remembers why it's done this way.
The IRS doesn't care about history. The DOL doesn't care about intentions. They care about what the relationship actually looks like today: who controls the work, how integrated the role is, whether someone is genuinely running their own business or just working for you without the paperwork.
If there's a gap between what your documents say and what your relationships actually are, that gap is your exposure. Close it before an auditor does it for you.
Ian Goldberg is the CEO of Signature Media and the Editor of the largest and fastest growing sports parenting newsletter. He’s been recognized as an industry expert by the National Alliance for Youth Sports, the US Olympic Committee’s Truesport, and the Aspen Institute's Project Play. Ian is also a suburban NJ sports dad of two teenage daughters and has over 2,000 hours of volunteer time coaching them (which he calls the most fun form of R&D for his newsletter content). Ian and his team provide players, coaches, parents and program directors with the articles and content they need to have a great sports season. Ian has spent most of his career in digital product development and marketing and got his start at the White House where he worked for the economic advisors to two US Presidents.
