1099 Martial Arts Instructors: Seven Warning Signs Your School Is Misclassifying Employees

Plenty of martial arts schools pay their regular instructors on a 1099. The federal rule that decides whether that is lawful is about to change, and the new test asks two questions that most schools answer the wrong way: who controls the work, and can the instructor make or lose money on it?

Where does the federal rule stand?

On February 26, 2026, the U.S. Department of Labor proposed rescinding its 2024 independent-contractor rule and replacing it with a test close to the one adopted in 2021. The comment period closed April 28. The Office of Information and Regulatory Affairs received the final rule (RIN 1235-AA46) for review on September 28 and concluded that review on October 28, 2026, “consistent with change.” As of November 14 we have not found the final rule published in the Federal Register, so there is no effective date yet. Our earlier report covers the rulemaking in detail; we will update both articles when it is published.

The proposal applies an “economic reality” test and gives special weight to two core factors: the nature and degree of control over the work, and the worker’s opportunity for profit or loss. Under the proposed text, when both of those point the same way there is a substantial likelihood that is the right classification.

Two cautions. The federal rule governs the Fair Labor Standards Act (and, under the proposal, the FMLA), not taxes. The IRS applies its own test. And many states use stricter tests of their own; a worker who passes the federal test can still be an employee under state law. California’s “ABC” test is the best-known example.

The seven warning signs

Each of these points toward employee status. One alone may not decide it. Several together usually do.

1. You set the schedule

The instructor teaches the Tuesday and Thursday 4:30 kids class because that is when you put it on the timetable, and he cannot move it, skip it or send someone else. A contractor generally decides when and how much to work.

2. You require your curriculum and your method

He teaches your belt requirements, in your lesson-plan format, with your class structure, warm-ups and mat chats. That is control over how the work is done, the first of the two core factors.

3. He wears your uniform and represents your brand

School-logo staff shirts, your belt system, your name on the wall, introduced to parents as “one of our instructors.” To the public he is part of your business, not a separate one.

4. He attends staff meetings and your training

Required staff meetings, instructor-certification courses you run, attendance at testings and events. Training a worker in your own methods is a classic sign of an employment relationship.

5. He is supervised and evaluated

You or a head instructor watch his classes, correct him, review his retention numbers, and could replace him if he did not teach the way you want.

6. He cannot make or lose money

He is paid a flat rate per class or per hour. He invests nothing: not the mat space, not the equipment, not the marketing. He cannot grow his income by running the work more efficiently, only by working more classes. This is the second core factor, and for most instructors it points squarely at employment.

7. The work is your business, indefinitely

Teaching classes is not a side service to a martial arts school; it is the product. If he has taught your classes every week for two years, with no end date, and does not offer the same service to other businesses as his own operation, the relationship looks permanent and integral.

What does a genuine contractor look like?

A visiting seminar instructor who sets his own fee, brings his own material, teaches his own system, markets himself, works for many schools and could lose money on an event that does not sell. A specialist who rents your mat space to run his own program, collects his own fees and keeps the profit. Those arrangements can be legitimate. The regular instructor who teaches your curriculum on your schedule usually is not.

What to do now

1. List everyone you pay on a 1099 and score each against the seven signs.
2. Check your state’s test, not just the federal one. The state rules will often bite first. Our state-by-state guides are a starting point.
3. Do not paper over it. A contract that calls someone a contractor does not make him one; the proposed rule looks at actual practice.
4. Price the fix. Payroll taxes, workers’ compensation and minimum-wage compliance for part-time instructors cost money, but less than back wages, penalties and a claim brought by a departing instructor.
5. Get advice before reclassifying, so the change itself does not create an admission about past years.

Frequently asked questions

Is the new Labor Department contractor rule in effect?

Not yet. White House review of the final rule concluded October 28, 2026. As of November 14, 2026 we had not found it published in the Federal Register, so no effective date has been set.

Can I pay martial arts instructors as independent contractors?

Sometimes, but rarely for regular instructors who teach your curriculum on your schedule. The proposed federal test weighs control and opportunity for profit or loss most heavily, and state law may be stricter.

Does a signed independent-contractor agreement protect my school?

No. The proposed rule emphasizes actual practice over what a contract says. The agreement helps only if the working relationship matches it.

Does the federal rule decide my state tax and unemployment obligations?

No. The IRS and state agencies apply their own tests, and some states, such as California, use a stricter ABC test.

Related reading

• The Labor Department’s New Contractor Test Has Cleared White House Review
• January 1 Payroll Check: The 2027 Minimum Wage Increases
• Nobody Is Coming to Teach Your 4:30 Class