Health & Fitness

Facing greater scrutiny, Sacramento area yoga studios explore business model changes

Yoga instructors Sariah Papaya, left, and Reno Gorman, right, lead students during an acro yoga class at the Yoga Workshop on Tuesday in East Sacramento. The Yoga Workshop ceased its traditional operations and opened up as a “yoga co-op” on June 1. The new business model welcomes individual yogis who teach their own classes in their own rooms at their own cost.
Yoga instructors Sariah Papaya, left, and Reno Gorman, right, lead students during an acro yoga class at the Yoga Workshop on Tuesday in East Sacramento. The Yoga Workshop ceased its traditional operations and opened up as a “yoga co-op” on June 1. The new business model welcomes individual yogis who teach their own classes in their own rooms at their own cost. aseng@sacbee.com

Yoga instructors can be as flexible as they want with their sun salutations and downward dog poses. But when it comes to labor laws, the rules are rigid.

A recent crackdown on the yoga market has pushed some local studio owners to change the way they pay instructors to comply with state regulations distinguishing employees from independent contractors. The rules add complexity to the already-challenging task of owning a studio in a crowded yoga market.

Under California labor law, employers whose workers are officially classified as employees must take on associated costs such as payroll taxes, workers’ compensation, overtime pay and reimbursement for business expenses, according to the state Department of Industrial Relations. While the policy has been in place for many years, yoga studio owners say the department in recent months has focused on their market, accusing studio owners of misclassifying employees as independent contractors.

The distinction lies in the amount of control given to the worker. If the employer has the right to direct and control the manner and means by which the work is performed, the worker is an employee. If the employer does not have the right of direction and control, the worker will generally be an independent contractor, according to the IRS’ employee determination guide.

Erin Ross, owner of McKinley Park studio The Yoga Workshop, heard about the distinction from her accountant this spring. Realizing she could face an audit for misclassifying her instructors and already struggling with overhead cost, Ross made a drastic business decision. On June 1, she ceased traditional operations at the 1-year-old studio and opened what she’s calling a “yoga co-op.”

Until this month, Ross balanced a tight budget that included rent, facility costs, branding expenses and a $25 per-class payment for each of her seven yoga instructors, plus incentive pay for instructors who drew in the most students. The 50 or so people who entered the dimly lit, high ceilinged practice room each week paid $18 for drop-in classes and $79 and up for monthly membership, but it wasn’t enough. Adding on employee payroll taxes and other costs would have put the studio under, Ross said.

“I was under the impression there would just be tons of people that would want to come because of the neighborhood, and they have, it’s just slow growing,” she said, citing increased competition in the Sacramento yoga market. “It was just too hard ... something had to change.”

State regulators usually discover employee/contractor violations during a field inspection or through a wage claim, said DIR spokesman Peter Melton.

“Someone who is a contractor but has to work in the same manner as a typical worker – if there’s no distinguishing them from an employee – they could be misclassified,” he said. “If all (the workers) do is use the space at the studio, that might be an independent contractor.”

At the new co-op version of The Yoga Workshop, professionally trained instructors who want to teach pay Ross $25 to $45 per class to rent the space, depending on the time slot, and charge their students a per-class or weekly/monthly rate. Workshop visitors no longer purchase memberships for the entire studio, and instructors have full control over the content of the class – putting them squarely in the independent contractor zone, Ross said.

With nine instructors currently signed up for the co-op and plenty of rental slots still open, Ross said the change is already bringing her closer to the $3,200 overhead she pays each month – an amount she reduced by cutting her budget earlier this year. Anything she doesn’t make comes out of pocket.

In addition to providing a little financial breathing room, the co-op model encourages instructors to get more creative with their practice, Ross said.

Bella Dreizler, a local yoga veteran who taught sporadically at The Yoga Workshop before signing up for a co-op slot, said she’s looking forward to being able to teach a blend of yoga and dance called “Rock & Roll,” and to rent the space on a weekly basis so she can take time off on occasion.

Still, with the studio no longer selling memberships, each teacher will need to work harder to draw in his or her own following.

“If you’re a new teacher starting out, that’s not going to happen,” Dreizler said. “For them to do this would be very risky.”

At Yoga Shala, a cozy studio in the heart of midtown, co-owner Tyler Langdale responded to stricter tax regulations in the opposite manner: he made all of his instructors employees as of this January. Ultimately, his goal is to provide “a home for teachers to grow roots,” while also operating “within the letter of the law,” he said. Providing more consistency and stability to his instructors aligns with the studio’s overall philosophy, he said.

While Langdale has seen financial ups and downs during Yoga Shala’s five years in business, he said he’s learned to ride out tough times and stay committed to the practice and to his staff, even when it means a financial loss.

“They keep reminding me that no matter how hard it is, no matter how high the overhead-to-profit ratio is, it’s my responsibility to open the door every day,” he said. “No matter all of this, I get to show up and I get to live in a way that I want to and be surrounded by amazing people.”

Still, competition in the Sacramento area has made it difficult for some studio owners to stay afloat.

There are 41 businesses in Sacramento that offer yoga, according to the city’s Business Operation Tax Information directory, including individual practitioners with business licenses. Records show that eight businesses in this category have shuttered since 2013.

Practice Yoga on 16th Street was the most recent to close this March. The crux of the problem, said owner Jim Cahill, was that the Sacramento yoga market is dominated by what he called “fast-food yoga” studios that teach power vinyasa with a focus on fitness rather than what he considers traditional practice. His offerings, some of which featured a “yoga wall” for meditation and stretching, did not draw as many participants as the studios run by “slender young women in spandex, maybe with tattoos, maybe lighting incense and talking spiritual talk.”

“I was not willing to subsidize for the rest of my life, and the subsidy was considerable,” he said. “I thought if I could get it started, we’d really have something. I tried; it didn’t work. What can you do?”

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