Yes, and I am on the web to see if this is really legal. I have read one case where a very similar type business paying 1099 earnings had this teacher who applied for unemployment and since her earnings were too low she included the 1099 earnings and a suit followed. The IRS concluded that it was wages not 1099 earnings and the Karate studio had to pay all the back taxes for all employees for 5 years plus penalties. If USSD gets caught or if someone sues, the dojo may be in financial straits{the independent contractor contract did not hold up in court}.