FAQ: May a DC hire a licensed professional as an independent contractor instead of a W2 employee?

Probably not without risk. When considering expanding your provider staff, the question arises, “How am I going to structure this new position?” This applies whether you are bringing another physician into the picture, creating a multi-disciplinary practice, or by example, when you are establishing a massage staff or department. It is quite tempting to assign Independent Contractor (IC) status to a new provider, and save employment taxes. However, there are many pertinent business reasons why you should make your new providers W2 employees of your clinic, regardless of your entity status. There are two major risks when using independent contractors instead of W2 employees when the “employee” is a healthcare licensee. First, you run the risk of misclassification. Second, if you create a legal independent contractor status and share fees, you risk being accused of participating in a kickback/rebating scheme. We will explore this second risk in a separate FAQ.

Misclassification will occur when you do not pay attention to the independent contractor tests and thresholds utilized by the IRS, Employment Security and Labor & Industries. Most of these tests and threshold revolve around control factors of your practice.

Whether a staff member is an employee or independent contractor is not a matter of labeling but rather defined by your relationship. The relationship is defined by the amount of control the employer exercises over the professional or staff member in financial, behavioral and practice areas. On one end of the spectrum is the IC and on the other end, the W2 employee. The following factors depend on which end of the spectrum we find your worker.

Control over clinical work product: Most senior doctors have a defined set of clinical procedures they use when administering routine care. This protocol is tied into the available equipment, the documentation procedures, the use of support staff if any, and the overall clinical model being employed. You cannot require an IC to conform to your clinical models without risking reclassification as a W2.

Control over conformance to office policies: If you have employee manuals in place, they should outline simple things like dress codes, arrival and departure times, policies regarding use of clinic equipment, etc. These are fairly easy to administer with W2 employees, but difficult or impossible to administer with ICs.

Control over pricing and clinical mix: Your practice might be an orthopedic based practice with an emphasis on functional rehabilitation. Your IC could choose to place marketing and community efforts on clinical emphases such as nutrition, functional medicine, prenatal and infant care, or other areas of chiropractic care. While this would give you a bigger service menu, it does nothing to relieve your patient care responsibilities or allow you to pursue other opportunities. You also cannot control the fee schedule for the IC, so they will have the opportunity to underprice your products or services.

Control over your patient base and referral relationships: This area applies to the future dissolution of your working relationship. The basic protection agreements with W2 employees revolve around the ideas of non-competition and non-solicitation. Non-solicitation means that the departing provider is not allowed to encourage any prior or current patients, or staff member, to leave the current clinic and join him or her in the new one, no matter the geographic location. Non-competition means that the departing provider cannot see patients he previously saw in the main clinic if he practices within a certain reasonable radius for a defined length of time. Regardless of who the treating provider is, the file belongs to the clinic in a W2 situation. The ability to bind an IC is not so clear without risking re-classification or inability to enforce the agreements.

Competing commitments and enrollment in the clinic’s mission: This is actually a fundamental flaw in the IC model. In order to qualify as an IC, the employee would have to have the opportunity and the access to find employment outside your office. This means that by definition, they will be working elsewhere at the same time they are your staff. This simply encourages seeking of greener grass and means that your employee is not a full-fledged member of your team. Assignments of a bigger role in the office will usually be met with resistance because they have other work commitments at the time you need them.

Go on the government websites for Employment Security, Labor & Industries and IRS and download their guides to determining classification of workers. A little reading may save you a lot of grief.

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