Employee or Contractor? What Medical Practices Should Know Before Hiring!
Originally published on September 7, 2017
Updated on August 16th, 2022
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We’ve seen many reasons why medical practices use an independent contractor instead of hiring an employee. Maybe you have the occasional need for a particular specialist. Perhaps you need more providers to handle an increased patient load but can’t afford to permanently grow your staff. Or you might hope that independent contractors will shield you from liability claims.
Regardless of the reason, there are important considerations and steps to take before hiring an independent contractor.
What’s the difference?
The U.S. Department of Labor (DOL), the Internal Revenue Service (IRS) and the National Labor Relations Board each have their own rules. However, the basic “common law” standard defined in 1948 focuses on whether the employer is “legally responsible for the acts or omissions of” the worker. The IRS takes it further to encompass three areas of examination:
- Behavioral control – Who possesses the right to direct or control how the worker serves patients or otherwise performs tasks?
- Financial control – Who possesses the right to direct business aspects of the arrangement, such as reimbursement terms?
- Relationship – How do both parties perceive the relationship, whether the worker receives employment benefits, the terms of termination, etc.?
Independent contractors typically set their own hours, procedures and other aspects of their work and can also serve other healthcare facilities. They generally don’t receive employment benefits such as paid time off or insurance coverage, and the practice does not have to withhold income, social security and Medicare taxes or pay unemployment wages.
Employees are generally subject to more rules about their daily work and given the protection and benefits of true employment. While they can be more expensive, they also present a more cohesive brand since they’re more likely to follow the procedures and uphold the image you want for your practice. They’re also more likely to build relationships with your patients, which in turn helps reduce patient turnover.
Follow DOL and IRS Requirements… or Pay the Price
Independent contractors provide a more adjustable workforce solution for growing practices. They are also helpful when your practice has only an occasional need for a specific service; for example, a dental practice might contract with an anesthesiologist for patients with anxiety who require general anesthesia for procedures.
However, sometimes an employer will classify actual employees as independent contractors because it involves less paperwork or because it is the procedure that has always been followed at the practice. When this is done while requiring traditional employment terms such as exclusivity or a specific uniform—even with the best of intensions—it is called employee misclassification. Not only does this deny workers their proper protections, it can also result in steep penalties and the loss of your reputation as a good employer.
The Wage and Hour division of the DOL is working with the IRS and several states to combat employee misclassification. To determine whether your practice is compliant, you can start by asking yourself a few questions:
- Does my practice pay for the worker’s resources (diagnostic equipment, scrubs, etc.)?
- Do I have specific instructions on how procedures are to be performed?
- Is he or she required to work full-time hours for my practice?
- Do I pay based on time increments (such as hours or days) instead of by patients seen or procedures performed?
- Does my practice pay for business/travel expenses (e.g., visiting a homebound or hospitalized patient or purchasing supplies)?
- Does my practice demand that he or she cannot perform similar work for another practice?
While there are many additional areas to consider, a “yes” to any of these questions can indicate that the worker should be classified as an employee. It’s best to consult a human resources consultant or employment attorney to see if any steps are needed to ensure proper classification.
Protect Yourself and Your Practice from Liability
Some practices hire contractors because they assume it will protect them from lawsuits regarding the conduct or performance of that person (since he or she is not an actual employee). However, this is not always true.
In malpractice cases, one test for validity is the patient’s perception about the provider’s employment. If you don’t make it clear at every stage of the patient relationship that this person is not an employee of the practice, the patient’s perception is that the practitioner is an employee. Additionally, your practice’s insurance policy might cover contractors; if it does, the plaintiff’s lawyers often look for such coverage as a source of funding if the plaintiff wins.
You can take several steps to demonstrate that a practitioner or other worker is an independent contractor. First, use a written contract that specifically outlines several aspects of the work agreement so that you and the contractor are on the same page. Among other things, the contract should set pricing for work performed; state that the contractor can perform the same work for other practices; indicate that the contractor decides how his/her work is performed and is not subject to practice approval; and stipulate that the contractor must have his/her own insurance (you should also check your own insurance policy to understand how contractors are covered).
You should also display easy-to-read signage identifying all contractors who work for you and stating that they are not employees of your practice. To ensure that signs cannot be missed (a plaintiff might say he didn’t see them), use bright colors and large, bold fonts and post them where patients cannot help but see them, like the sign-in window and in examination rooms. Date the signs, and take photos of them on display for your records, in case the date you posted them comes into question.
Additionally, have patients sign a form acknowledging that the practitioner is an independent contractor and not an employee of the practice. It should also state that the practice is not liable for practitioner’s work and that the patient will be billed separately for those services.
Resources normally used by employees of the practice should not be available to the independent contractor. For example, a contractor should not have a practice email address, display your logo or use any practice-specific collateral such as letterhead or appointment cards. He must also bill separately for services rendered.
Make sure the distinction is made clear to everyone working at your practice and that they’re using the correct terminology for each person. Even casual references can be misunderstood by patients or used in court to suggest an employer-employee relationship. If the IRS determines that employee misclassification has occurred, the IRS could come after the practice for any unpaid income tax, Social Security tax or Medicare tax owed to the IRS on amounts paid.
Finally, consult an employment attorney with experience serving medical practices, hospitals and other healthcare facilities. They can supply the correct wording for signs/forms and advise you on the steps to make this important distinction clear to all involved.
Contact Julie Kniseley, Manager of our HR Solutions team, at 1-888-387-6851 if you have questions regarding this or any other human resources needs.
All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.
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