What’s the difference between a physician contractor vs employee? Choose one:
- How the employer classifies the worker
- How the worker classifies her or himself
- None of the above
If you said C, you’d be correct.
Is that surprising? Turns out, a worker’s status is NOT defined by how you classify them. Instead, their status is defined by how they perform their job. Your classification MUST describe their circumstances accurately, or you could face legal and financial consequences.
Here’s the difference between an independent contractor and employee, plus why you SHOULD NOT misclassify your workers.
Private Practice Physician Contractor vs Employee
There are three elements that the IRS will use to define a worker’s status:
Direction and control
The relationship between the parties and the presence of direction and control determine whether or not a worker is an employee or an independent contractor.
For example, a physician contractor:
- Does not receive benefits from your practice
- Is not subject to workers' compensation claims
- Cannot easily become a shareholder or partner
- Do not need to be included in major decisions regarding the practice
- Can provide their services to other organizations, practices, or interests (even your competition)
- Is not subject to deductions from payroll
- Has control over their own schedule & duties
- Receives a flat fee for services rendered
- Has an impermanent relationship with your practice
Employees will be the opposite in all cases. When in doubt, consult your state IRS laws on how to classify workers correctly.
Why You Need to Classify Physician Contractors & Employees Properly
According to the Texas Workforce Commission (TWC), employers are responsible for classifying workers correctly. That means employers are also responsible for the consequences of improper classification, including:
- Additional costs for taxes and interest
- Fines for each worker who is misclassified
- Unemployment tax increases across the board
Legal Risks of Misclassification
Paying a contractor as if they were an employee creates certain legal risks for your practice.
First, there is the Anti-Kickback Statute. The payouts you provide to misclassified workers may not fall within the anti-kickback compensation “safe zone”, which can put you under scrutiny for criminal activity (fraud, bribery, and other compliance issues).
Second, you run the risk of noncompliance with Stark Law. Stark requirements change depending on the worker’s classification. Noncompliance can result in civil penalties and liability.
You may also be assessed for additional employment rights violations.
Financial Penalties of Misclassification
If the IRS believes you deliberately misclassified an employee as an independent contractor, it can hold you responsible for any employment taxes & benefits that should have been paid over the duration of employment.
The specific penalty that you receive will depend on your existing reputation with the IRS.
Do you need HR or compliance assistance?
Healthcare practice management can ensure you’re paying employees and contractors fairly, while removing the risk of financial and legal trouble. Learn more about healthcare HR management here.