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Something Important Before You Sign that Contract

Disclaimer:  I’m not a lawyer or accountant, so please contact your specialists for any clarification on this topic.

 

I talk with Docs all the time.  Now that I’ve started this group, I am in contact with all kinds of people in different stages of their careers and it’s really fun.  When I look in the mirror, the not so flawless face reflecting back at me represents someone in the middle.  I’ve been out of school for 12 years and have an established practice.  But, it’s not so established that I don’t clearly remember the early days and the struggles.  I think this perspective gives me an appreciation for the positions of both the new doc and the older doc.  So, as a completely neutral party in the middle of my career, I wanted to explain to you the difference between an employee and an independent contractor.  This was explained to me as a resident, but I am finding more and more people have blurred the lines between the two and it can be sticky for both sides if things aren’t completely clear.

From the IRS (directly from www.irs.gov):

Definition of an employee:

“Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.”

Definition of an independent contractor:

“People such as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers, or auctioneers who are in an independent trade, business, or profession in which they offer their services to the general public are generally independent contractors. However, whether these people are independent contractors or employees depends on the facts in each case. The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. The earnings of a person who is working as an independent contractor are subject to Self-Employment Tax.”

Clear as mud right?  Here’s some more from the IRS (directly from www.irs.gov)

“Facts that provide evidence of the degree of control and independence fall into three categories:

1.Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?

2. Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)

3. Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.

The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.”

 

Things to consider as the young doc:

  • Is the hiring doc supplying all the materials, equipment to practice?
  • Does the hiring doc have control over bracket type, method of practice etc.?
  • Who collects the fees?
  • Who dictates the fees?
  • Who determines what insurances you participate with?
  • How are you being paid (percentage as rent or per diem)?
  • If this relationship terminates, how is it handled?

 

Things to consider as the hiring doc:

  • All of the above plus taxes are higher with an employee
  • If the young doc is an independent contractor – who “owns” the patients (this can become a legal nightmare)
  • Major tax penalties if the young doc is found to be an actual employee, not an independent contractor

 

Clearly, it is in the hiring docs best financial interest to have independent contractors.  That being said, it is not always legal and is not always in the best interest of the young doc.  If the associate is set up as independent contractor and it is done in a legal way, the young doc may have claim to the patients if she decides to leave the practice.

So both the young doc and the hiring doc need to hire separate attorneys to review the documents and to clarify their rights.  Only then, can a healthy, long lasting business relationship thrive.

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