EMPLOYEE VS CONTRACTOR

With the new 1099-NEC for 2020, it is a good time to review the IRS rules regarding independent contractors. Dentists should be particularly careful in determining employment status as most workers providing clinical care are required to be employees. In general:

An independent contractor is typically someone who can work from any location during a time of their choosing. They can work for multiple companies, using their own tools and resources, and are often paid on a project or flat-fee basis.

An employee is someone who works specific hours at a location chosen by the employer. They generally work only for one company, use the employer’s tools and resources, and are paid a salary or an hourly wage.

The control relationship between a worker and the practice is important. If the practice controls what work is accomplished and directs how it is done, it exerts behavioral control. If the practice directs or controls financial and certain relevant aspects of a worker’s job, it exercises financial control.

When the dentist controls dental equipment, supplies, staffing, patient scheduling, collection of patient receipts, billing protocols, hours of operation, and employment restrictions on a worker, the worker is classified as an employee. Thus, the overwhelming majority of practice staff are employees under IRS rules.

There are some limited exemptions within IRS rules when workers are truly independent contractors. For example, dental specialists may come into a dental practice for a limited time frame and supply their own staff, equipment, and disposable supplies like an IV sedation specialist.

Contractors, like your IT specialist or cleaning service, that provide their own personnel, cleaning supplies, and equipment and have some significant degree of freedom in hours of operation can definitely be paid as independent contractors.

You may be incentivized to miscategorize employees as independent contractors as a tax dodge, as you are not required to pay payroll taxes for independent contractors. Additionally, independent contractors are exempt from laws relating to mandatory work breaks and lunch breaks, and exempt from overtime laws.

The consequences for employment misrepresentation includes increasing fines and penalties for employers abusing an employee’s work status as an independent contractor from both the IRS and state agencies. With the increased use of independent contractors by companies like Uber, states and the IRS are keenly interested in making sure that workers are correctly classified.

While each case is different and state rules can vary from IRS regulations, please remember that, in general, your staff should always be employees of the practice.