{ the dental team } by Jodi Schafer, SPHR, SHRM-SCP
Understanding the Independent Contractor Relationship: Who Qualifies?
I just brought in another associate dentist. She is a recent graduate, so I’ve spent a lot of time developing her skills. I currently pay her through accounts payable, as an independent contractor. I was told to set it up this way by my accountant years ago when I brought in my first associate dentist. However, this new associate has requested to go on payroll as employee. Her husband is an attorney and she told me he said she does not qualify as an independent contractor. Is she right? How does one qualify as an independent contractor? What are the advantages of keeping her as an independent contractor? By the way, my other associate is fine with the independent contractor arrangement.
I
ndependent contractor status is gov- erned by Internal Revenue Service (IRS) regulations, and therefore regulated by the IRS. It really is a tax issue.
There are definitely advantages to paying your associates as independent contractors. You don’t have to pay payroll taxes on their earnings, or unemployment insurance or even workers’ compensation. Independent contractors also are exempt from most employment and labor laws. However, if you are going to pay them as a contractor you have the burden to prove that the parameters of the working relationship qualify as such in the eyes of the IRS. It is not the job you are testing but the business relationship. It all centers around the amount of control the practice has over the work of that particular dentist; both behavioral control and financial control. The more control you have as the practice owner, the less control the em- ployed dentist has and therefore is not truly an ‘independent’ contractor. Here are some questions to get you started thinking.
Does the practice control (or have the right to control) the associate’s duties and how those duties are carried out? How dependent is this associate on your practice for patients? Do you control the associate’s hours? Is the associate expected to follow the practice’s work rules and procedures?
Does the practice control the business as- pects of the associate’s job? Does the associ-
ate work for other dentists; have the right to decline work; set the working schedule?
Who incurs the costs of doing business? Does the associate pay for any of the sup- plies used in the practice? Do you deduct money for these expenses? Do you reimburse for expenses the associate incurred for the practice?
Does the associate have a written employ- ment contract or access to employee benefits such as a pension plan, insurance or vacation pay? Are you contributing to the associate’s 401(k) or other type of retirement account? Does the associate receive paid time off, a uniform allowance, CE reimbursement, etc.?
Will the relationship continue and are the duties the associate performs a key aspect of the business? Is this a short-term relationship or do you expect the person to stay and per- form dental services similar to the services provided by the office as a whole?
The IRS has a form (SS-8) that you can use to test the relationship in more depth. It’s a rather long form to complete and no one factor on the test is more indicative of employee status than another. However, as I said earlier, the more control you have as the practice owner, the less likely the associate should be classified as independent. When it comes to the IRS, it’s always best to err on the side of caution.
A further consideration for you is that your new associate has requested to be paid as an
36 focus | NOV/DEC 2020 | ISSUE 6
employee. Unless you can provide your as- sociate with your testing documentation that definitively shows otherwise, the associate may go to either the IRS or the Department of Labor with concerns, which could trigger an investigation.
If you are unable to defend the independent contractor relationship, what you end up paying in steep fines, back taxes, interest and other retroactive damages will far outweigh the initial cost savings. The penalties for mis-classifying a worker can be huge. As they say, if it looks like a duck, walks like a duck and quacks like a duck … Is it really worth it? I’d put the associate on payroll and convert your other associate as well if the working relationship is similar. f
Jodi Schafer is owner of Human Resource Management Services. Learn more at workwithhrm.com.
The ADA Center for Professional Success offers many articles on this topic including: Am I an Employee or an Independent Contractor, Employment Agreements: The Devil’s in the Details and Compensation as an Employee or Associate Dentist. Find these at success.ada.org by searching “independent contractor”. One of the site’s most comprehensive resources, updated in 2020, is Dentist Employment Agreements: A Guide to Key Legal. Download the free PDF at success.ada.org/~/media/CPS/Files/ COVID/Dentist_Employment_Agreements.pdf.
Dentist Employment Agreements: A Guide to Key Legal Provisions
