Contractor v. Employee – January 2008
Hiring independent contractors as associates to work in a dental practice can have advantages that are sometimes very hard to pass up. Not having to pay withholding taxes and having the further accounting procedures that are required in reporting to the federal and state governments of an employee’s income can save money in overhead for a dental practice. In addition an employer does not have to pay workers’ compensation insurance or unemployment insurance for an independent contractor. However the penalties involved in misclassifying an employee as an independent contractor make it important to follow the federal and state rules on the distinction carefully.
Most associates do not qualify for the status of an independent contractor because of the scheduling policies and control which the practice owner has over the associate. However, there are situations in which a dentist might want to hire an associate as an independent contractor on a temporary or permanent basis. For instance, when in a temporary transition period the practice owner sells a practice to a new owner, the benefits of having the parties in an owner-independent contractor relationship rather than an employer-employee relationship may overcome any detriments. The new owner may want to gradually exercise more control over the practice, and the fine line of when the employer-employee relationship exists does not have to be constantly scrutinized.
Additionally, there are other more permanent situations in which a dentist may want to hire an independent contractor as an associate having more control over aspects of the practice such as patient scheduling or paying assistants. This situation often occurs when a specialist (such as an endodontist) is hired to treat a completely different set of patients than the general practice. In addition, when the associate merely shares an office space with the practice owner then the role of an independent contractor is often created.
Of course there are a significant number of factors which are looked at by the Internal Revenue Service or state taxation officials in deciding if the owner has enough control over the associate to make an employer-employee relationship. These include the importance of instructions or training given by the owner to the associate, the hiring, supervising and payment of assistants, whether all work is done on the premises of the owner, whether tools or materials are furnished by the owner, whether investments in the practice are combined or separate, and whether there are other aspects of integration of the practice of the owner dentist and the associate. In determining the extent of control that the owner has, it is wise to consult an attorney who is skilled in tax rulings, statutes and case law on this subject.