Independent Contractor or Employee?

posted by Mike Whitmer in Risk Management on January 10, 2017

Many doctors like the flexibility of hiring an independent contractor or being one. But be careful. If the answer is "yes" to any of the questions below, the IRS may deem the doctor to be an employee. 

In addition to owing back taxes, the parties involved may be subject to other fines from the state for lack of worker’s compensation coverage or the payment of unemployment insurance.

Behavioral Control

  • Does the company control or have the right to control what the worker does and how the worker does his or her job?
  • Is the worker subject to the business’s instructions regarding:
    • When and where to work?
    • Tools and/or equipment used?
    • Whom to hire to assist with the work?
    • Where to purchase supplies and services?
    • Work that must be done by a specific individual?
    • The order and sequence in which to do the work?
  • What is the level of detail in instructions given to the worker by the business?
  • Is there an evaluation system in place for the worker? If so, does the system evaluate details of how the work is performed, or only the end result?
  • Was the worker provided training on how to do the job? Is there ongoing training regarding procedures and methods to be used? (Training indicates business control of how the job is done and therefore points to an employer-employee relationship.)

Financial Control

  • Does the payer control how the worker is paid and whether expenses are reimbursed?
  • Does the worker make a significant investment in the equipment he or she uses in working for the business?
  • Does the worker have unreimbursed expenses? Fixed ongoing costs regardless of whether the work is being performed indicate an independent contractor status.
  • Does the worker have opportunity to make a profit or loss? If yes, this indicates an independent contractor status.
  • Does the worker have the right to make his or her services available to the market? Can he or she seek outside business opportunities?
  • How is the worker paid? A regular wage generally indicates employee status, and a flat fee or variable payment schedule indicates independent contractor status.

Type of Relationship

  • Are there written contracts and/or employee-type benefits?
  • Is there an employment contract? If so, the IRS is not bound by the parties’ agreement as to employment status. How the parties actually work together determines employment status.
  • Does the worker get benefits? Insurance, pension plans, sick days, vacation time and disability pay all suggest an employer-employee relationship.
  • Is the relationship permanent? If a worker is hired with the expectation that the relationship will continue indefinitely rather than for a specific project or fixed period of time, this is considered evidence of an employer-employee relationship.
  • Is the service the worker provides key to the business? Generally, if the work is significant to the business’s operation, the business will maintain more control over how it is done, indicating an employer-employee relationship.

As a general rule, it is helpful to remember that an independent contractor is an individual whose payer has a right to control the result of the work but not what will be done and how it will be done. However, keep in mind that every state has different legal definitions and requirements for independent contractors. 

Source: www.irs.gov

About The Author
Mike Whitmer

Mike Whitmer, RPLU, MHP
Assistant Vice President - Chiropractic Insurance Programs

With more than 25 years in the business world, Mike Whitmer has a variety of experiences to share with D.C.s who are starting their chiropractic careers. By day, Mike leads the corporate relations team at NCMIC Group, Inc., teaching at chiropractic colleges about business practices and risk management, and attending trade shows and homecoming events. Mike is also the co-founder of a property management company and a restoration firm that have provided his "real world" experience on writing business plans and dealing with small business finance and operations.

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