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  • Part employment contract question

    Hi, first time poster on here. Thanks in advance for any thoughts or advice.
    I’m a resident about to graduate in June who is figuring out job opportunities for next year. My current plan is to try and work part time at the VA and work part time at a small private practice (solo doc planning to retire in a few years probably).
    With regards to the private practice, we have not made a contract or determined specifics yet. We have discussed likely doing a percentage of collections model either as a w2 employee or 1099. As a W2 employee, I wouldn’t be offered any retirement option, malpractice, other common fringe benefits of a typical full time employment contract. In exchange for no guaranteed base or other benefits, I would get a more generous percentage of collections.
    I have crunched the numbers some for whether I should try to be w2 employee vs 1099 and I’m leaning towards w2 so that I’m not stuck paying the extra ss and Medicare taxes and hopefully so that credentialing with insurance will be easier under the practice name (I’ll plan to max out my retirement contribution through tsp at the VA hopefully). One downside i think is that I won’t be able to deduct all of the initial costs that I’ve started to incur such as licensing, dea, hospital privileging, boards, malpractice, etc. that I think I’d get to deduct as an independent contractor.
    I had one idea that I think would prevent my employer from having to shell out these costs on the front end and possibly let me deduct these costs, but I don’t know the legality/tax implications. Would it be ok to write the contract wording as something along the lines of “Compensation would be equal to X% of Collections minus Y$ for licensing, boards, malpractice, privileges, etc.” I would then presumably have the practice pay/reimburse me for the 10K or whatever dollars separate from my wage but out of my percentage of collections. Would this be a good way to do this and allow me to save taxes on those up front costs or am I missing something?
    Last edited by I-doc; 02-17-2020, 02:40 PM.

  • #2
    Specialty? Salary range? Would you get full VA benefits?


    strongly consider 1099. It’s not just about avoiding the extra FICA—you have to consider the 199A QBI seduction if you are a 1099. This is VERY VALUABLE. But need some more specifics to tell you

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    • #3
      Ophthalmology. Salary range for this part time job will be probably quite low starting out, especially since first year will only be six months. I am guestimating first full year in the low 100's (plus ~50-60K from the VA). Hopefully growing within a few years to the low to mid 200's. I would be eligible for VA benefits which would be pro-rated probably at around 25% covered by VA (like health insurance). I believe I would be eligible to contribute to TSP. At least for the first year (and possibly afterwards depending on job she decides) I can be on my wife's health insurance so that won't be worry at least for another year.

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      • #4
        Originally posted by I-doc View Post
        Hi, first time poster on here. Thanks in advance for any thoughts or advice.
        I’m a resident about to graduate in June who is figuring out job opportunities for next year. My current plan is to try and work part time at the VA and work part time at a small private practice (solo doc planning to retire in a few years probably).
        With regards to the private practice, we have not made a contract or determined specifics yet. We have discussed likely doing a percentage of collections model either as a w2 employee or 1099. As a W2 employee, I wouldn’t be offered any retirement option, malpractice, other common fringe benefits of a typical full time employment contract. In exchange for no guaranteed base or other benefits, I would get a more generous percentage of collections.
        I have crunched the numbers some for whether I should try to be w2 employee vs 1099 and I’m leaning towards w2 so that I’m not stuck paying the extra ss and Medicare taxes and hopefully so that credentialing with insurance will be easier under the practice name (I’ll plan to max out my retirement contribution through tsp at the VA hopefully). One downside i think is that I won’t be able to deduct all of the initial costs that I’ve started to incur such as licensing, dea, hospital privileging, boards, malpractice, etc. that I think I’d get to deduct as an independent contractor.
        I had one idea that I think would prevent my employer from having to shell out these costs on the front end and possibly let me deduct these costs, but I don’t know the legality/tax implications. Would it be ok to write the contract wording as something along the lines of “Compensation would be equal to X% of Collections minus Y$ for licensing, boards, malpractice, privileges, etc.” I would then presumably have the practice pay/reimburse me for the 10K or whatever dollars separate from my wage but out of my percentage of collections. Would this be a good way to do this and allow me to save taxes on those up front costs or am I missing something?
        1. What about benefits - health insurance, 401k/TSP - will you be covered at either job? (Sorry, just now fully read your post, so possibly not a short-term issue, but needs to be considered.)
        2. re: your non-deduction of employee business expenses...the solution for this is to ask the practice owner (won’t work with the VA) to agree to work out an “accountable plan” but I probably w/n use the wording above. Spelling out the calculation is kind of antithetical to the meaning of the AP. It’s simply an agreement to be reimbursed for your OOP business expenses that are deductible to your employer, listing the expenses, not the accumulation of your compensation. But, you can estimate the OOP expenses and negotiate a reduced compensation not directly related to the actual calculation. This blog post may help.
        jfoxcpacfp
        Moderator
        Last edited by jfoxcpacfp; 02-17-2020, 08:33 PM. Reason: Added extra sentence to point #1.
        Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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        • #5
          Originally posted by I-doc View Post
          Ophthalmology. Salary range for this part time job will be probably quite low starting out, especially since first year will only be six months. I am guestimating first full year in the low 100's (plus ~50-60K from the VA). Hopefully growing within a few years to the low to mid 200's. I would be eligible for VA benefits which would be pro-rated probably at around 25% covered by VA (like health insurance). I believe I would be eligible to contribute to TSP. At least for the first year (and possibly afterwards depending on job she decides) I can be on my wife's health insurance so that won't be worry at least for another year.

          I agree, the wording you have in the contract about the benefits will just be confusing. If VA not paying for this as all, your best recourse is to convince the private guy to pay for licensing and he can deduct it from his business. but honestly that is the smallest issue relative to making sure you optimize your negotiated collection rate. Focus on that, even a 0.5% increase in collections rate will far far outweighs the credentialing fees.

          i have seen this before, where a guy is “probably gonna retire in a few years, but want to slow down now”. Tale as old as time. More likely, he sees a part time guy who has no partnership potential (because you’re part time) and who has no need for benefits, and wants to crank production out of you. As such, demand a high premium for your services from the private guy since you’re not really buying sweat equity.



          You should be getting minimum 2% higher collection rate as 1099 than if you were a W2. I previously calculated what the exact percentage is to compensate for additional FICA. I can’t remember what I came up with. Was a few years ago.

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          • #6
            I suggest reading the Hursh contracts book. I would not take a job with out a guaranteed base just out of residency, even if it is part time and the other job is VA.

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            • #7
              Thanks for all the responses. I know this is a somewhat unique situation and not necessarily standard. My goal is not to work full time and I am ok with the pay cut that comes with such a decision as my other priorities I find more important than the potential money. I am interested in a low overhead/lean solo practice model (I know not necessarily the most common thing in my field). I guess I should probably mention that our goal is if we get along I would buy out his practice in probably 2-3 years. He has already cut down tremendously and now just works about half time. I would be working part time on the days when he doesn't work but has full time staff already paid. We are trying to come up with as mutually beneficial of a situation as possible. For me, I get to work part time (my goal with future opportunity to expand if I want) in a very competitive/saturated market, get all of his surgical volume (no longer operates but has volume he currently has to refer out), don't have a non-compete (so not much to lose if things don't work between us), a fairly generous % of collection, and most importantly getting to work with someone who's values/personality I enjoy and align well with. For him, he gets to keep some of the surgical revenue in house, utilizes his full time staff with little additonal overhead, gets a percentage of my collections to put towards his overhead, does not have to take much risk in terms of guaranteed base or other benefits, and possibly gets a buyer for his practice that aligns with his goals of patient care (he has had and currently has plenty of opportunities to sell but has not mainly because he still loves seeing his patients and doesn't need the cash).

              Jfox - I had not heard of an accountable plan, very interesting. I guess if I go this route and I wanted to get the benefit of deductions for those things previously mentioned but not have my employer pay for them I would have to somehow decide how much to deduct that sum from my compensation.
              In terms of benefits - the VA job accomplishes several of my goals: giving me a base salary, allowing me to serve a patient population I really enjoy, and giving me access to full time benefits (athough at a pro-rated amount). In the next year, when money will be most tight, I already have health insurance through my wife's job. After that I have access to good health insurance at essentially a 25% discount subsidized by the government (along with access to TSP).

              Gastromastro - I agree, what percentage we agree on is much more important especially for the long term. When I crunched the numbers I got that I needed about 2.5-3% higher collection percentage to cover the extra expense of being a 1099 worker.

              braindoc - I will try to look into the Hursh contract books - had not heard of them before. In terms of a guaranteed base - that is definitely the safer route and in some ways more ideal. Overall though, I think the earning potential is higher with this model if I can make it through the tight first 6 months or so. My expenses will not need to really change significantly after I graduate aside from increasing my disability insurance amount, getting umbrella coverage, and a few other things that don't add up to much. Housing and other standard expense stuff won't change much.

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              • #8
                Actually, if you account for the 199A deduction, the increase in 1099 collection % is probably far less. in fact, even if you were paid the same %, because of the 20% QBI deduction, you would probably come out ahead PLUS you can deduct all those expenses you talked about.

                Everything in the first paragraph sounds good. however, i'm still skeptical. perhaps thus just a function of being on an anonymous physician forum, but like i said, plenty of people say they want to retire or be bought out in a few years, and even if they truly believe that, it often doesn't work out that way. a few years could become 5 years. that's actually a long time. think of it as a 5-year partnership track. or it could be 8 years. highly unlikely it ends up being the 2-3 years that he is probably suggesting. although, you haven't mentioned how old he is. that being said, the fact that he doesn't operate and would give you those referrals is pretty excellent.

                anyway, sounds like you should do this, but again you just have to make sure everything is accounted for in your collections %. and remember, you wouldn't be buying in to 50% of the practice. you'd be buying out 100% of the practice. thus, the typical decreased salary that goes along with associateship, theoretically at least, does not fully apply.

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