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  • Legal repercussions of an independent contractor?

    I had a question for those who are smarter than me.

    I'm a current resident looking at job opportunities for an outpatient specialty. Several jobs are W2 jobs but one is an independent contractor. They pay me on a 1099 and I am responsible for all FICA taxes, etc... but pay my malpractice and I use there space to see patients and finish notes. I would be working there 4-5 days a week. I've looked into IC jobs and understand the tax implications, medical insurance concerns, etc... but I was recently speaking to my program director and he told me to speak to an attorney about the legal ramifications of being an IC. He seemed to think that wasn't appropriate but he is a little old school and wanted to pose the question to the group.

    I know there was a recent poll on WCI and 15% of respondees were solely 1099 and then some percentage afterwards was combo W2/1099. My question is there really any risks that I should be aware of with 1099? My thoughts are that as long as I pay my taxes, then I'm ok.

    The only thing I could think of is that if I recommend a service (cosmetic product, laser service, skincare device) and get a percentage of the sales, could that be considered a violation of Stark Laws?

  • #2
    I'm not smarter than you, but I'll give it a shot. I wouldn't be concerned beyond the malpractice and SE taxes. You'll be able to deduct expenses that are otherwise disallowed to employees and you'll probably be able to put more in your solo-k than you'll get by being employed. We have many clients who are IC, in whole or as side gigs. The big issues are malpractice, health/other insurance, eat what you kill (no vacation or sick time), paying for your own CME, licensing, etc. With enough long-term gross revenue, you may be able to do a DBP, too.

    An attorney usually will be able to find something for you to be worried about, though.
    Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
      a little more info would be helpful - what kind of practice?

      I moonlighted as an urgent care doc as a resident. They paid my malpractice and I was paid as a 1099. It was easy but I was just hourly and they handled my billing. No issues.

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      • #4
        Employee vs. Independent Contractor misclassification liability lies primarily with the hospital not you.

        I agree with Rex again. Are you sure the hospital is paying the malpractice insurance? It would be much better if they increased your contract terms and had you pay the the insurance yourself with after-tax money.

        I have done that myself as a contractor for health insurance to use the client's group rate.

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        • #5
          Thanks for all the opinions. Here are some more details about the position that will hopefully clarify.

          The position is for a private practice outpatient dermatology office. All of the current physicians (5 of them) are also 1099 independent contractors with one owner. Malpractice is paid for by the practice and all docs are essentially full time. The individual docs are responsible for their own medical insurance, CME, licenses, etc... The practice takes care of the billing and they give their docs a check once a month based upon a percentage of their collections. I think their motivation for doing this is to simplify things. They don't have to worry about all the little payments (CME, medical, etc...) but are giving their docs a higher percentage than would be obtained otherwise. I think it all works out in the end to being similar financially, but just simplifies things for them (that's my guess anyway).

          -My understanding as well was that if there ever was an issue ("misclassification" as spiritrider commented), then it would be the responsibility of the practice and not the IC.

          -I have heard similar concerns about the "true definition" of an IC. If you work for one office and they pay your insurance, then technically you should be a W2 employee and not IC. But that is the way this practice runs things and as of right now is the best fit in terms of feel, other docs, compensation, etc... compared to other practices I've looked at. My question is what real legal ramifications can their really be...regardless of whether it is the responsibility of the practice or my responsibility. Does it really matter what they call you as long as you are still paying all of your taxes? In this case I'd be paying and they wouldn't but the government is still getting their money? Does it have to do with deductions, write-offs, etc...?

          -In terms of other points: many derm practices (either W2 or 1099) give their employees/IC a percentage of sales of cosmeceutical skincare products directly related to physician recommendations (such as 10%). There is also sometimes a referral fee for recommendations to aesthetic services such as chemical peels, lasers, etc... Are these a violation of any stark laws as I am not directly performing a procedure/care but it is a direct result of something I recommended? I'm personally not seeing how being an employee vs an IC would make any difference in this situation, but am curious the thoughts of the masses.

          -Also, does the answer to the previous question change if I am the supervising physician and signing the charts of the aesthetician, thus I am having oversight and more involved with the care than simply getting a "referral fee"?

           

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          • #6
            The cost of being misclassified as an IC rather than an employee can run to the tune of tens of thousands of dollars per year. This comes from paying the employer part of SS/Medicare taxes, as well as not having access to employee benefits (401k match, health insurance, etc). You do get to deduct the cost of these benefits and the employer half of payroll taxes, but that's not as good as having your employer pay them for you.

            Just because the other doctors are IC doesn't mean it's being done right.

            There is no single factor which determines whether a doctor should be an IC or employee. A fulltime position with a schedule set by the employer would typically considered a W-2 arrangement. A locums job or intermittent assignment (eg doing annual health fair for a company) would be a 1099 job. I think your program director is right to be concerned about the position you are considering.

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            • #7
              I was audited by my states unemployment insurance people. I was paying fill in nurses who worked once or twice a year as IC on a 1099.  I was told this was incorrect they were w2 employees.  I think I had to pay $50 in back unemployment taxes.  It was minor for me.  It really sounds like a W2 job. You will be fine until you get audited.

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