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1099/W2 Misclassification Concerns from Practice Owner

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  • pulps
    replied
    About a year since I posted asking for advice on this, and figured I'd share an update. I negotiated a contract with a new practice, am working much less, am less stressed, and much happier. The last month at the previous practice was delightfully pleasant. The owner seemed genuinely surprised that I rejected his ultimatum, and admitted he didn't have anybody to replace me. He was gracious to me and kept my schedule full. I felt that we both rose to the occasion and tried to end things on the best possible terms.

    Working less days at the new job opened up the door to teaching more and doing hospital cases which I enjoy and which happen to be productive. I gave up more than 100k in income, but my wife and I still have more than enough to meet our needs and save significantly for our future.

    Oh, and the same practice owner who told me I was terminated if I didn't agree to his terms, he reached out last week to see if I could help out. Said he wasn't trying to steal me (unless I wasn't happy with my new job) but laid on the flattery thick and said he "might have been too stubborn with the contract." Yessir, you were, and no, I will never go back to relying on you for my primary source of income. But maybe for kicks I'll come help out a few days/month. Validation in many ways.

    Anyways, I hope somebody going through a similar challenge reads this and that their professional breakup opens up some amazing opportunities.

    Leave a comment:


  • GastroMastro
    replied
    Originally posted by pulps View Post

    Hank all good points. At one time, I had every intention of opening or buying my own practice. After seeing others run their practices with much stress and hassle, and making what I think is a very good living as a non-owner, I’m less enthusiastic about that path. The primary reason to own would be to have more say over operations, along with taking more of what I produce so I could work a bit less in the clinic for the same income. I’m open to the option of ownership but a well paid associate position where I get along with the owner and can have a say in operations would be an enticing alternative.

    In the end, the tax classification was obviously not the owner’s sole concern. The new contract had far more favorable terms for him with the non compete, notice period (not reciprocal, he gives 1 month, employee must give at least 3 or subject to 5k penalty), and other things that suggested to me that he was using the opportunity to get better contracts that had nothing to do with worker classification. It is working so far, with some other dentists signing because they felt they had no other choice (mortgages, kids, pandemic, etc will do that and I don’t blame them).

    When I told him politely I couldn’t accept the terms, that I would review another agreement and that an amendment to our current agreement would be preferable, he suggested our attorneys talk. After his attorney didn’t respond to mine for over a week, I got an email from the owner. As it is a small specialty, I know that during this time he was in talks with a few other providers seeking jobs. He said I hope you sign this contract because it is my final offer, and if you decline, this is your termination notice. I knew I wouldn’t stay there forever, and decided I didn’t want to work for him anymore, so I’m moving on. I was concerned that this wouldn’t be the last of unfavorable changes (unilaterally adding 1 hour to workday without increase in base pay before new contract discussions, a violation of the existing contract’s mutual consent requirement for scheduling changes), and that the new contract would embolden him even more.

    I know you shouldn’t let emotions get the best of you in a negotiation, but I don’t like the way the owner treated me and my colleagues. I’m a fan of the win-win or no deal philosophy rather than the bad faith negotiation then ultimatum approach. Thanks to following the advice on WCI, my wife and I can afford to say “no thank you” to a deal when it doesn’t feel right.

    Thanks for your advice on this. And feel free to share any advice on leaving on the best possible terms.
    I take it you're an endodontist based on your username. sorry this happened to you, but sounds like was the better long term play for you as this owner clearly was looking for a new, young associate to bully rather than value your accumulated experience. my family has had multiple similar experiences with dental owners (for general dental office).

    Leave a comment:


  • Hank
    replied
    If you don’t already have it, you should have a professional “Dr Smith” website where patients and referring dentists can find you. Don’t cross the line on actively soliciting patients while they’re in the chair, but be quite find-able for when you leave.

    The owner already breached the contract and caused you (and him!) to incur unnecessary legal fees to have the attorneys discuss this. That could be fine, but when the other attorney failed to communicate, there was no point for you to run up additional billable hours on your side. (A polite or even impolite “the new contract as presented is our final offer” would take two minutes to write and would bill out at no more than a half hour.)

    Make sure you get paid everything you’re owed on the way out. I suspect he’ll try not to pay your last net production. Don’t worry about hurt feelings; you aren’t going to work for this jackass again. (You probably wouldn’t pull over if he was bleeding by the side of the road.). Do maintain good terms with the other doctors, staff, and patients. It’s likely you’ll see and work with some of them before too long given how the owning doc is using people, breaking contracts, and turning previously reasonable terms into quite lopsided contracts.

    Frankly, I suspect you’re closer to financial independence than the owner. His actions sound like desperation rather than ethical long term business practices. One more argument for living within your means and having your stuff squared away financially.

    Leave a comment:


  • pulps
    replied
    Originally posted by Hank View Post
    Have you been planning to open your own specialty practice? Or perhaps work as a 1099 elsewhere? If so, now may be the time. Need to look at whether you have a non-compete and whether it’s enforceable in your state. (The material changes in your work classification and after tax income may be sufficient to establish breach of contract and invalidate an otherwise valid non-compete.)

    Also, there aren’t displeased associates, there are displeased ICs who current management is trying to strong arm into an unfavorable employment situation.

    While you likely have met all elements to be an IC instead of an employee, you also could hire an assistant instead of having the practice owner provide one. An employee can’t have his own employee; an independent contractor may have employees or subcontractors. (A dental assistant certainly would have to be an employee rather than an independent contractor.) Employing a DA would cost money, so you’d have to renegotiate your compensation upward, but it could open the door to an ERISA covered retirement plan rather than the limited asset protection of a solo 401(k).
    Hank all good points. At one time, I had every intention of opening or buying my own practice. After seeing others run their practices with much stress and hassle, and making what I think is a very good living as a non-owner, I’m less enthusiastic about that path. The primary reason to own would be to have more say over operations, along with taking more of what I produce so I could work a bit less in the clinic for the same income. I’m open to the option of ownership but a well paid associate position where I get along with the owner and can have a say in operations would be an enticing alternative.

    In the end, the tax classification was obviously not the owner’s sole concern. The new contract had far more favorable terms for him with the non compete, notice period (not reciprocal, he gives 1 month, employee must give at least 3 or subject to 5k penalty), and other things that suggested to me that he was using the opportunity to get better contracts that had nothing to do with worker classification. It is working so far, with some other dentists signing because they felt they had no other choice (mortgages, kids, pandemic, etc will do that and I don’t blame them).

    When I told him politely I couldn’t accept the terms, that I would review another agreement and that an amendment to our current agreement would be preferable, he suggested our attorneys talk. After his attorney didn’t respond to mine for over a week, I got an email from the owner. As it is a small specialty, I know that during this time he was in talks with a few other providers seeking jobs. He said I hope you sign this contract because it is my final offer, and if you decline, this is your termination notice. I knew I wouldn’t stay there forever, and decided I didn’t want to work for him anymore, so I’m moving on. I was concerned that this wouldn’t be the last of unfavorable changes (unilaterally adding 1 hour to workday without increase in base pay before new contract discussions, a violation of the existing contract’s mutual consent requirement for scheduling changes), and that the new contract would embolden him even more.

    I know you shouldn’t let emotions get the best of you in a negotiation, but I don’t like the way the owner treated me and my colleagues. I’m a fan of the win-win or no deal philosophy rather than the bad faith negotiation then ultimatum approach. Thanks to following the advice on WCI, my wife and I can afford to say “no thank you” to a deal when it doesn’t feel right.

    Thanks for your advice on this. And feel free to share any advice on leaving on the best possible terms.

    Leave a comment:


  • Hank
    replied
    Have you been planning to open your own specialty practice? Or perhaps work as a 1099 elsewhere? If so, now may be the time. Need to look at whether you have a non-compete and whether it’s enforceable in your state. (The material changes in your work classification and after tax income may be sufficient to establish breach of contract and invalidate an otherwise valid non-compete.)

    Also, there aren’t displeased associates, there are displeased ICs who current management is trying to strong arm into an unfavorable employment situation.

    While you likely have met all elements to be an IC instead of an employee, you also could hire an assistant instead of having the practice owner provide one. An employee can’t have his own employee; an independent contractor may have employees or subcontractors. (A dental assistant certainly would have to be an employee rather than an independent contractor.) Employing a DA would cost money, so you’d have to renegotiate your compensation upward, but it could open the door to an ERISA covered retirement plan rather than the limited asset protection of a solo 401(k).

    Leave a comment:


  • pulps
    replied
    Originally posted by Hank View Post
    Of course the owner is paying hourly for this pointless bad advice.
    Funny you should say that, I wish that were the case. The owner disclosed to me that he pays monthly for the “all you can eat” legal plan. With legal advice, I believe a cheap attorney is often very expensive in the end.

    The attorney has an incentive to create conflict that takes months to resolve. So far he has succeeded, and the owner sees this as a good value despite many upset associates..

    Leave a comment:


  • Hank
    replied
    Of course the owner is paying hourly for this pointless bad advice.

    Leave a comment:


  • Tim
    replied
    Originally posted by Hank View Post
    The owner’s new attorney is wrong, but you may have a hard time convincing the owner of this.
    Fear sells and don’t overlook the interpersonal aspects. For a new client the motivation is to “show” how valuable I am by fixing all the past mistakes. The new attorney’s reliability maybe riding on this. You seem to be focused on a win/win solution. Stay in that position in order to not battle with the attorney. The contract modifications route allows for acceptance (compromise). Might allow the new attorney to “approve” even though it was pointless to begin with.
    WBD in the past has recommended trying to identify the needs in any conflict in negotiations. Contract modifications keeping IC accomplishes that.

    Leave a comment:


  • Hank
    replied
    The owner’s new attorney is wrong, but you may have a hard time convincing the owner of this.

    Leave a comment:


  • Cubicle
    replied
    Originally posted by billy View Post
    I dont think NJ did for the state part of it.
    NJ did comply with all parts. 1099s are eligible & receiving the $600 & the "wages" portion. There is a cap of $231 I believe on the "wages" portion for 1099 peoples. I'm certifying for a not-so-compter-savy 1099 who has been receiving both parts since May.

    No idea about claiming after the fact.

    Leave a comment:


  • billy
    replied
    Originally posted by jfoxcpacfp View Post

    Upon reading this, I rolled my eyes and thought, "Only in NJ (or maybe CA)" But my research shows otherwise. . In fact, SD is apparently the only state that doesn't comply, and that's for the extension. Don't assume it's too late until you have checked for yourself. And, of course, wave #2 may hit this fall, meaning you may be eligible then.
    thats, it wasnt for me but I'll pass along to my friends and tell them to apply. I'm a lowly W2 but luckily wasnt furloughed lol.

    Leave a comment:


  • jfoxcpacfp
    replied
    Originally posted by billy View Post

    I dont think NJ did for the state part of it. If they did, is there anyway to claim it after the fact? They are all back at work now, so Im guessing not
    Upon reading this, I rolled my eyes and thought, "Only in NJ (or maybe CA)" But my research shows otherwise. . In fact, SD is apparently the only state that doesn't comply, and that's for the extension. Don't assume it's too late until you have checked for yourself. And, of course, wave #2 may hit this fall, meaning you may be eligible then.

    Leave a comment:


  • pulps
    replied
    spiritrider thanks for the thorough response. As I wrote this I was hoping you'd weight in, and you didn't disappoint! I will suggest that my attorney propose modifications to our existing agreement to address these issues.

    White.Beard.Doc , you are right, and it will be a challenge to convince him at this point. I have not given up, as I have found no evidence that his exposure is high. I don't want to convince him to do anything that is truly not in his best interest. Changing things after we previously agreed on a contract, significantly lowering my after-tax pay, and having to look for someone to replace me may be in his best interest. That's his call I suppose.

    jfoxcpacfp thanks for your response on this. I just need to find an authority the owner will trust who will tell him this. His attorney has never prepared a tax return or defended an audit (I asked). While he's reviewed many healthcare employment agreements, his confidence on this matter just doesn't seem to match his experience.

    Do you have any suggestions for a third party expert to consult on this? Tax attorney or CPA?

    Additionally, the attorney is urging a mid-year change, recommending correcting this on a prospective basis with a strange sense of urgency. The IRS has a program to address misclassification, the VCSP (https://www.irs.gov/businesses/small...lement-program). He has not suggested this program. I'm tempted to suggest that he either enter the program (if the risk is truly high, that would be the most conservative position) or that we work to modify out existing agreement as spiritrider recommended. And I can happily report that at least in my state, 1099 docs taxed as SPs and S-corps were paid unemployment during COVID.

    GasFIRE thanks for the comment and the good wishes.

    Thanks again, everyone, for the helpful responses. I really appreciate you all.

    Leave a comment:


  • billy
    replied
    Originally posted by jfoxcpacfp View Post

    Actually, the govt made an exception stating that 1099 workers impacted by COVID could apply for for unemployment benefits. I found out when a client informed me they were receiving benefits lol.
    I dont think NJ did for the state part of it. If they did, is there anyway to claim it after the fact? They are all back at work now, so Im guessing not

    Leave a comment:


  • jfoxcpacfp
    replied
    Originally posted by billy View Post
    the state /fed unemployment thing did come into play during covid furloughs in my area- the w2 daytime anesthesiologists I know that got furloughed were able to collect NJ unemployment that as 1099s they wouldnt have been able to. A once in a lifetime situation (hopefully), but still significant for those involved. They were out of work for almost 3 months.
    Actually, the govt made an exception stating that 1099 workers impacted by COVID could apply for for unemployment benefits. I found out when a client informed me they were receiving benefits lol.

    Leave a comment:

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