21 Mar Playing the Independent Contractor Game – Not!
It all starts innocently enough. You are looking to add an associate, hygienist or dental assistant and don’t want to hire them until you become convinced that they are going to “work out”. So, you set the person up as an independent contractor to avoid (you think) the taxes, paper work, labor laws and other challenges associated with this person being an employee.
Sounds simple enough in theory; not so though, in real life. Like it or not, governments ideally want all workers to be employees. Why? That’s easy – more taxes. As such, the criteria for determining employee vs. independent contractor status are stacked in favor of workers being employees.
Bottom line: the overwhelming majority (in excess of 95%) of dental office employees do not meet the criteria to qualify as independent contractor. We find throughout dentistry that misunderstandings and misinformation abound on this matter. Using the information below will help you better understand and more successfully navigate the inherent risks.
A good rule to follow is: if the practice/business controls not only the results to be achieved, but also the means used in achieving the result, an employer-employee relationship exists, rather than an independent contractor relationship.
The relevant issues used to specifically determine an individual’s status are: behavioral control, financial control, and the relationship of the parties.
Behavioral Control
Under the category of behavioral control, the IRS considers facts that demonstrate whether the business has maintained the right to direct and control how a worker performs the tasks for which s/he is engaged. The factors specifically considered under this category include the type and degree of instruction and the training provided to the worker.
Employees are generally subject to instructions about when, where and how to work. Independent contractors are not. In analyzing the degree and type of instruction, the IRS considers whether the worker receives instructions regarding:
- Which tools or equipment to use
- Which workers to hire or assist in performing work
- Where to purchase supplies and services
- What work must be performed by a specific individual
- The order or sequence to follow in completing the work
The key consideration is whether the business has retained the right to control the details of a worker’s performance or, in the alternative, whether it has given up that right.
Financial Control
Under the financial control category, the IRS considers “[f]acts that show whether the business has a right to control the financial and business aspects of the worker’s job,” including:
- The extent to which the worker has incurred un-reimbursed business expenses.
- The extent of the worker’s investment.
- The extent to which the worker makes his or her services available to the relevant market.
- The manner in which the business pays the worker.
- The extent to which the worker can realize a profit or incur a loss.
Type of Relationship
Factors considered with respect to the nature of the parties’ relationship include:
- Whether a written contract describes the relationship that they intended to create.
- Whether the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay or sick pay.
- The permanency of the relationship.
- The extent to which services performed by the worker are a key aspect of the regular business of the company.
Employment Agencies
When workers are provided through a contractual arrangement with a staffing firm, it is essential that the agreement between the employer and the staffing agency be carefully reviewed to ensure the staffing agency is considered the primary employer. In such a case, you would pay the staffing agency a fee and the staffing agency would pay the employee. Thus, you could consider the temporary help an independent contractor. If, however, you are paying the temporary help directly and you only paid the staffing agency a “headhunter’s fee,” then the temporary help cannot be considered an independent contractor. S/he must be treated as a regular staff member (i.e. taxes, workers’ compensation, unemployment insurance, etc.).
If you have independent contractor workers, review the arrangements carefully in consultation with your labor regulations consultant and/or legal counsel to avoid becoming an enforcement statistic.