Owner dentists must make the difficult distinction between treating an associate dentist as an independent contractor or an employee. While this has always been difficult to do, the line is becoming more and more blurred. This distinction, however, has important implications for your practice for a number of reasons:
- An employee has certain rights upon termination that are generally not extended to independent contractors.
- An employer has statutory obligations regarding withholding and remissions for income taxes.
- Employees have certain entitlements such as overtime pay, minimum wage, pregnancy and parental leave and paid vacations which are not available to independent contractors.
As such, it is critically important to distinguish between a working relationship with an associate dentist based on an employment contract in which the worker is an employee and where they are considered to be an independent contractor.
Changes are Afoot
For many years, there has been a standing practice of treating associate dentists as independent contractors. But, the reality is that there are rules that govern who qualifies to be treated as an independent contractor and, associate dentists are not immune to these laws . Still, this was an accepted practice and for a variety of reasons it went unchallenged by government, perhaps because:
- The associate dentist had set up a Dental Corporation
- Associate dentists tend to be higher level workers, with higher pay and therefore, without the need for government protection.
- Associate dentists were assumed to be professionals who didn’t need government supervision
Today, however, things have changed. There have been updates to the California laws that specifically pertain to independent contractors, and these laws have increased the penalties for the misclassification of workers.
More importantly, the taxing agencies are looking for new revenue sources. As such, the California Department of Labor Enforcement, as well as the federal labor board, has let it be known that they intend to be much more active in terms of finding misclassified workers and levying penalties.
One of the new sources of revenue that they have hit upon is the misclassification of individuals who are classified as independent contractors but who are, as a matter of law, employees. Furthermore, they have come to realize that this applies to a great deal of associate dentists, who tend to be highly paid and able to afford higher penalties.
The Penalties Misclassifying an Associate Dentist as an Independent Contractor
The penalty for misclassifying an associate dentist as an independent contractor, who is by law an employee, has significantly increased. Previously, the penalties were very small and could be mitigated if the individual in question was willing to show that they paid their own taxes. Now, the penalty is $5000, each time the employer gets it wrong.
This can be a costly experience, not only because of the fine mentioned above, but because it can be a disruption to your practice. It can make everyone involved very unhappy and can, therefore, have an effect on your quality of services and your production.
So, because the owner dentist primarily bears the financial risk associated with the misclassification of a worker, and the penalties are so steep, it is imperative and makes economic sense that owner dentists pay attention to the rules and regulations governing the classification of workers when hiring an associate dentist.
Are There Any Safe Harbors?
Some are under the assumption that if an associate dentist is incorporated, this is sufficient to say that he or she is an independent contractor. While this used to be true, it is not anymore. Corporate status is no longer sufficient. Neither is merely having a contract or the fact that the associate dentist works for multiple practices. In fact, it doesn’t matter how many dentists an associate dentist works for, or what the contract he or she has with them says. His or her actual relationship with the hiring dentist is what determines their status as an employee or independent contractor.
Factors Used to Determine Whether an Associate Dentist is an Independent Contractor or an Employee
Here are the primary considerations that government agencies such as the IRS and even state and federal courts will look at to determine whether a worker is an employee or not:
- Behavioral control – Is the associate dentist able to control their hours?
- Financial control – do they buy their own equipment, or does the employer supply their equipment?
- Are benefits such as insurance, vacation and sick time provided to them?
- What is the source of the dentist’s patients? Are they provided by the employer or does the dentist provide his or her own patients?
As such, the primary characteristics that suggest an associate dentist is an employee are as follows:
- The dentist generally follows the employer’s directions and supervision. In other words, he or she is told what, when and where work is to be performed.
- The employer controls the details regarding how an employee provides his or her services.
On the other hand, independent contractors are characterized by the following traits:
- Self-employed professional
- Exercises independent judgment
- Controls the means and method by with their work is performed
- Exercises autonomy and carries out greater financial and management responsibility than does an employee
- Has more control over the hours, fees, work routine, their appointment book and treatment planning than does an employee
Can an Associate Dentist Ever Be Hired as an Independent Contractor?
The short answer is yes, provided that the owner dentist treats the associate as an as an independent contractor based on the factors listed above, and does not overly exert control over the associate.
So, there is a lot that has to be done for an associate dentist to be considered an independent contractor in the eyes of the law, and it really depends on how much control you allow them to have over how they operate as a part of your business. Still, there are various ways you can properly hire an associate dentist as an independent contractor, and if you want to put this in place, an experienced dental law attorney can assist you.
If you are interested in hiring an associate and would like a free consultation, feel free to five Odgers Law Group a call at (858) 869-1114.