Is running your small business getting tougher?
Some think it is…
The recent changes to independent contractor law affect only a handful of states (California, New Jersey, Massachusetts, Illinois.) But chances are they will impact independent contractor law in most, if not all states before long.
What is independent Contractor Law? And why does it concern you, a nurse practitioner practice owner?
Let’s find out what’s at stake…
But first, we’ll take a step back and look at the big picture.
Most businesses need staff to take care of day-to-day operations; that’s why the majority of businesses need to hire employees.
They need help with…
- Producing products and services
- Marketing and selling them in the market place
- Providing customer service
- Billing and accounts receivables
- Taking care of the books and accounting
- And a host of other tasks
But there is another type of worker utilized by companies: independent contractors.
Typically, they work on their own behalf, as a standalone business. Independent contractors most often get called in because they bring a unique skill set to the table.
While some companies have always utilized independent contractors, it’s a growing trend growing today. By tapping into the pool of independent contractors, companies benefit in many ways.
Companies Benefit By:
- Getting access to expertise not available within the company
- Getting extra help when needed without having to go out and hire
- Paying only for the services the company needs
- Getting monetary savings: no salary or benefits to pay; no payroll taxes or reporting; there are no state or federal payments or reporting required
- Having zero costs for training independent contractors
As mentioned earlier, independent contracting or freelancing is a growing trend: more and more companies utilize it.
And there’s an equal number of people working as independent contractors or freelancers, across all fields and industries.
Just think of companies like Uber, Lyft, Upwork, Fiverr, Freelancer, or Textbroker. These are just a few examples of job boards and on-demand transportations services.
We even have a name for it. We call it the “Gig Economy.” There’s been an enormous increase in freelance work and short-term opportunities as compared to the stable jobs of the past.
The Gig Economy
How does the Gig Economy benefit independent contractors? Even though they don’t get a regular paycheck, independent contractors enjoy:
- Freedom of time and location
- Ability to choose the customers they want to work with
- Ability to work the hours best suited for their lifestyle
- Schedule work around other obligations or interests
- Work as much or as little as they please
- Earn as much or as little as they want
- Freedom to come and go as they please
Independent contracting works for both companies and contractors, at least most of the time.
Unfortunately, in the future, it may be more challenging to work as an independent contractor or to hire one.
And here is why…
Independent Contractor Status
To qualify as an independent contractor, there are specific rules that must be met. Rules are outlined by the IRS on the federal level and by individual states, on the state level.
You as a business owner must determine whether a person providing services for your company is an employee or independent contractor.
And here’s why:
- If the worker is an employee, you are required to withhold income tax, withhold and pay Social Security and Medicare tax on wages paid, and file all required reports that go with it. This applies to both federal and state payments and reporting.
- If the worker is an independent contractor, you are not required to withhold or make payments on behalf of the worker. You simply pay the worker the fee both of you agreed to.
So how do you decide if the individual is an employee or qualifies for independent contractor status?
But before I write another word, please take note of the following:
I am not an attorney or accountant. The content in this article is informational only and is not meant to substitute qualified professional advice.
At this time, the IRS considers the degree of control and independence of the independent contractor across three categories. And I quote from the IRS website:
“Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?”
As you can see, this is not exactly clear-cut, as acknowledged by the IRS itself. Some independent contractors may meet all three criteria, whereas others may only meet one or two.
“Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.
The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.”
Confused? You’re not alone…
So, if you’re still not clear whether a worker is an employee or an independent contractor, you may file FORM SS-8 with the IRS. They will review all facts and make a determination about the worker’s status.
It will take a while, someone else will make a decision, but it’s an option…
So now, what are the changes to independent contractor law you need to know?
While the IRS still applies the guidelines described above, the California Supreme Court issued a ruling in May of 2018; it was the result of a class-action lawsuit.
For more information follow the links at the end of this article.
The court issued updated guidelines for the classification of workers as independent contractors, referred to as the “ABC Test.”
The ABC Test
To qualify for independent contractor status, California now requires that all of the following must be met. The worker must be:
- Free from control and direction of the hiring entity when performing the work.
- Perform work that is outside the usual course of the hiring entity’s business.
- Engaged in an independently established trade, occupation, or business of the same nature as the work performed for the business, evident through a legal entity, business license, and advertising.
If you’re a Nurse Practitioner in California, working as an independent contractor, you will need to rethink your contractor classification. Because, unless you meet all three conditions, you no longer qualify for independent contractor status.
The same applies if you own a practice and have independent contractor NPs working in your clinic. You must rethink and restructure how you work with non-employee workers.
And California has made it clear it means business… employers will be fined $10,000 for violations.
It would be wise to seek assistance from a qualified professional, to sort through your options. And I suggest you do the same if you’re in one of the three other states.
This ruling affects employers and independent contractors alike.
- Sadly, many individuals will lose the opportunity to bring in extra income.
- And employers may see their cost of doing business go up; some may even be forced to close down because of it.
But regardless, you cannot afford to ignore the new developments if you’re working in any of the four states.
Please make sure you check your state law.
If necessary, check with an attorney who is familiar with independent contractors and workers laws in your state before you HIRE a clinician for your practice.
Please add your comments or questions below; we’d love to have your input!
And here are the links to additional information:
Article from NP attorney Melanie, Balestra, NP, Esq. https://canpweb.org/resources/connections-newsletter/connections-2018-editions/connections-august-2018/work-status-warning/
By Johanna Hofmann, MBA, LAc; regular contributor to the NPBusiness blog and author of “Smart Business Planning for Clinicians.”
My wife and I are both NPs. If we started a S-Corp and became a type of “staffing” company could I be an independent contractor for my clinic? I am a W-2 employee at this time but still have to pay for my own health insurance for my family. Just looking for creative tax deductions.
If you have a clinic and your clinic became the S-Corp, you would be the W2 employee and your business could pay the insurance with pre-tax dollars, thus continuing to be a business expense. This would be much cleaner than what you are suggesting. Talk to your CPA about this.
Independent contractor rules are changing and it’s going to be more difficult for NPs to be contracted workers in healthcare practices.
What is the current status of this law for nurse practitioners? I am looking at differentiating myself because I administer therapy and medication management whereas my collaborating physician does not. He only prescribes and codes for medication management. Would that be a possible compliance with the law? Here in Ca
California, as you know, is different than most states. If you are asking about the IC rules, they have not changed to my knowledge. I expect all sorts of changes with the incoming administration, so keep up with CANP.
In terms of having a physician who does not do therapy, I assume you are a psych NP. If your collaborator is also psych, there should be no problem. However, always check with BON in case the practice act has been amended in some way I’m unaware of.
My question is: can an NP living in California work for an out of state LLC and provide telehealth (being licensed of course and having a collaborating physician in the state) in CA for that LLC?
I would think so. Many companies have out-of-state headquarters. The most important thing is that you are following state rules and regulations where you are working and seeing patients.
I am so confused. I am a psych NP working for a psychiatrist who is 1099 me but I’ve been told twice by other companies I have to be a W2 employee. Currently our roles are very similar but with the soon to be goal of myself the NP doing all office medication management while he branches off into starting a ketamine clinic. I do not want him to get in any trouble over me. What is the deal here?
Holly, it’s important that you and your relationship with this practice fit the IRS description for an independent contractor, as well as the state definition and any additional rules. It’s difficult for me to tell you more without knowing more about the situation.
The 1099 requirements are very confusing. I am a Registered Nurse working for a doctors office that provides in office IV therapy. I work independently than the doctors office.
They can be confusing, that’s why it’s important to follow the IRS rules as well as your state employment rules.
I would however question whether you are “independent” since you are likely following medical orders for the fluids you administer, as well as follow that offices policies and procedures.
An independent NP should always carry professional and workman's comp insurance. Lord forbid you are injured on job and have nothing to cover your injuries. Here's one place I found that shows it's possible to get coverage.