Are you ready to bring on an additional counselor? Congrats! Your practice must be growing!
If you’re like many, you’re facing a tricky decision. This new clinician—will you be hiring him or her as an employee, or as an independent contractor? Practices have done it both ways, and there are pros and cons to each.
Independent Contractors and Taxes
As a hiring party, there are some benefits to hiring clinicians as independent contractors. For starters, independent contractors don’t receive health insurance, which could save an employer thousands every year. Moreover, 7.65% of an employee’s wages are required to be paid, by the employer, to the IRS in the form of “payroll tax” (there is also unemployment tax, and workers compensation).
Put into context, say you’re paying a clinician $60 per session. You’ll pay another $4.59 (7.65%) on the clinician’s behalf to the IRS. In contrast, when a worker is an independent contractor (i.e., not an employee), the hiring party is not required to pay the 7.65% tax.
Does The Counselor Qualify as an Independent Contractor?
An important question is whether a clinician at your practice will meet the criteria of an independent contractor. This is sometimes difficult to determine. However, the IRS has adopted some common law principles to define what constitutes an independent contractor.
The primary issue is one of “employer control.” That is, does the hiring party define how the clinician’s work will be accomplished? If a hiring party does not have authority over how a clinician accomplishes his or her work—but simply gives an outline of the work to be done—independent contractor status may be an option. However, there are some additional common law issues, which include:
Who has paid for materials, supplies and equipment? A contractor generally provides their own supplies and tools.
What type of skill is required? A contractor generally brings a specialized skill set.
Is there permanence in the job? A contractor often works project to project.
Is the worker an integral part of the business? A contractor can often be replaced by another contractor.
Does the hiring party control when the worker comes to work? A contractor generally makes his or her own hours.
Does the worker receive a steady paycheck? A contractor often receives variable payments upon completion of projects or tasks.
Is it the worker’s only source of income? A contractor usually works for several parties.
Set up correctly, counselors are likely to qualify for independent contractor status. They often choose their own hours, work in multiple locations, and an argument can be made that the hiring party lacks control over “how” they perform their job, as it’s primarily done in a private therapy office.
However, a practice needs to exercise caution—it’s easy to start treating your contractors like employees. For example, contractors can’t have business cards. They’re their own entities, so having a business card with “Your Brand” on it would be contradictory. They probably shouldn’t be listed as “staff” on your website. Also, you should limit what materials you supply—intake documents, handouts, pens, computers, tissues: contractors should be bringing most of this stuff with them. Finally, make sure that the workers buy into the fact that they’re independent contractors, because any of them could file a case with the IRS stating that that he or she was actually an employee.
One Practice’s Story
Like many small practices, we started by hiring our first clinicians as independent contractors. It seemed a lot easier at the time. Less paperwork. Fewer taxes. No requirement to provide health insurance (which we couldn’t afford).
However, the more I had a clear vision for how I wanted my practice to run, the more the model of having independent contractors didn’t seem to fit. While I wasn’t in session with my clinicians directing their every word, we developed a pretty extensive operations and procedures manual. We also wrote a mission statement and a quality code. There were a growing number of areas where I wanted my clinicians to do things “the Thriveworks way.” Moreover, we wanted the counselors to feel as though they were a part of what we were building. An independent contractor is a “hired gun,” not a team member.
Also, because my staff was independent contractors, there were some simple things that I couldn’t do. I couldn’t give them business cards (see above). Indeed, every time we supplied a computer, a printer, printing paper, or anything else, our counselors became more and more like employees. Also, while in the beginning I saw that not offering health insurance was a necessity (as we had no money), as time went on I began to see how important such benefits were to my team—and I wanted to offer benefits.
Around April of our second year, I experienced a last straw moment. A counselor showed up in my office, choking back tears because she had been to her accountant to do her yearly taxes, and had learned that she owed thousands of dollars to the IRS. She said, “I didn’t realize I was going to owe this much: I don’t have it!” All those payroll taxes that I wasn’t paying; my counselors needed to pony up at tax time—and some of them didn’t plan well, and found themselves in serious financial trouble.
Within two weeks of this meeting I had converted every clinician to employee status, and with the exception of the occasional psychiatrist (who often prefer independent contractor status) we haven’t hired a single contractor since. Every once in a while our COO will say—usually after a rogue clinician has defected from our operations manual in some way—“You know how much money we’d save if we converted our staff to independent contractors?” and I stop him right there. For us, having employees is the way to go.
Anthony Centore is a Counselor, is Private Practice Consultant for the ACA, and helps counseling practices across the US thrive. For more information on private practice and insurance panels go to http://thriveworks.com.