Professional Employees – Independent Contractors or W2?

Professional Employees - Independent Contractors or W2?Typically there are many concerns that come up with a physician or health care professional, hiring and paying another professional to work for their practice as an independent contractor. This is often done because the potential worker wishes not to have payroll taxes taken out of their compensation. However, there are numerous issues and problems that arise with this type of structure, some unique to the practice of medicine and related health professions, and other more general issues that come up in many industries.

While this might be a favorable tactic in a worker’s attempt to minimize their taxes, it raises issues that could be potential breaches of professional responsibility, severely impacting a health care provider’s license. In addition, providers are generally not permitted to be paid as a 1099 independent contractor if their compensation is based upon a percentage. This runs the danger of becoming illegal fee splitting which is professional misconduct.

Concerns can also be raised with insurances since many insurance carriers require different certification processes for employees and independent contractors, who provide services for a group that is with the carrier. Aside from that, any billing done under no-fault insurance carriers is very strict. In the realm of no-fault insurance in New York, a practice cannot bill for services that an independent contractor rendered. Additionally, there are supervision issues that can come up which fall under the medicare/medicaid regulations when billing those programs. A true independent contractor by its very nature, does not fall directly under the direct supervision requirements and this can raise questions of eligibility under any insurance or government program that has strict supervision definitions which might conflict with the contractor’s status.

Many of these issues do not come into play until there is another problem or question raised. However providers should be very wary of something as seemingly trivial as how an employee receives their compensation in order to play around with taxes. It can open the door to other problems in addition to holding the employer responsible to the IRS, State, or Local tax authorities if they refuse to recognize the contractor’s status. Ultimately, careless or improper use of an independent contractor status could cause a provider many problems including the loss of reimbursement from insurance carriers, IRS/State or local tax authorities, medicare/medicaid audits and potential fee splitting allegations.

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