August 5th, 2015 |
New Rules On Contractor Vs Employee, May Hit Medical Practices
The controversy over employee vs. contractor status continues. On July 15, 2015, the Department of Labor (DOL) issued new Guidance addressing “Employees Who Are Misclassified as Independent Contractors.” This is a Multi-Agency issue between the DOL, IRS and numerous states. The Internal Revenue Service has long pursued situations where employees are treated as contractors. Contractor status means that you do not have to withhold or match payroll taxes, do not have to provide health insurance or other fringe benefits, and there is no requirement to cover contractors under your retirement plan. The longstanding guidance in this area has been IRS Revenue Ruling 87-41, which provided 20 factors for determining a worker’s status. However, we have a new rule that could be a problem for medical practices. The DOL’s approach focuses on whether the worker is economically dependent on your practice, or actually in business for themselves. If the worker is dependent on your practice, they are to be treated as an employee. The guide in determining this economic dependency, Interpretation No. 2015-01 provides several factors. Three of them which may cause the greatest problems are: 1) Is the work performed an integral part of the employer’s business; 2) Is the relationship between the worker and the employer permanent or indefinite and; 3) What is the nature and degree of the employer’s control. As an example, let’s take the medical transcriptionist that some practices treat as a contractor. While transcription is not integral to the provision of care, maintenance of accurate medical records is essential to continuity of care, accurate billing and to defense of potential claims. You will be hard pressed to say that transcription is not “integral” to the business of your practice. Positions which are integral are held by employees according to the DOL. Whether or not an arrangement with a contracted medical transcriptionist is permanent or indefinite might lean on how long this worker has been doing transcription for your group. If that has been the case for years, you probably have another point in favor of employee status. Your best defense among these three factors could be in the area of the degree of control you exercise over the individual. You may not dictate the time of day or the speed of the work, but you probably do require correctness and that turnaround time is sufficiently short. As you can see, these rules are far reaching and will impact many areas other than transcription. If your practice makes use of contractors, you must annually issue a Form 1099 to each contractor reflecting the amount of total payments to them. These forms serve as a starting point for the government to question whether those 1099 recipients should have been treated as employees. It is important to review all your contractor relationships. We are available to assist you in this evaluation. Please do not hesitate to contact your Warren Averett advisor for assistance.