You’ve been in practice for a while, and, happily for you, your business has grown. You are thinking about adding an associate, but you are concerned about the added expense. You know that you will pay less in taxes for a contractual associate than for a salaried employee; you don’t want to provide employee benefits; and you would like to insulate yourself from the associate’s malpractice liability. At the same time, you want full control over your associate’s hours and other conditions of employment. To solve your dilemma, you label the new hire an “independent contractor,” and sit back to admire your business acumen. That is, until the Internal Revenue Service comes calling.
The distinction between a true employee and an independent contractor has significant legal and financial consequences. The Internal Revenue Service (IRS) can hold you liable for hefty back employment taxes, penalties, and interest if you misclassify a worker, and it makes no difference that you have labeled the associate a “contractor” if your business arrangement has the earmarks of true employment. In addition, many state agencies and courts use the same factors outlined by the federal government to determine employee status for other purposes.
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