Don’t Misclassify Your Associates and Other Workers

New rules differentiate between employees and independent contractors and are crucial for employers. Understanding six key factors prevents misclassification and associated consequences.

Referenced Links:

Independent Contractor or Employee? Revised Guidelines Effective March 2024
Employee or Independent Contractor Classification Under the Fair Labor Standards Act

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Transcript:

The rules that define the difference between employees and independent contractors have changed a number of times over the last like 15 years. In fact, most recently on March 11, the Department of Labor began new rules really do a different job of distinguishing between independent contractors and employees. Now, first of all, I want to make sure that you’re aware, that this is an important distinguishment, you want to make sure that you get this right as an employer because it can have negative consequences that relate to back pay, overtime, pay, back taxes, penalties, interest, etc. and it can be significant. There are six things that they have identified in this new rule that you need to be aware of.

First of all, let me give you the short of it, through analysis that we have done, and through a lot of discussions, as the Illinois Chiropractic Society looks at these arrangements in doctors’ offices, we truly believe that the cleanest way to make sure that you get this right is independent contractors will have a lease agreement or a space lease agreement with you for a portion of your practice, or they can have a space, or a rental agreement, a space lease or rental agreement for that space, along with a shared services agreement, where you may provide for them, the use of some of your front office staff or billing staff, or whatever the case might be. Those are things that can be arranged inside of those. But outside of those types and specific types of arrangements, it is incredibly difficult, and even inside of those arrangements, you want to make sure that you don’t break through any of these, any of these breakdowns are the six qualifiers to make the determination between employees and independent contractor.

So let’s walk through these really quick. The first is an independent contractor has to have an opportunity for profit and loss. And what that ultimately means is, they have to be able to determine their fees. In other words, how much is being charged for the services that they’re performing to your patients or to the patients in your practice, that is a key thing. As a company owner, and as a practice owner. If you are dictating their fees, then they have less of an opportunity for profit and loans because they’re unable to determine their fees. That is a really big one.

And there is this investment by the worker, versus those made by the potential employer or the practice owner. In this case, if they’re not purchasing their own equipment, in other words, if they’re coming into your practice and using your tables, your modality machines, or whatever the case might be, they’re using your equipment, and they’re not providing their own equipment. It’s in those moments that once again, that is a key provision within the six provisions that the Department of Labor has laid out. The other is this, how long have they been in your practice, right? The degree of permanency related to that work relationship, if they’ve been there for an indefinite period of time, or if they’re going to be there for an incredibly long period of time, the longer it gets, the closer and closer that we get to them not being an independent contractor, but being an employee. Another in this component that is super important too is do they have another job, right? If they do not have any other positions, and they’re not able to take any other position someplace else, that is almost a dead giveaway every single time that they actually would be classified as an employee; nature and degree of control if you’re controlling their hours, right? So if you’re determining what hours that they’re able to work, they’re not able to work different hours in you. So your normal office hours are, you know, between nine and 6 pm. And maybe they want to practice between 6 am and noon, and you tell them that they’re not able to do that you’re beginning to assert more control over their hours, and they’re getting then again, closer to being an employee.

Any one of these factors may tip the scale. But the more factors that we break through are going to create additional problems, right? So if they breaking through two or three of these, then there’s more than a likely chance that they will ultimately be considered by the Department of Labor or even by the IRS to be employees and not independent contractors. Now, this is the other side. One of the key factors that they have laid out is the extent to which the work that they’re performing that the worker is performing is an integral part of your potential employer’s business or your practice. In other words, the integral part of your business is seeing patients examining the patient determining a diagnosis, determining a treatment plan and then seeing that treatment to fruition. That is what you do that is your business. If that is what If they’re doing then it’s integral to your business. It’s not, it’s not as if you have somebody coming into maybe repair your adjustment tables or they’re coming in to do a small renovation in your practice. Those are independent contractors, of course, more cleanly, because those performing those services are important to your business, but they’re not integral, they’re not actually performing the business. Skill and initiative wouldn’t come into play quite as often, but that is the sixth factor. So each of those factors are going to be critical. You need to examine all of these things and be incredibly careful if you’re bringing a new associate in now as an independent contractor and trying to avoid the employment taxes that go along with it. Hopefully, this helps you out and we’ll catch you next week.