One question that comes up occasionally is, are physicians independent contractors? The answer to that depends on what kind of contract you signed. There are two types of contracts for doctors. You have employment agreements and then independent contractor agreements. With an employment agreement, you’re an employee. Then the contract you signed will specify all the terms of what the physician needs to do and what the employer needs to do. Then in an independent contractor agreement, many of those terms are the same. Still, there is much less detail in an independent contractor agreement for some employment agreements. Let’s briefly go through the two, and then we’ll get back to when a doctor is an independent contractor.
Independent Contractor Physician Contract
An independent contractor physician contract is a legal document outlining the terms and conditions of a professional relationship between a healthcare provider, such as a hospital or clinic, and a physician who is not considered an employee. This agreement specifies the scope of work, performance expectations, payment terms, and other essential provisions, ensuring clarity for both parties. It also delineates the physician’s status as an independent contractor, emphasizing their autonomy in managing their practice, tax liabilities, and benefits, while distinguishing them from employed staff. Such contracts allow flexibility for both the healthcare provider and the physician, enabling them to establish a mutually beneficial working arrangement while complying with relevant laws and regulations.
Independent Contractor Agreement for Doctors
The main differences are one, in a physician employment agreement, the physician is paid via W-2, and then the employer will pay for most of the things necessary to be a doctor: licensing, DEA registration, credentialing, privileging, practice insurance, and the expenses associated with being a doctor. You’re not paid as a W-2 employee in an independent contractor agreement. You’re paid via 1099, meaning the doctor would have to take out the taxes when they file their returns. Then, most of the time, the entity contracting with the independent contractor will not pay for the dues and fees and all the other expenses.
So, the physician will be the one that pays for the license, DEA, and continuing medical education. There are also no benefits associated with an independent contractor agreement generally. So health vision, dental, life, disability, retirement, all that stuff, won’t be provided to the independent contractor. Another question is, what’s better for me, and what’s the point of both? I find it’s very specialty-dependent. Anesthesiologists and dermatologists, for whatever reason, have more independent contractor agreements than any other specialties.
Medical Practice Tax Considerations
Some of these practices only utilize independent contractor agreements because they can avoid paying employment taxes. These are essentially quasi-employment agreements. The doctors kind of act as employees, their schedules set for them. They’re using the employer’s facilities and supplies and staff. However, if a physician isn’t an independent contractor, they would generally create an LLC. Then they would run all of the payments through the LLC bank account. They would also be able to deduct the expenses, all the things that I went through before licensing CME, malpractice, insurance, tail insurance, all that kind of stuff as well.
I mean, if I had to weigh one versus the other, well, usually, if the physician does have the choice between the two. It would depend upon the compensation structure of whether it would be worth it or not to accept an independent contractor agreement. If it’s based purely on net-collections, sometimes it is more lucrative to be an independent contractor. Still, suppose I have to give a percentage of which way a physician ultimately benefits more. In that case, it’s probably like 80/20 employment agreements because all the things the independent contractor has to pay for, those provided by the employer, add up over time.
Then another thing to think about is some individual physicians can’t get some of the things that a more significant employer can. It isn’t easy to get personal health insurance feeling it’s expensive. Then all the other things, vision, dental, life, disability, malpractice, and tail insurance, add up quickly. Anyway, if a physician’s debating between the two, I wish I could give a better answer besides it. It depends, but that’s an overview of whether doctors are independent contractors or not. It just depends upon what kind of contract they signed.
Other Blogs of Interest
- Can an Employee Terminate a Contract at Any Time | Contract Termination
- Can a Non Compete be Enforced on a 1099 Employee (Independent Contractor)?
- Can an Employee Refuse to Sign a Non-Compete | Employment Contracts
Are Doctors Independent Contractors or Employees? | Independent Contractor or Employee for Doctors
Are physicians employees or independent contractors? Kind of a simple explanation. It depends upon the contract that you signed. Most physicians will be employees, meaning they must sign an employment agreement with a new employer. For some specialties like dermatology and anesthesiology. Those two are much more likely to be engaged as independent contractors than employees. Physicians can be hired as an employee and independent contractors as well. It just depends upon what contract they signed. Let’s go through each one.
Doctor as Employee
In an employment agreement, the physician is an employee. They’ll receive a W-2, they’ll receive employee benefits: health, vision, dental, life, disability, and then have their medical license and DEA registration. There’ll be some amount paid for continuing medical education. They’ll also receive paid time off. Anyone who signed an employment agreement would typically get all the expected benefits of being an employee. The salary structure, usually, would be or could be a base salary, based on net-collections, RVU. Or it could be a combination of all three. It just depends. But in a normal situation, if you’re joining a hospital, a physician-owned practice, or a healthcare network. You’re almost always going to be an employee.
Doctor as Independent Contractor
Let’s take anesthesiologists, for instance. Maybe they’re moonlighting on the side, infrequently working for a group, or they signed an independent contractor agreement. So, the legal distinction between independent contractors and employees will be. Instead of receiving a W-2 at the end of the year, physicians would receive 1099. In that scenario, the employer will take no taxes from whatever they earn. They get a check. Then they’re responsible for paying the taxes to the state.
If you’re in a state that has that, then obviously, the federal government as well. In an independent contractor agreement, physicians usually have to pay for their own licensing and DEA registration. They won’t get time off, and they won’t receive any benefits. The employer will usually pay for the malpractice insurance policy. But then you also must think about that scenario, alright, well, who pays for tail insurance? The normal compensation structure in an independent contractor agreement wouldn’t be a base salary but usually net collections-based or encounter-based.
You would get a flat fee for doing a certain service, something like that. Ideally, in an independent contractor agreement, you’re supposedly able to get in and out of it without hassle. The schedule should be up to physicians. The IRS has a 20-factor test to determine whether someone is an employee or an independent contractor. The physician practices utilize independent contractor agreements. The benefit to them is they don’t have to pay employment tax on any of the wages they provide to physicians. And they don’t have to give any benefits.
Benefits Independent Contractors Get
The benefit to the physicians of utilizing the independent contractor agreement is usually a little better compensation. The percentages for net-collections might be a little bit higher. The RVU thresholds might be a little bit lower. And the compensation factor for the RVUs might be a little bit higher. They would generally create an LLC or something similar. Then be able to deduct all of the expenses associated with their practice for that employer. They could claim the things I just talked about. Licensing, DEA, if they have paid for malpractice, any business expenses, office, whatever it is. They could theoretically deduct those over time.
Which of the Two Is Better for Doctors?
Which one is better? Being an employee or independent contractor? Generally, I find physicians will come out ahead under an employment agreement versus an independent contractor agreement. In some scenarios, they’re just not going to have the choice. The employer could say you will only be an independent contractor for us. We will never issue an employment agreement to you, take it, or leave it. And in that scenario, the physician must decide.
One thing that comes up occasionally is someone who’s never been a 1099 employee. They’ve never been independent contractors before. They’re getting all this money from the work that they’re providing. Then at the end of the year, they think, oh man, I didn’t either budget for this. Or, I wasn’t sending in the quarterly earnings to the IRS. They get to the end of the year and haven’t saved all their money. So, ensure that you are budgeting if you’re working as a 1099 employee. Setting aside whatever amount is necessary to pay the taxes.
Worst Case Scenario for Independent Contractors
The worst thing that could happen for independent contractors. Get to the end of the year and not be there to pay taxes. So, can physicians be employees or independent contractors? Indeed, they could be either one. They could be both. If they work as employees somewhere else, moonlighting elsewhere as independent contractors. It simply comes down to what kind of agreement they signed. Independent contractor agreements are, in my opinion, much less complicated. Usually much shorter than employment agreements. Simply because they’re not going through all the benefits typical employees would receive from their employer. It’s generally easier to get through an independent contractor agreement, but certainly, there are negotiating points for each one. Anyway, that’s the difference between the two.
Physician Independent Contractor vs. Employee
Considerations for physicians as employees versus independent contractors. Let’s kind of break down both. If you’re an employee, you will receive a W2 at the end of the year. It just summarizes all the compensation you’ve received and then all the taxes the employer withheld from it. If you’re an independent contractor, you won’t receive a W2. You’ll receive a 1099 at the end of the year. And that’s just a summary of the compensation received from that business. They withhold no taxes to the independent contractors. Let’s take the relationship between the two, and let’s start with when you’re an employee.
Physician as Employees
You will receive all the benefits of normal employment when you’re an employee. They’re going to pay for your malpractice insurance. They will pay for your health, vision, dental, life, disability, retirement, privileging, credentialing, and continuing medical education. And also probably provide you with moving expenses and another signing bonus. You get a lot of ancillary benefits as an employee.
Insurance in Independent Contractor Agreement
As an independent contractor, you’re not going to get any of those things. They’re not going to pay for your dues or fees. They may pay for your annual premium for your liability insurance, but I find that’s hit or miss. It’s very rare if you have a claims-made policy that they would pay for tail insurance. So, that’s something you’ll have to worry about as well. And then all of the other things, you’ll have to pay for yourself. You must find your own health, dental, and vision insurance.
You get disability, life, you set up your retirement, whatever you decide which way to go. All of that falls upon the physicians if they’re a 1099 independent contractor. Now, for some, ultimately, you come out ahead compensation-wise. As 1099, you can deduct all the things I just discussed. There are some tax advantages to being an independent contractor. I’m not a tax attorney. I’m not going to get into the specifics of that. But I would suggest reaching out to an accountant with experience with that. And can kind of walk you through what is the most advantageous compensation/tax situation for you. It’s going to be very specific to the job services. If someone potentially has the option of either being an employee or an independent contractor, they have to consider several factors.
What Situation Is Best for Your Medical Practice?
I find it’s rare for it to be the option of the physician. Typically, the position is either going to be this or that. It’s not up to you. I mean, it’s very rare when I review a contract that we have to discuss. Alright, well, I do have two options and two contracts. Which way do you think I should go? Most physician-owned businesses simply don’t give the option to the physician. It’s either one or another. Now, maybe you have two separate jobs services, an independent contractor and one as an employee. Then you’ll have to determine what situation is best for you. But it depends upon the physician. I find some physicians classified as independent contractors do some things wrong.
One, they don’t know where to go to get the things a normal employer would provide them. So, all those insurances and retirement and that type of thing. And they’re just not the type of person who is good at handling that side of their life. Then two, with no taxes withheld from their compensation, I find many of them spend what they get. Either they’re not giving their quarterly payments to the government. Or at the end of the year, they have an enormous tax bill they were maybe shocked to pay out. So, suppose you are going to be an independent contractor. In that case, you must be on top of setting aside an amount from each paycheck you’re getting from the business. That way, at the end of the year, you’re not entirely screwed in getting together all the money you need to pay for your taxes.
Distinction Between the Two
It’s probably safer and more secure to be an employee versus an independent contractor. Usually, the notice required to terminate the agreement is shorter than an independent contractor. That means either party can get out of the agreement without much notice to the other. Now, as a physician, continuity of care always has to be taken into account. If you’re an independent contractor unless you are in a specialty where it’s just like shift work. Or maybe if you’re anesthesia and pop in, you do the case and leave. But if you are a physician with a patient base and providing care to them, if you tell your employer, “I’m not coming in tomorrow, there will be some continuity of care issues.” It could lead to some board complaints or other problems down the road. So, it would help if you considered that as well.
Notice Period Requirement
What is the notice required to terminate the employment contract? It’s usually 60 to 90 days if you’re an employee. Whereas if you’re an independent contractor, you don’t see many notice periods less than 30. Still, sometimes it might be as low as two weeks for an independent contractor agreement. So, that’s a little breakdown between having an employee and independent contractor status in physician practice. As I said before, you need to look at the situation. And determining compensation-wise doesn’t make the most sense considering the tax deductions and that type of thing.
Can an Employee Terminate an Employment Contract?
The short answer is, obviously, yes. However, it will be determined based on the terms of the contract. In any employment contract, there will be a section that deals with the times, the employment contract’s length, and then termination, so how that contract ends. Let’s first talk about the terms of the agreement.
Most employment contracts will have a date, meaning it’s a year-long, two-year, or three-year contract. Then if the agreement doesn’t terminate, it will state a language. It will automatically renew for successive one-year terms. In that case, if a contract isn’t closed in another way after the initial period ends, it’ll just continue forever until terminated.
I would say there is a rarely fixed term with no language about automatic termination. If it’s just a two-year fixed term with no automatic renewal, it would just end at the end of two years, and that would be it. The parties can go their ways.
What Are the Reasons for Contract Termination?
Now, regarding terminating the contract, the first part is that if there is no renewal, it ends, and the employment contract ends. Second, by mutual agreement. Suppose the employer and the employee agree that the relationship isn’t working. In that case, they can always, by contract, decide to move on, and then that’s it, you can move on. Next would be with-cause termination. In this case, if someone breaches the employment contract, there’ll be language that states why the employer can fire the employee. If you need a license to perform the activity and lose your license, or if insurance is required and you’re uninsurable. There are, I guess, vague behavioral clauses.
If you’re disabled, you die, I mean, ordinary things, but there should also be a part called a cure. And so, in that case, if one of the parties believes the other party is in breach of an employment contract, the most common reason is just payment concerns. Either someone is unpaid, they were promised an amount in the associate employment agreement, or maybe the timing. Also, the bonus payment is involved, and there is disagreement over the professional owed amount. That’s always a big, I guess, reason why there would be an allegation of breach of contract.
What Happens if Breach of Contract Is Committed?
If you believe the employer breached an employment contract, you’d have to provide them with written notice. And then the cure period means the employer would have a period to fix whatever the breach of associate contract is. Typically, that’s somewhere between 15 to 30 days. And the same can go for an employee.
If the employer thinks the employee is in breach of contract, they give them written notice, and then the employee has 15 to 30 days to fix the breach. If the breach is unfixed, the other party still believes the other party is in breach. Usually, that party has the option to terminate the dental associate agreements immediately. The last and most common way in most employment contracts is without-cause termination. There’ll be language that states that either party can terminate the employment agreement at any time, for any reason, with a certain amount of notice to the other party.
Typically, it would be somewhere between 30 to 90 days. Suppose the professional is unhappy and wants to move on. In that case, they give written notice saying I’m utilizing the without-cause termination notice in the employment contract. Then they must work out for 30, 60, or 90 days. Then at the end of that period, they can move on without any concerns regarding terminating the employment contract. Yes, an employee can terminate an employment contract, but they must follow the terms of the agreement.
Employment Contract Termination and Non-Compete Law
Just because an employee terminates, the contract doesn’t mean it necessarily ultimately ends at that point. They could be required of the employee if they terminate the contract. Many times, if given a signing bonus or relocation assistance, The employee would have to pay back a prorated portion of that if they left within the initial term of the employment agreement. Others could have non-compete associated with it.
So, just because an employee terminates the contract doesn’t mean that the non-compete doesn’t apply. It does, or at least it does in most circumstances if you’re in a state where non-competes are enforceable. How long will that last if there is a geographic restriction and then some temporary condition? That will continue even if the employee terminates the contract. If some malpractice insurance is involved and tail insurance is needed, it will say who must pay for that in the contract. Employees may also be responsible for that if they terminate the agreement. Although the employee can terminate the employment agreement, it doesn’t mean that there aren’t at least some strings attached.
One of the highest priority things I look at in the contract when I’m going over it with a professional. How do you get out of the agreement? And then what do you have to do if it ends within a certain period? In that way, the employee can know that I need to set aside this amount of money if I must pay for tail insurance or if I must pay back the signing bonus. So, they’re essential discussions and things employees could negotiate before signing any employment agreement. Hopefully, that was helpful—kind of an overview of termination of an employment contract.
How You Can Terminate an Agreement
You probably shouldn’t, and your employment contract probably prohibits it. In any agreement, it’s going to state how you can terminate an agreement. It could be for-cause, without-cause, mutual termination, or maybe the initial term ends. But in most cases, I mean most contracts are terminated without-cause termination. Without-cause termination, either party can terminate the contract with a certain amount of notice to the other. Typically, around 30 to 90 days is a standard amount for most employment agreements. Suppose you are an employee, and for whatever reason, you don’t want to work for the employer anymore. In that case, you must follow those terms written on the without-cause termination notice.
And it always needs to be written. It’s going to state that you must write a letter. And then, it will also say if it’s a 60-day without-cause termination. The employee has to provide it 60 days prior, work it out, and after the 60 days are over. The employees are free to go once the contract terminates, and the employees are free to move on. They want to go where they want to go after that—considering if there’s a non-compete or a non-solicit. Still, we’re not going to get into that today.
How Do Employees Communicate a Notice?
The most crucial part as far as this goes is that it will be called “notice” or “notices.” It’s toward the back of the employment agreement initially provided by the company. And this will state who, then how you need to provide notice if there is communication.
An employee could provide in writing a certified letter or overnight hand delivery of whatever termination notice you’re going to provide. And that would then be considered adequate notice. Very few contracts allow email as an effective notice medium. If you gave, let’s say, you wrote an email telling your employer. I’m giving you without-cause termination notice, and I have 60 days. X will be my last day of work. I appreciate the opportunity. Well, if the email is not an effective communication medium within that notice section, that’s not considered effective notice. And then, the employer could make you work for another 60 days until you provide adequate notice. So, that’s the essential part. You need to look in the notices section and determine if the proper way to terminate the employment agreement includes email.
I can tell you if I review a hundred employment contracts, 98 of them will not include email or fax. And you certainly can’t just verbally tell your employer you’re leaving. It must be in writing. And most often, it has to be sent either by certified mail or hand-delivered. It depends on whether you work for a small practice or a vast conglomerate with locations in every state. It’ll be impossible to hand-deliver the notice if you must provide notice to the headquarters, and that’s halfway across the country.
The Consequence of Notice Not Received
To be safe for the most part, you need to write a letter. You’ll have to print it out and send it via certified mail that the employer is using. Usually, it’s one or two. You must send it to the owner if it’s a smaller practice. If it’s a big conglomerate, you have to send it to probably your boss plus the legal apartment of the company as well. If you look through, how much notice do I have to provide? And then how do I have to provide effective notice? You’ll be safe.
I have a couple of scenarios, and people have called me after the fact. And they’ll say I sent a letter to my employer’s email. I told them I was going to terminate the employment contract, and they didn’t say anything. I assumed that my contract would end on a specific date. The employer was mad about the employee leaving the company. The employer ticked off that they were leaving. So, what they did was they just sat on it for 45 days. And then, 15 days before the physician thought he was going to leave, they said, you didn’t provide us with effective notice. Email isn’t an effective form of communication to provide notice. You owe us another 60 days until you give us adequate notice, meaning a written letter sent via certified mail.
And so, the physician had already lined up another job, he had a start date in mind, and then he had to return to the new employer. He would say, I apologize; I will have to delay my start date by almost two months. That was a tough pill to swallow for the physician. If you follow the terms of the notice section, then you should be okay.
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