Is a W2 or 1099 Better for a Nurse Practitioner? | NP and Nurse Employment Classifications

Is it better to be a W2 or a 1099 as a nurse practitioner? First, if you are a W2, you are an employee and then you’ll have taxes withheld from your regularly scheduled payroll. And then at the end of the year, you’ll get a W2, just kind of summarizing all the taxes that were withheld. If you are a 1099, you are an independent contractor and then you’ll receive the 1099 at the end of the year, and no taxes will be withheld from your compensation at all. So, you will be responsible to pay those taxes either quarterly or annually, depending upon what you want to do. That’s the main distinction between the two.

Now, the benefits of being a W2 as an employee are, you’ll get all of the great ancillary benefits of being an employee. Most organizations, they’re going to offer you health, vision, dental, disability, life, and retirement. They’re going to pay for your continuing education, licensing board, board cert, any kind of privileging, credentialing, you’ll get paid time off, whereas as a 1099 independent contractor, you’re not going to get any of those things. You are going to be responsible for paying all of that, including malpractice insurance. And if you have a claims-made policy, tail insurance as well. Now, just because you’re working as an independent contractor 1099, it doesn’t mean you can’t deduct all those business expenses, but you need to set up your kind of corporate structure in the correct way. So, you should create an LLC, get an EIN, create a bank account, and then funnel all the compensation and expenses through that account so that you can keep track.

And then at the end of the year, you can deduct all those as business expenses. So, licensing, malpractice, health insurance, vehicle expenses, kind of all the things that would go into being a nurse practitioner for an organization, you can deduct if you’re an independent contractor. Now, which one is better? It just depends. I mean, theoretically, you should make more as an independent contractor because the employer is not paying for any of your benefits, any of your malpractice, they’re not paying employment tax. If you’re an employee, an employer has to pay employment tax, it’s usually somewhere between 10 to 12%. So, they’re probably saving around 15 to 20% by not giving you any of those benefits, not having to pay employment tax. At least some of that should pass through to the nurse practitioner, meaning, if you’re going to make the exact same amount as an employee versus an independent contractor, it probably makes sense to be the employee. Other pages of interest include:

• What is a 1099 Nurse Practitioner?
• Nurse Practitioner Self Employed vs Independent Contractor

Now, many nurse practitioners simply don’t want to deal with the hassles of finding all of those things. They don’t want to find their malpractice. They don’t want to get health insurance, dental, vision, retirement, life, disability, all that kind of stuff set up. They don’t want to deal with it. And in that scenario, you have to find an employment opportunity. Now, the most likely opportunities you’ll have to be an independent contractor will be kind of short-term, part-time stuff. Or maybe you’re just going to work for a practice two weekends a month or something like that, just for half a Saturday. Well, in that scenario, it doesn’t really make sense for you to be an employee or for them to offer you all those benefits. And that would be kind of a normal role to be classified as an independent contractor.

Whereas if you’re working Monday through Friday, nine to five, and the employer is asking you to be an independent contractor, they’re likely misclassifying you. The IRS releases a 20-factor test that kind of goes through, alright, these are the things that can make you an employee. These are the things that can make you an independent contractor. If you’re concerned that you might be misclassified in some way, I would go through that test and then approach the employer with those concerns prior to signing an independent contractor agreement or an employment agreement after the fact, although it’s very rare. The IRS could come back, look at your employment relationship, and then state, oh, you’ve been misclassified. And then all of these back taxes will be owed usually by the employer. I have seen in some independent contractor agreements that the employer basically states if it’s found that you were misclassified and the employer has to either pay a penalty or fight it in court or whatever that the nurse practitioner will be responsible for those things, in addition to attorney’s fees.

That’s an unconscionable clause. I would never sign that. So, just be careful about that when looking at an independent contractor agreement or an employment agreement as well. Anyway, that’s kind of the difference between the two and maybe why one might work for you over the other. I mean, most of the time, an NP is going to be an employee. It’s very rare, unless, as I said before, it’s kind of like a part-time position that it would make sense to be an independent contractor. I would suggest talking to an accountant before doing any of this. I’m not a tax attorney. So, I’m just kind of giving you my side on the employment and contract side. But meeting with an accountant who can kind of set up these things for you and give you the best advice on maximizing your tax deductions makes the most sense. Hopefully, that’s helpful.

Can a Nurse Practitioner Terminate Employment as an Independent Contractor?

Can a nurse practitioner break their contract? The answer is yes, you can break your employment contract. But, if that means that you would be breaching it, not adhering to the terms that you signed and agreed to abide by, then there could be some financial and legal consequences that you want to consider. But before we get there, you also want to consider, are there ways to get out of your contract? Normally, in an employment agreement, especially for nurse practitioners, there will be a termination section or articles. And in there, there’s normally a without cause termination. And what that means is you can terminate your agreement with or without cause. You don’t have to give one, you just have to give notice.

So, you want to read that clause. There’s normally an amount of time that you have to give notice. It’s typically 60 to 90 days, so you will give your employer notice. That also is outlined in your agreement as well on how to do that. Most of the time, it has to be in writing and either sent via mail to your HR or headquarters. Sometimes you can hand deliver it, but you have to double-check. You just give your notice, you finish it out for 60 to 90 days, and then you guys go your separate ways. That’s the best way to get out of your contract is just to terminate it without cause. If you cannot give the proper amount of time, and you must leave sooner, you can certainly ask to be let out of your agreement.

That’s probably going to be the best way to handle that. Now, you’re kind of at the mercy of your employer though, if they say, well, I’m sorry, we can’t let you out those contracts, we really need you. Then you have a difficult decision to make. Then you need to decide, are you going to breach the contract and just leave? Or are you going to fulfill it through that notice period? If you do decide to leave, you must be careful, if you’re really breaking the contract, breaching the contract, sometimes there are clauses in your employment agreement that state that if you do breach this agreement, you will have to pay the employer a certain amount of money. This is called the liquidated damage clause and that’s normally anywhere from 10 to 50, kind of depends. Actually, it can even go up from there, $10,00 to $50,000.

You want to make sure that you read the contract, and if these liquidated damages clauses are in there, you want to be careful and try to get out of your employment agreement properly. So, that’s one thing. Also, if you break your agreement and leave the non-compete clause or non-solicitation clause, any of those restrictive covenants are still going to be enforceable. You can’t just rip up the contract and walk away. So, you want to double-check what your non-compete, non-solicitation states. Those still would be binding. And then also, you want to look for your signing bonuses or any relocation expenses that you received. Will you have to pay those back? Typically, you have to be employed with the group for one to three years before those are forgiven. So, yes, in short, you can break your contract. You want to be careful and try to do it the proper way, give your notice and then fulfill that notice period.

If you have to breach your contract, you want to first ask to see if you can be let out of it. If they still say no, then you have a difficult decision to make. You have to consider your consequences of what financially you might have to pay. Is there any sort of litigation that can happen or arbitration? And then just remember all those non-compete clauses, and non-solicitation are still going to be enforceable. And also, any bonuses you received, you may have to pay them back or a portion of them. 

Nurse Practitioners and an Independent Contractor Agreement

What is a 1099 nurse practitioner? If you are not self-employed and you don’t have your own practice, you are either working as an employee or an independent contractor. As an employee, you receive a W2 at the end of the year, you’re paid on a regular payroll, and taxes are taken out of that. As an independent contractor, you receive a 1099 at the end of the year. You will have no taxes taken out of it, and you will be responsible to withhold and or pay taxes either quarterly or at the end of the year. Why would someone be a 1099 versus an employee W2? Well, it kind of depends upon the setting. If you’re doing part-time work or maybe you’re asked to fill in occasionally or it’s completely up to you how much you work for a company, being an independent contractor might make more sense in that situation.

You generally will not receive any benefits when you are a 1099, meaning, health, vision, dental, disability, retirement, life, licensing, malpractice, DEA registration, continuing education, privileging, credentialing, none of that is going to be paid for if you’re a 1099 independent contractor, you will be responsible to pay for all of those things for that specific employer and or company. Now, most nurse practitioners, if they’re working as an independent contractor, will create an LLC and then create their own EIN and bank account. And then you can use all of those as tax deductions for your compensation. Whereas if you’re an employee, they’re just going to pay for all of those things. And then you obviously won’t deduct any of that from your final compensation. Now, there will be some employers who will ask the NP to work as an independent contractor, where they’re doing all of the things that an employee would. Some employers, I’m not saying all of them, but some simply don’t want to have to pay employment tax. And so, they will ask the nurse practitioner to work as an independent contractor. If in that situation, you’re basically a quasi-employee, meaning, you’re essentially working as an employee but not getting any of the benefits when they classify you as an independent contractor.

Hire an Attorney to Look Over Your Contract

A nurse practitioner contract attorney can provide you with the professional opinions and insight that you need to figure out if a contract offered to you makes sense for the goals that you have for your career. The attorney will look over your contract line by line to ensure that it has everything that you need in it. Don’t forget, as a nurse you have a lot of leverage to make deals with potential employers who might want to hire you. We want to make sure you take full advantage of that leverage, and that is why we ask you to contact us for more information on how to get the most from your contracts.