Nurse Practitioner Independent Contractor vs Employee
What is the difference between being an independent contractor and an employee as a nurse practitioner? First, if you are an employee, you will receive a W2 at the end of the year, and you will be paid whatever the normal payroll period is for your employer. And then taxes will be withheld from whatever your compensation is. If you are an independent contractor, you’ll receive a 1099 at the end of the year and no taxes will be taken out of your compensation. In what scenario does it make sense to maybe be one versus the other? Well, if you are working for an employer like a hospital network, hospital, or almost any kind of physician-owned practice, you’re going to be an employee.
The benefits of being an employee are really the ancillary benefits. They’re going to offer, or at least they should, health, vision, dental, life, disability, and retirement. They’ll pay for your NP license, usually your board cert, and DEA registration. They’ll give you an amount for continuing education, you’ll also get paid time off. Those are things you will not receive if you are an independent contractor. If you’re an independent contractor, you are going to foot the bill for all those things. The entire list that I just mentioned, you’re going to be responsible for that. One thing I also failed to mention was malpractice insurance. The nurse practitioner is going to be required to purchase their own malpractice insurance and likely pay for their own tail if it’s a claims-made policy if they’re working as an independent contractor. There may be a scenario where an employer or an organization will ask you which one you would prefer to be.
That’s normally a strange scenario. Most of the time, the owner is going to tell you, this is your option. You’re going to be an independent contractor or not. There are certain situations where an employer will ask the NP to be an independent contractor solely to get out of having to pay employment tax on them. The employment tax is usually about 10 to 12% of the total compensation. And so, if an employer classifies a worker as an independent contractor, they can simply avoid paying those things. Now, the benefits to being an independent contractor, well, one, it should be kind of an easy in, easy out agreement, meaning, the notice is very low, the work amount should be up to the NP, meaning, how much they want to work and when. Other pages of interest include:
- Nurse Practitioner Independent Contractor Tax Deductions
- Nurse Practitioner Self Employed vs Independent Contractor
And, you would hope that no restrictive covenants would apply. So, no non-compete, non-solicit, that type of thing. A smart nurse practitioner is going to create an LLC, create a bank account, an EIN, and then they will run all of the compensation through that bank account. And then they can also deduct all of those things as business expenses. Even though you may have to pay for all of those things, you can use them as business expenses, and ultimately it kind of is a wash in the end. Now, I guess one of the main downsides of being an independent contractor, as I said before, is not having those ancillary benefits available. So, health, vision, dental, life, disability, retirement. The NP, if they don’t have another employer, is going to be responsible to obtain all those things. Many NPS simply have nothing to do with doing a search for all of those different things, including malpractice insurance and therefore they gravitate towards an employment relationship more than an independent contractor relationship.
Most positions available to nurse practitioners are going to be as W2 employees. It would be rare for an NP to find an independent contractor agreement, unless it was truly part-time, meaning, maybe they had a job and they just wanted to supplement on the weekends or after hours, you’re only working a day or two a week. That’s when it would make sense to be an independent contractor. I would suggest if you are going to go that route, that you meet with an accountant who can assist you in setting up the LLC keeping track of all the expenses, and then assisting you in maximizing your compensation as far as the tax deductions go. It just makes sense to do it that way. You’d be kind of wasting the benefits of an independent contractor arrangement if you didn’t have all those things set up. So, that’s the main difference between being a W2 employee and a 1099 independent contractor for nurse practitioners.
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