Nurse Practitioner Independent Contractor vs Employee | NP Employment Contracting

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.

Nurse Practitioner Independent Contractor

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.

Independent Employment for Nurse Practitioners

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.

Independent Contractor Agreement Taxes

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.

Consultation with Chelle Law

When your contract is reviewed by an experienced attorney, you will find great financial benefits which end up outweighing the cost of the review. If you are in need of assistance with an employment agreement or contract review schedule a Nurse Practitioner Contract Review with Chelle Law today!