Nurse Practitioner Self Employed vs Independent Contractor
What is the difference between being self-employed versus being an independent contractor? In short, there’s not much difference at all, but there are two key distinctions. First, if you’re self-employed, I would think of that as you’re in a state where you are completely autonomous, you are able to set up and work through your own practice. And then obviously in that scenario, you’re going to have an LLC, you’re going to have an EIN with the IRS, you’re going to have a bank account, and then you’re going to run the practice as a business. Expenses, net income revenues, all that kind of stuff. Now, if you’re working as an independent contractor, although technically you’re self-employed, you’re still working for somebody else, but you should set up the business structure in the same way that you would if you had your own practice.
Let’s just say you’re working a few weekends a month on the side for an organization and they’re not treating you as an employee, so they’re not giving you any benefits, no health, vision, dental, disability, life, retirement. They’re not paying for your license or malpractice or any of that stuff. In that scenario, you need to do the same thing as you would if you’re creating your own practice, meaning, you need to create the LLC, get EIN, get a bank account, and then run all the compensation expenses through that so that you can benefit from the tax deductions of working on your own. Obviously, they’re a little bit different in the fact that if you are self-employed with your own business, you could have other employees yourself, or you could then extend offers to other independent contractors.
Whereas if you’re just working part-time, it would make the most sense to be an independent contractor. Now, there may be a scenario where you’re working for an employer and they’re asking you to kind of be classified as an independent contractor, but you’re really an employee. The IRS releases a 20-factor test that you can go through, and it’ll essentially tell you whether you’re acting as an employee or an independent contractor. Some employers will misclassify an independent contractor solely to get out of having to pay employment tax, which is usually around 10 to 12% of the total compensation of the NP. In that scenario, before you sign the employment agreement or the independent contractor agreement, you want to make sure you go through that test, and then you need to run it by that organization if you’re concerned that you’re being misclassified. Other pages of interest include:
- Is a W2 or 1099 Better for a Nurse Practitioner?
- Nurse Practitioner Independent Contractor vs Employee
I’ve even seen clauses and contracts where the business will say, alright, you’re an independent contractor. And if the IRS comes back and determines that you are misclassified, you owe us our attorney’s fees for having to either deal with this or fight it, which is obviously crazy. Never agree to something like that. So, that’s the difference between being self-employed versus being an independent contractor. The kind of legal business structure will be similar, although it’s different in the fact that you either be working for yourself or then working for somebody else.
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