Can a Physician Be an Independent Contractor?

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. 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’s 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 Agreement for Doctors

The main differences are one, in an employment agreement. The physician receives payment via W-2. Then, the employer will pay for most of the things necessary to be a doctor: 

• Licensing
• DEA registration
• Credentialing
• Privileging
• Practice insurance
• Any expenses associated with being a doctor. 

You’re not receiving payment as a W-2 employee in an independent contractor agreement. Your payment is via 1099. That means the doctor must take out the taxes when they file their returns. Then, mostly, the entity contracting with the independent contractor won’t pay the dues, fees, and 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, employers won’t provide health vision, dental, life, disability, retirement, and all that stuff 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 have more independent contractor agreements than any other specialties. Suppose a physician is self-employed. Then, they’re essentially taxed as an independent contractor, although they would not receive 1099.

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. I went through all the things before licensing CME, malpractice, insurance, tail insurance, and all that kind of stuff as well. I mean, if I had to weigh one versus the other. Suppose the physician does have the choice between the two. Then, it would depend upon the compensation structure whether it would be worth accepting an independent contractor agreement.

Physician Employee or Independent Contractor?

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. That’s because all the things the independent contractor has to pay for, which the employer provides, add up over time. Then another thing to think about is some individual physicians can’t get some of the things that a larger employer can. It isn’t easy to get individual health insurance because 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

• What to Know Before Signing Your First Physician Contract | Contracts
• Is a Physician an Independent Contractor? | Medical Doctor

What Are Different Types of Physician Contracts?

What are the different types of contracts physicians can sign? There are two: You have an independent contractor agreement. Then, you have the employment agreement. So, what are the differences between the two? An employment agreement means an employer and the physician an employee. They are a W-2 employee, meaning tax deduction is out of whatever compensation they have. And then, the employment agreement will go through the general terms of the relationship:

• How long does the contract last?
• How is it terminated?
• The process of compensation
• The liability insurance
• Restrictive covenants
• Non-compete
• Non-solicit

That type of thing. In an independent contractor agreement, you are not a W-2 employee. You’re a 1099 employee. That means no tax deduction of whatever the physician received via compensation.

Physicians Being an Independent Contractor

The physician will be responsible for paying their taxes quarterly at the end of the year. Another big difference is for most independent contractor agreements. The physician will be responsible for all of the ancillary costs associated with the practice: 

• Medical license
• DEA, registration
• Professional associations
• Privileging and credentialing
• Malpractice insurance
• Whether they have to pay tail insurance

Those things are generally the cost of the independent contractor, not the person they’re working for. Sometimes, the employer utilizing the independent contractor will pay for certain things. Still, I guess another key point is that an independent contractor will also rarely get benefits. Health, vision, dental, disability, life insurance, and retirement are unavailable. So,  why would someone, if given a chance, choose to be an independent contractor? 

Employment Agreement From the Practice

The entire point of an independent contractor agreement is that it’s easy to get into and out of. And theoretically, the independent contractor should be able to make their schedule work when they want that type of thing. However, that doesn’t honestly happen very often. An independent contractor, if they’re smart, they’ll create an LLC. Then they’ll have some money paid and set up a bank account. They can expense all of those things I talked about previously. I find that most employers who, I don’t know, if force is the right word. They only offer the independent contractor agreement option. Maybe they’re not solely doing that, but they’re doing it often to avoid paying employment tax to the physician. 

Honestly, an independent contractor agreement for a physician does not have many benefits. A long notice is a requirement to terminate the agreement if it still includes restrictive covenants.

Physician Employment Contract Depending on Specialties

As I said, they do not get paid benefits or other licensing. Let us take anesthesiologists and dermatologists. Those are specialties that frequently use an independent contractor. Some radiologists as well, but primary care, peds, cardiology, that type of thing, are almost always going to be employees. And then, if you are working for a hospital or healthcare network, 100% of the time, you’ll be an employee rather than an independent contractor. Maybe you’re working at a hospital, but you’re working for a group contracted with the hospital to provide services. I guess that’s possible where you’d be an independent contractor, but it doesn’t happen often. So, the two types of physician contracts are independent contractor agreements and physician contracts of employment.

What Is a 1099 Physician?

What is a 1099 physician? A common misconception amongst some new physicians just out of training is the difference between being an employee and an independent contractor. And then also, what is a W2 versus a 1099 employee? Let’s kind of work through those things. First, an employee is considered a W2 compensated professional. At the end of the year, you’ll get a W2. That provides all the salaries and compensation you receive and covers all the taxes. As a W2 employee, you’ll get a regular pay period check in addition to whatever bonus compensation you’ve worked out with the employer. As far as 1099, an independent contractor is 1099.

And 1099 is simply a form that goes out at the end of the year. States how much you received from the business you have a contract with. No tax is taken for any 1099 individual. One issue that comes up is if a physician has never been an independent contractor before, it’s easy to spend the money that you receive. And then, at the end of the year, they have to write a huge check which can be shocking to some. One piece of advice: I had to do this myself as a small business owner. It would help if you made sure that you set aside money to pay your taxes. That is either quarterly or at the end of the year, depending upon how you want to do it.

What Are the Advantages of Being a W2 Versus 1099?

What are the advantages of being a W2 versus 1099? First, as 1099, you’re not going to receive any of the benefits you would receive as an employee. A typical employer will pay for your malpractice insurance, licensing, DEA, credentialing, privileging, and CME. They’ll probably give relocation assistance or a signing bonus. All of the things, all of the expenses that go into being a physician, you will not receive as a 1099 independent contractor. Many employers or businesses that work with physicians that are 1099 put most negatives of an employment contract into the independent contractor agreement.

The whole point of an independent contractor agreement is it’s easy in and out. You don’t have to provide that much notice to leave. And then, hopefully, wouldn’t be all of the negative things associated with the contract after it terminates, so the restrictive covenants like a non-solicitation agreement, a non-compete, and confidentiality clause. I find that for most employers that utilize 1099 physicians, one of the main reasons is to get out of paying employment tax. So, the disadvantage of which to the physician is:

1. They get none of their benefits paid for
2. Then two, they’re going to have all the negatives of an employment contract with potentially an onerous non-compete
3. And even potentially, a longer notice period is required to terminate the agreement.

Tax Advantages

What are the benefits of being 1099? Well, there are some tax advantages. I’m not a tax attorney, so I will not get into this. Still, there are tax advantages to being a 1099 independent contractor versus an employee. You can deduct most of those expenses that I already went over. Still, you’re also not going to have any of the retirement options offered by the employer and all of the healthcare insurance-related benefits like health, vision, dental, life, and disability. All those things you would typically get from an employer. You’ll have to find yourself, and I can tell you, it’s not easy finding all of those things when you are on your own. So, one of the main benefits of being an employee is that you get all those things offered to you easily, and you don’t have to spend time looking for them on your own.

So, all of the negatives of being 1099 are also the benefits of being an employee. As I said before, they will pay for your malpractice insurance. All your dues and fees offer you all those things, health, vision, dental, life, disability, and retirement. It’s just kind of a more secure relationship. 

The Difference in the Amount of Notice Between a 1099 and W2

Every physician will have what’s called without-cause termination in their contract. And what that means is either party can terminate the agreement at any time, for any reason. That is, with a certain amount of notice to the other party. Normally, it’s between 60 to 90 days for an employee. An independent contractor, theoretically, should be less than that. So, maybe two weeks to 30 days. Now, you must consider continuity of care. You can’t just call your employer one day and say, hey, I’m not working for you ever again, or I guess, maybe not. Still, if you’re an independent contractor, you must consider some continuity of care.

Specialties Utilizing 1099

The two specialties that utilize independent contractor agreements the most are anesthesiologists and dermatologists. Why is that? I can tell you. For anesthesia, it makes sense. You can pop in and do case-to-case. You don’t have to follow up much if you’re not in pain, and it’s simple. As far as dermatology goes, you will have a patient base that will have to be transitioned to another physician when you leave. That needs consideration as well. So, that’s what a 1099 physician is and the advantages and disadvantages of going into that. If you have an independent contractor agreement, I suggest getting it looked at to talk this through with an attorney. And I hope this information was helpful.

Is a Physician an Independent Contractor? | Medical Doctor

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. 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’s lesser detail in an independent contractor agreement for some employment agreements. Let’s briefly go through the two. Then we’ll get back to when a doctor is an independent contractor.

Independent Contractor Agreement for Doctors

The main differences are that in a physician employment agreement, the physician receives payment via W-2. Then, the employer will pay for most of the things necessary to be a doctor: 

• Licensing
• DEA registration
• Credentialing
• Privileging, Practice Insurance
• Expenses associated with being a doctor. 

You’re not receiving payment as a W-2 employee in an independent contractor agreement. You receive payment via 1099. That means the doctor must 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, fees, and 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, and retirement. The employer won’t provide all that stuff 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 have more independent contractor agreements than any other specialties.

Medical Practice Tax Considerations

Some of these practices only utilize independent contractor agreements. That is 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. I went through all the things before licensing CME, malpractice, insurance, tail insurance, and all that kind of stuff as well. 

I mean, if I had to weigh one versus the other, usually, if the physician does have the choice between the two. It would depend upon the compensation structure. That is whether it would be worth it 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 because 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.

Physician Independent Contractor vs Employee

Considerations for a physician as an employee versus an independent contractor. 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 that have been withheld. If you’re an independent contractor, you will not receive a W2, you’ll receive 1099 at the end of the year. That’s just a summary of the compensation received from that business. No taxes are withheld as an independent contractor. Let’s take the relationship between the two and start with when you’re an employee. 

Dues and Fees Coverage Under W2

You will receive all the benefits of normal employment when you’re an employee. They’re going to pay for your malpractice insurance. The employer will pay for your health, vision, dental, life, disability, retirement, privileging, credentialing, and continuing medical education. They’ll probably provide you with moving expenses and another signing bonus. You get a lot of ancillary benefits as an employee. 

Dues and Fees as 1099

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 malpractice 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’ll have to find your 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 physician if you’re a 1099 independent contractor. 

Maximizing the Deduction on Taxes of 1099

Now, for some, ultimately, you come out ahead compensation-wise. As for the 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 that specifics, but I would suggest reaching out to an accountant with experience. I can walk you through the most advantageous compensation/tax situation. It’s going to be very specific to the job. Suppose someone asks me if potentially they had the option of either being an employee or an independent contractor. In that case, several factors must be taken into account.

I find it’s rare for it to be the option of the physician. Normally, 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 do not give the option to the physician. It’s either one or another. 

Common Mistakes of Independent Contractors

Now, maybe you have two separate jobs, one is an independent contractor, and one is an employee. Then you’ll have to determine what situation is best for you. But it depends upon the physician. I find some physicians who work as independent contractors do some things wrong.

One, they do not 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.

Two, with no taxes being withheld from your compensation. I find many of them spend what they get. Then, either they’re not giving their quarterly payments to the government or year-end. They have an enormous tax bill that they were maybe shocked that they have to pay out. So, suppose you are going to be an independent contractor. In that case, you need to be on top of it. I need to withhold or set aside this amount from each paycheck I get from the business. That way, you’re not screwed in getting all the money that needs to be paid for your taxes annually.

It’s probably safer and more secure to be an employee versus an independent contractor. 

Required Notice Period

Usually, the notice required to terminate the agreement is shorter for an independent contractor. That means either party can get out of the agreement without much notice. 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. You pop in, you do the case and leave. But suppose you are a physician with a patient base, and you’re providing care to them if you tell your employer, hey. In that case, I’m not coming in tomorrow. Some continuity of care issues could lead to board complaints or other problems down the road. So, that needs consideration as well. 

What is the notice required to terminate the contract? It’s usually 60 to 90 days if you’re an employee. In contrast, if you’re an independent contractor, you do not 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 being an independent contractor and an employee as a physician. As I said before, you need to look at the situation. Then, determine that compensation-wise doesn’t make the most sense considering the tax deductions and that type of thing.

Can You Break a Physician Contract? | Physician Contracts

So, can you break a physician’s contract? I daily deal with physicians with new employment agreements that need review. Or are on a current agreement that they need to analyze, usually due to wanting to terminate the agreement. Like the base level, one reasonably frequent question is whether you can break a physician’s contract. I think defining break is probably the essential part of that. So, can you break a physician’s contract? If breaking means breaching the contract, not following through on the terms of the contract? Sure, you can.

How to Terminate Physician Employment Agreements

But then you would open yourself up to liability. You could get sued, and litigation could begin. If there’s an arbitration clause, then it could go to arbitration. The employer could come after you for damages, recruitment fees for a new physician in practice, and lost revenue from you. You are leaving extra admin fees if there’s no physician to support. Can you breach a contract? You can, but it’s certainly not a good idea. For this video, If we’re going to say, can I break a physician contract? I think the best way of handling that would be, can I terminate the contract? And indeed, yeah, you can. At least every physician employment contract will have a termination section. And in that section, it will dictate the terms of how the physician can terminate the agreement.

There are usually three ways: First, by mutual agreement. If you and the employer agree, the check gets terminated. And maybe you can work out how long the physician will stay. That does not happen very often, to be honest. The second way to terminate a contract is with-cause. It goes both ways. For the most part, most of these employment contracts are highly slanted towards the employer, as far as what they can fire the physician for. And honestly, most contracts are completely silent on what the physician can do if the employer breaches the contract. Some typically think that the employer can terminate a physician immediately for-cause at their option. So, the physician loses the license, DEA registration, they’re running shareable, they’re on the OIG list, those types of like obvious, right?

Chelle Law

Chelle Law will provide a physician contract review to identify the areas that can improve and assist you in negotiating the best contract possible.  

Considerations to Make When Breaking a Contract

Like you can’t practice as a doctor, so you can’t fulfill the terms of the contract. The employer can fire the physician immediately from practice for that. The most important section is, can a physician break a contract? If we’re assuming break means terminate, there should be a without-cause termination section. That section typically states that the other party can terminate the agreement with a certain amount of notice. I’d say the industry-standard amounts are between 60 to 90 days. So you would give the employer notice as it’s written. And there’s also a notice section that says how you can provide adequate notice. So you’d write them a letter and then go through the notice section properly, usually certified mail, hand delivery, and not very often, email.

If you verbally tell your boss, Hey, I’m leaving. That won’t be adequate notice. So, if it’s 60 or 90 days, you give them 60 days’ notice. Now, there are some considerations. However, if you break the agreement, terminate the agreement. In this case, if you’re a new physician in practice and received a signing bonus or relocation, there’d usually be some forgiveness in the first couple of years. If you leave before the initial term, you must pay back some of the signing bonus and relocation assistance. The second consideration is, will you have to pay for medical tail insurance? Most contracts, at least for the smaller physician-to-own groups, will have some clause. That states that if the physician in practice terminates the agreement without-cause, they’ll be responsible for paying for medical tail insurance.

Details that Physician Needs to Know After Termination

If you don’t know what medical tail insurance is, I have some other videos that you can look at. The last consideration is the restrictive covenants that will apply if you terminate the contract without-cause. Those restrictive covenants are going to apply. Restrictive covenants would be the non-compete notes. It is non-disparagement, like everything you can’t do after the contract ends. Just because you terminate an agreement doesn’t mean you don’t have responsibilities or obligations once the agreement ends.

In summary, yes, a physician can break a contract. Still, I would suggest doing it properly, as it’s written in the termination section. And then once you decide to terminate, you have to think about all the kinds of things that you’ll be responsible for. One more thing that just came to mind, the contract will also state the payment responsibilities after the contract ends.

I just had something like this come up yesterday. They were on a net-collections compensation structure. Meaning paid what was collected, but the contract stated that they would only get paid through the end of the termination date. With a standard 90-day accounts receivable cycle and getting reimbursed for claims, the physician missed out on essentially 90 days of collection. If you think of it this way, they almost worked for free for the last two or three months, which nobody wants to do. Physicians need to be cautious if they’re on a net-collections model. It states there’ll be some collection period after the contract terminates, so they don’t lose out on all that money. I mean, it’s sled towards the employer.

Physician Practice Contract Review

It’s not fair, but many physicians don’t think about that when the contract gets terminated. Hopefully, this is helpful. If you’re a physician and have a question about your current contract or a new employment agreement, I’m happy to look at it. Take care.