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 from it. If you’re an independent contractor, you will not receive a W2, you’ll receive a 1099 at the end of the year, and that’s just a summary of the compensation received from that business, and no taxes are withheld as an independent contractor. Let’s just take the relationship between the two and let’s start with when you’re an employee. When you’re an employee, you’re going to receive all the benefits of normal employment.
They’re going to pay for your malpractice insurance, they’re going to pay for your health, vision, dental, life, disability, retirement, any 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. 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. It’s possible they’ll 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’re going to have to worry about as well. And then all of the other things, you’re going to have to pay for yourself. You’re going to have to find your own health insurance, dental insurance, vision insurance.
You get disability, life, you set up your own retirement, whatever you decide which way to go. All of that falls upon the physician if you’re a 1099 independent contractor. Now, for some, ultimately you come out ahead compensation-wise. As a 1099, you can deduct all of those things that I just talked about. There are some tax advantages to being an independent contractor. I’m not a tax attorney, I’m not going to get into the specifics of that, but what I would suggest is reaching out to an accountant that has experience with that and can kind of walk you through what is the most advantageous compensation/tax situation for you. It’s going to be very specific to the job. If someone asks me or potentially, they had the option of either being an employee or an independent contractor, there are several factors that have to 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 have a discussion of, alright, well, I do have two options and I also have two contracts. Which way do you think I should go? Most physician-owned businesses just simply don’t give the option to the physician. It’s either one or another. Now, maybe you have two separate jobs, and one is an independent contractor, and one is an employee, and then you’ll have to make the determination of what situation is best for you. But it really depends upon the physician. I find some physicians who work as independent contractors do a couple of things wrong.
One, they don’t know where to go to get all of the things that a normal employer would provide them. So, all of those insurances and retirement and that type of thing, and they’re just not the type of person that is good at handling that side of their life. And then two, with no taxes being withheld from your compensation, I find many of them spend what they get, and then either they’re not giving their quarterly payments to the government, or at the very end of the year, they have an enormous tax bill that they were maybe shocked that they have to pay out. So, if you are going to be an independent contractor, you really need to be on top of, alright, I need to withhold or set aside this amount from each paycheck that I’m getting from the business, in that way, at the end of the year, you’re not completely screwed as far as getting together all the money that needs to be paid for your taxes.
It’s probably safer and more secure to be an employee versus an independent contractor. Usually, the notice requirement to terminate the agreement is shorter as an independent contractor, meaning, either party can get out of the agreement without much notice to the other. Now, as a physician, continuity of care always has to be taken into account. If you’re an independent contractor, unless you are in specialty where it’s just like shift work or maybe if you’re anesthesia and you just pop in, you do the case and you leave. But if you are a physician that has a patient base and you’re providing care to them, if you just tell your employer, hey, I’m not coming in tomorrow, there will be some continuity of care issues that could lead to some board complaints or other problems down the road. So, that needs to be considered as well. What is the notice requirement to terminate the contract? It’s usually 60 to 90 days if you’re an employee, whereas if you’re an independent contractor, you don’t see much notice periods less than 30, but 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 versus being an employee as a physician. As I said before, you really need to kind of look at the situation and then determine compensation-wise doesn’t make the most sense considering the tax deductions and that type of thing.
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