What is a 1099 physician? I think a common misconception amongst some new physicians just out of training is the difference between being an employee versus 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, which just provides all of the salary, compensation you received, and all the taxes that were taken out of it. As a W2 employee, you’ll just get a regular pay period check in addition to whatever the bonus compensation you’ve worked out with the employer. As far as a 1099, an independent contractor is a 1099.
And a 1099 is simply a form that goes out at the end of the year that states how much you received from the business that you were contracted with. No taxes are taken out for any 1099 individual. One issue that comes up is if a physician has never been an independent contractor before, it’s very 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, and I had to do this myself as a small business owner, is you need to make certain that you set aside money to pay for your taxes, 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 a 1099? First, as a 1099, you’re not going to receive any of the benefits that you would receive as an employee. A normal employer is going to 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, also put all of the negatives of an employment contract into the independent contractor agreement.
The whole point of an independent contractor agreement is it’s kind of easy in, easy 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, confidentiality clause. I find that for most employers that utilize 1099 physicians, one of the main reasons is simply to get out of paying employment tax. So, the physician is disadvantaged in that, one, they get none of their benefits paid for, and then two, they’re going to have all the negatives of an employment contract with potentially an onerous non-compete, and even potentially a long notice period required to terminate the agreement as well.
What are the benefits of being a 1099? Well, there are some tax advantages. I’m not a tax attorney, so I’m not going to get into this, but 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, but you’re also not going to have any of the retirement options offered by the employer, and then all of the healthcare insurance-related benefits like health, vision, dental, life, disability. All those things you would normally get from an employer, you’re going to 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 a 1099 are also the benefits of being an employee. As I said before, they’re going to pay for your malpractice insurance, all your dues and fees, offer you all of those things, the health, vision, dental, life, disability, retirement, it’s just kind of a more secure relationship. 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, 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, continuity of care must be considered. You can’t just call your employer up one day and say, hey, I’m not working for you ever again, or I guess, maybe not employer, but if you’re an independent contractor, there must be some continuity of care considered.
Now, 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 kind of just pop in, 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 and that will have to be transitioned to another physician when you leave. That needs to be considered 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 kind of talk this through with an attorney. And I hope this information was helpful.
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