Veterinary Independent Contractor vs Employee | Veterinarian Employment
Difference between an Employee vs an Independent Contractor
Veterinary independent contractor vs employee, what is the difference between being an employee versus an independent contractor as a veterinarian? First, if you’re in corporate practice, which is increasingly more and more likely, you are an employee. And as an employee, you’ll receive a W2 and then taxes will be withheld from whatever your compensation is on whatever the scheduled pay period is for your employment. As an independent contractor, you’ll be a 1099, which means no taxes will be withheld from any of the compensation that you receive from the veterinary clinic that you’re working with. And then at the end of the year, you would be responsible for paying the self-employment taxes and whatever else is necessary.
Clinical Practice and Legal Classification Concerns
Let’s talk about the benefits and drawbacks of each. One of the major perks of being an employee is the professional benefits offered. You’re going to get health, vision, dental, life, disability, and retirement. They’re going to pay for your continuing education, licensing, and DEA registration. You’re going to get paid time off most likely. As an employee, you’re not going to have to worry about obtaining any of those types of insurance as well. They’re also likely going to pay for your malpractice insurance, although as a vet, almost everyone uses the AVMA PLIT for malpractice insurance, and it’s extremely affordable for most veterinarians unless you’re doing it like an equine. Those are the benefits of being an employee. Now, as an independent contractor, you won’t get any of those things, so you’re going to be responsible for covering the cost of all of the things I just talked about, and you’re not going to get any paid time off.
You’re going to have to pay for your own malpractice insurance, your own licensing, DEA, and then you’re going to have to obtain health, vision, dental, life, and retirement if you so choose which for many people is just something they’re not interested in doing. Now, if you are a 1099 independent contractor, then what you should do is create an LLC, get a tax EIN from the IRS, create a bank account, and run all your compensation expenses through that account. And then you’ll be able to deduct all those expenses as tax write-offs. I would suggest if you are going to work as an independent contractor, and most of the time, this is for people who are maybe working part-time for a clinic, they’re not going to be working on a full-time basis. Other topics of interest include:
Maybe if they’re in emergency medicine, they’re just filling in occasionally. In that scenario, it would make sense to be an independent contractor. Whereas if you’re working full-time, nine to five, five days a week for a clinic, then you really should be classified as an employee. As I was saying before, if you are going to work as an independent contractor, I would suggest reaching out to an accountant and then having them assist you in setting up all the things I just spoke about. And then they’ll be able to give you the best advice on how to maximize your tax deductions. Now, a couple of areas of concern: some small employers like a vet-owned clinic will misclassify what should be employees as independent contractors, just so they don’t have to pay employment tax.
Normally, it’s somewhere between 10 to 12%. An employer must pay employment tax on their employees. And so, some people try to get out of having to pay that by classifying them as independent contractors. The IRS lists a 20-factor test that determines whether someone is an actual employee versus an independent contractor. I would suggest if you were concerned that you’re being misclassified, I would look at that list. And then if you do think you’re being misclassified, I would discuss that with your employer to make sure you’re being properly identified. Is one better than the other? It just simply depends upon the situation that the vet is in. Many times, vets have no interest in obtaining all the insurance, health, vision, and dental, as I stated before.
And the employment route makes absolute sense for them. Whereas others, maybe they’re a little more entrepreneurial and they’re going to work for three different clinics or mobile or whatever. And in that scenario, it makes sense to work as an independent contractor.
Veterinary Non-Employee Tax Deductions
What are the tax deductions a veterinary associate can make if they are classified as an independent contractor? First, if you are an employee of a veterinary practice, you’ll receive W2 at the end of the year, and taxes will be withheld from your regularly scheduled paychecks. Whereas if you’re an independent contractor, you’ll receive a 1099 at the end of the year, and no taxes will be withheld from your compensation, you will be responsible for paying for all those taxes. What are the benefits of being an independent contractor? Well, it makes the most sense to be an independent contractor when you’re working part-time for an employer. For instance, maybe you’re in emergency veterinary care and you’re only going to work maybe one or two weekends a month.
In that situation, it doesn’t really make sense to be an employee. It makes more sense to be an independent contractor. As an employee, you will get all the ancillary benefits. The veterinary practice should pay for your licensing, DEA registration, continuing education reimbursement, signing bonus, and moving expenses if you’re moving from out of state. And then they’re also going to offer health, vision, dental, disability, and life retirement. The employer will cover all those things. When you are an independent contractor, you will get none of those things covered. You are responsible to pay for all of that yourself. Now, does that mean you are at a disadvantage compensation-wise? Well, no, if you do the, I guess, correct things, and the correct things would be if you’re going to work as an independent contractor, you need to create an LLC.
You need to meet with an accountant to kind of go over the best way to maximize your tax deductions. You need to get an EIN from the IRS, you need to create a bank account, you need to run all the compensation expenses through that bank account so you can track them appropriately. Those are the things you need to do to make sure that you’re setting yourself up to be able to take the tax deductions when you’re ultimately filing taxes at the end of the year. What are those things you can do? Alright, well, all the things I just discussed can be used as tax deductions. So, your license, DEA, CE, any kind of business expenses, your home office, if you’re using that to prepare in some way, although that’d be tough as vet, travel, you could depreciate other assets if you have them for the business, malpractice insurance, licensing board, and defense insurance, all those things can be used as tax deductions when you’re an independent contractor.
Which Practice Areas have 1099 Employment?
Now, a couple of considerations, one, if you’re an independent contractor, the employer is not going to have to pay any employment tax on you. So, they are usually saving around 10 to 12% of your total compensation. They also do not have to spend any amount of money on the benefits, which can be costly at times. If you’re working as an independent contractor for somebody, you should expect to make a little bit more because the employer is saving on all of those things. If you’re making the exact same amount as somebody who’s working as an employee for a practice, you’re missing out. You should have at least some leverage and point out to them all the things that they’re saving on for you to have some kind of increase. Now, how much? It depends.
I mean, probably somewhere between 5% to 15% of a bump over someone else who’s working as an employee would make financial sense for the employer. But whether they’re willing to do that or not, I can’t tell you, but everything is in negotiation. If you’re given an agreement, those are certain things you can push for because the employer is saving when classifying you as an independent contractor. I know I mentioned this, but I’m just going to drive it home. You should absolutely meet with an accountant prior to signing any kind of independent contractor agreement. You need to have the business structures set up properly in advance and know exactly what you can and can’t deduct at the end of the year, which you should run through the bank account. It makes no sense to just sign an agreement and start without having any of those things in place. You could miss out on detecting a lot of valuable business expenses.
Consultation with Chelle Law
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