In many physician practices, it has been common practice to contract an outside healthcare professional to provide services at a per-procedure rate. Did you know that those healthcare professionals may now be considered employees?
On January 10, 2024, the U.S. Department of Labor published a final rule, effective March 11, 2024, revising the Department’s guidance on analyzing who is an employee or independent contractor under the Fair Labor Standards Act (FLSA). In the past, the IRS used a “20-factor test” to determine whether an individual was an employee or an independent contractor. Today, the IRS instructs businesses to consider three categories of “facts that provide evidence of the degree of control and independence” in the relationship. These three categories are:
- Behavioral: Does the practice control or have the right to control what the healthcare worker does and how the healthcare worker does their job? Does the practice dictate their work schedule? Where are the services performed? Is the healthcare worker required to attend meetings? Can the healthcare worker hire substitutes or an assistant?
- Financial: Are the business aspects of the healthcare worker’s job controlled by the practice? (These include how the worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.) Whom does the patient pay? Does the practice carry workers’ compensation insurance for the worker? Can the healthcare worker suffer a financial loss by performing services? Who sets the rate of pay for the services performed?
- Type of Relationship: Are there written contracts or employee-type benefits (e.g., pension plan, insurance, vacation pay, etc.)? Will the relationship continue, and is the work performed a key aspect of the practice? Is the individual working for more than one practice at a time, and does the individual make services available to the public? Is there an arrangement prohibiting competition between the practice and the individual?
Takeaways
If it is still unclear whether the healthcare professional is an employee or an independent contractor, then Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, can be filed with the IRS. The IRS will review the facts and circumstances and officially determine the worker’s status.
Misclassification of an individual can result in fines, penalties, and payment of back taxes, as well as owed minimum wage or overtime payments for individuals determined to be employees. You can find additional information about the Fair Labor Standards Act: Impact of Overtime Rule Changes for Healthcare Employees.
Author: Ana Costa | [email protected]
Contact Us
For more information on this topic, please contact a member of Withum’s Healthcare Services Team.
