Immediate implications to your practice:
Private practitioners and owners or principals of clinical practices are not the only social workers that are independent contractors
If you bring on an associate into your practice you must choose whether the associates will be an employee or an independent contractor. This is a critical decision with serious implications whichever choices you make. If you choose to hire someone as an independent contractor, your administrative costs are reduced. Whatever you pay them as a fee, plus your administrative costs (such as extra office space, clerical, billing etc.) is basically it. If, however, you hire an associate for your practice as an employee you are responsible for paying approximately 50% of this person’s Social Security contribution and withholding taxes, etc. And there are the extra costs of keeping track of your employee’s client hours and handling billing issues.
All things being equal, clearly it makes financial sense to hire independent contractors rather than employees. But, if only it were that simple. The problem is that IRS regulations are very explicit and it is important to be careful not to violate these regulations. According to the IRS:
"If an employer-employee relationship exists (no matter what the relationship is called), you [the employee] are not an independent contractor. You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action.
This can be confusing, but generally, independent contractors must be able to work unsupervised and control their own schedules.
So, if you have contracted with an associate to work in your private practice, and if you think your associate needs your supervision, or you want to be able to have compulsory staff meetings or schedule cases in your associate’s calendar, this associate would be considered an employee by the IRS. Penalties for failure to meet IRS criteria can be severe. So if there is doubt you might be better off bringing an associate on as an employee. Consultation with an accountant and/or attorney experienced in employment law and specializing in professional businesses is highly advisable.
Ethical Implications:
In addition to the potential dangers for miscalculating whether your associate is a true independent contractor there are other interesting implications. One is the very real potential of taking unfair advantage of your associate, even unintentionally. If, for example, a social worker is incorrectly classified by the practice (or agency) as an independent contractor while in fact he or she is really an employee by IRS definition, it means that benefits that are due this employee are denied to him or her. If this social worker does a fair amount of volume with you, the benefit to you could be substantial. In fact, one chapter of NASW has been asked to look into this systematic miscalculation among some agencies and clinics.
Collective Bargaining Implications:
But the IRS distinctions are important in other ways. Remember we are independent businesspeople and as such are not allowed to collectively bargain. But are we truly independent?
If the definition of an independent contractor is to be in control of your own schedule and be unsupervised, are we truly independent contractors of Managed Care Organizations (MCOs) by the IRS definition? When MCOs say treatment we deem appropriate is not "medically necessary" is that not being supervised? When they dictate how many sessions we are to get even if it’s less than the contracted amount, are we independent? Additionally NCQA (National Commission on Quality Assurance) dictates availability criteria we must meet. Are we still independent? Some MCOs have even suggested that we set aside a certain number of hours so they can put patients into our schedules. So who is in control?
The more I look at it the more I seem like an employee. Now if in fact we are defacto employees, should we not have the right to bargain collectively?
According to the IRS, you are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed. If an employer-employee relationship exists (no matter what the relationship is called), you are not an independent contractor.
Treating employees as nonemployees:
You will be liable for social security and Medicare taxes and withheld income tax if you do not deduct and withhold them because you treat an employee as a non employee.
* The Campbell Bill is a bill sponsored by U.S. Representative Tom Campbell (R-CA). This bill would give doctors (and other health care providers including social workers) more contractual bargaining power to negotiate with health plans. Currently independent practitioners may not collectively bargain as it is considered restraint of trade and against current anti-trust laws.
Comments are welcome and can be sent directly to the author, John Riolo, at johnr@psychjourney.com