As a dental practice owner, you may have a choice between filling your staff with employees or independent contractors. However, before you make a hiring decision, you should understand the differences between employees and independent contractors and the legal and financial implications of those differences.
Understanding the Difference
A dental practice can hire both employees and independent contractors. For example, a practice may hire hygienists and administrative staff to work as employees and contract with other dentists to provide care and treatment to patients. Employees and independent contractors differ in various ways, such as:
- Control Over Work – An employer has the right to control how an employee completes their work, whereas an independent contractor can determine how to complete the work they have agreed to provide to the employer.
- Scheduling – An employer can determine when an employee must report to work and how long they must work, while independent contractors get to set their own schedules.
- Payment Structure – Independent contractors work and receive payment on a per-contract basis, although a contract may call for a contractor to receive an hourly fee or weekly or monthly payments. Conversely, employees receive hourly wages or a salary via regular paychecks.
Legal and Tax Implications
Classifying workers as employees or independent contractors can involve various legal and tax implications. For example, employees have legal protections under workplace discrimination, wage and hour, workers’ compensation, and family/medical leave laws, whereas independent contractors have no such protection. Furthermore, employers must pay payroll taxes for employees and withhold an employee’s income, FICA, and FUTA taxes and remit those taxes to the government. However, employers do not have to pay payroll taxes for independent contractors or withhold taxes from an independent contractor’s pay. Instead, the contractor bears responsibility for paying applicable income and self-employment taxes.
Each state and federal government agency uses a different test to determine whether a worker qualifies as an independent contractor or employee. Each test has a presumption in favor of classifying a worker as an employee. For example, the U.S. Department of Labor uses an “economic realities” test that examines a worker’s economic dependence on an employer. Conversely, the IRS’s test examines multiple factors of the worker’s and employer’s relationship, including the employer’s right to control the worker’s work, whether the employer controls the financial aspects of the worker’s work, and whether the employer provides employment-like benefits.
Misclassifying a worker as an independent contractor can have significant financial and legal consequences for a dental practice, including potential audits, imposition of back taxes, fines, or liability for a civil judgment for violations of a worker’s employment law rights.
Pros and Cons for Dental Practices
Hiring each type of worker can have pros and cons for dental practices. For example, some of the pros of having employees include maintaining control over work quality, building workplace cohesion, and ensuring long-term stability in the practice’s workforce. However, downsides of hiring employees include higher costs from paying payroll taxes and providing benefits like health insurance and workers’ compensation.
Pros of hiring independent contractors include lower overhead and greater flexibility in determining the composition of the workforce. However, drawbacks of classifying workers as independent contractors include potential liability for misclassification, inability to ensure availability, and less control over work quality.
Best Practices When Hiring
Best practices that dental practices should follow when hiring and classifying workers include:
- Evaluate the practice’s needs for short- and long-term roles
- Draft clear agreements that reflect the accurate nature of the relationship
- Consult an experienced attorney before determining whether to hire employees or independent contractors or deciding on workers’ classifications
Contact a Dental Attorney Today
Before hiring staff for your dental practice, understanding the differences between employee and independent contractor classifications can help you comply with the law and protect your practice’s financial interests. Contact Mahan Dental Law today for a confidential consultation with a dental attorney to get help determining how you should classify workers in your dental practice.
