Independent contractors, also known as 1099 contractors, are an attractive option for practice owners looking to simplify and save money.
Independent contractors eliminate the cost and complications of employment taxes, workers compensation, unemployment insurance, and benefits packages. You’ll pay a higher hourly rate, but in return you’ll enjoy flexibility and financial benefits that enable you to grow your practice.
Adding 1099 contractors to your solo practice
We’ve said it before at Heard and we’ll say it again: The hardest thing about managing your own private practice is that it’s all up to you. You’re fully responsible for every task in your business, including both your caseload and back-office duties. This can be really overwhelming and even lead to clinician burnout.
1099 contractors relieve the burden of doing it all yourself without the complexity and overhead of full-time employees. Instead of adding “manager” to the many hats you wear, you can offload time-consuming tasks to a professional with the expertise to do it right. All you have to worry about is on-time invoicing and a few simple tax forms.
You don’t need an official business entity to hire independent contractors as a solo practice owner. However, you will need an EIN to issue 1099 forms to contractors. Make sure you understand the difference between Forms 1099-MISC and 1099-NEC. As of 2020, Form 1099-NEC is the standard for reporting non-employee compensation.
Adding 1099 contractors to your group practice
In a group practice, 1099 contractors are more likely to be the clinicians themselves. Group practices like hiring clinicians as contractors because it allows for a hands-off approach. Clinicians can schedule their own sessions and build their own caseload while the practice provides office space, supplies, and publicity in exchange for rent.
Before adding clinicians to a group practice, consider how you’ll protect yourself in the event of a lawsuit. Liability insurance doesn’t always go far enough. As a result, most group practices choose to incorporate their business.
The LLC or PLLC is the most popular business entity for clinicians because it combines personal liability protection with flexible governance and pass-through taxation. Unfortunately, licensed professionals aren’t permitted to establish an LLC in California. Instead, group practices in California must establish a professional corporation (PC) to benefit from liability protection.
Note: Recent changes in California law also put in place restrictions around what constitutes an independent contractor in the state of CA. We recommend working directly with an attorney in regards to your business model. Learn more here!
Rules governing independent contractors
The most important consideration when working with independent contractors is ensuring they’re classified correctly.
If you control:
- When, where, or how work is done
- What tools and equipment are used
- The method of payment
- Opportunity for profit or loss
- A worker’s ability to pursue competing opportunities
Then your worker is most likely an employee, not an independent contractor under IRS rules. Some states have additional rules governing independent contractor classification. Employee misclassification subjects practices to back taxes and penalties. If you’re not sure how to correctly classify a worker, talk to your accountant.
The risk of misclassification isn’t the only drawback of using independent contractors. Decide if adhering to these rules aligns with your practice’s goals or if you'd prefer greater control over the way things are done in your practice.
There’s a lot to love about using 1099 contractors in your practice. Independent contractors expand your capacity for growth while maintaining the flexibility a growing group or solo practice needs.
However, employing contractors in your business isn’t all upsides. Understand what it means to work with independent contractors and the dangers of misclassifying your workers. With a careful approach, you can maximize the benefits of 1099 contractors in your practice without the risk.
You have enough on your plate without taxes stressing you out. Let Heard lighten the load with tailored tax advice and full-service bookkeeping designed for your therapy practice.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post.
Vanessa Holwell and her husband, Rick, created HiringSquad.net after losing their jobs during the financial crisis in 2008. The site is designed to be a forum for people to share advice on how to get hired, provide job search resources, and give you the tools you need to get the job you want.