Employee or independent contractor?
by Steven Conway, DC, DACBOH, Esq.

I am a new chiropractor. I was offered an independent contractor position in a large chiropractic office. I am wondering what I should be aware of before I sign a contract.

I recommend hiring a local attorney to review the contract with you. Each contract has different terms beyond the single issue that you presented in your question. An experienced attorney will be able to review the contract with you to prevent future upsets or misunderstandings.

However, your question emphasizes a specific concept of employment status — the independent contractor. This is an important area to address.

In the past, it was common for new chiropractors to be offered an associate contract in which they agreed to become employees of a chiropractic clinic.

A newer trend by employers is to classify the new doctor as an independent contractor rather than an employee of the clinic. The benefit to the employer is a decrease in employee-related taxes and benefits, especially the matching FICA.

The problem that may occur is that although the employee is classified as an independent contractor, the requirements set out in the contract or day to day activities do not fulfill the requirements of an independent contractor as outlined by the IRS. In other words, although the doctor is classified as an independent contractor, he or she is really an employee of the clinic.

The significance of the classification lies in the responsibility for payment of FICA as well as withholding or estimated tax preparation. If done incorrectly and payments are not made in a timely manner, penalties can accrue for either party, depending on the final classification determination.

The IRS has set out guidelines that you can review to determine if the position offered to you is, in fact, correctly defined as an independent contractor. Publication 15-A provides what the IRS calls common- law rules in determining whether an individual is an employee or independent contractor.

Control and independence are the buzzwords in this review. They are classified into three main categories: behavioral control, financial control, and the type of relationship of the parties.

1. Behavioral control. Facts that show whether the business has a right to direct and control how the worker does the task for which the worker is hired include the type and degree of:

• Instruction the employer gives the individual. This includes when and where to work, what tools to use, what order or sequence to follow when performing the work — among others. The main question is: “Does the employer have the right to control how the work results are achieved?”

• Training provided by the employer to the individual. Employees may or may not need training depending on previous employment; however, independent contractors generally use their own methods to complete the job and do not rely on employer training.

2. Financial control. The IRS identifies specific financial factors, including:

• The extent to which the individual makes services available to the marketplace. Is the individual generally free to seek out new business opportunities?

• The method the employer uses to pay the individual.

• The profit (or loss) the individual can realize from the arrangement. An independent contractor risks taking a loss from an arrangement, whereas an employee doesn’t have the same exposure.

• Other factors. These include unreimbursed business expenses, the extent of the individual’s investment, plus others.

3. Type of relationship. Facts that show the type of relationship enjoyed by the parties include:

• A written contract. This outlines the specific relationship the parties intend to create.

• Benefits. Employee-type benefits included in the arrangement such as vacation pay or insurance plans are typical of an employment relationship.

• The permanency of the relationship. The duration of work for an independent contractor is defined, whereas the duration of employment for an employee is indefinite.

• The extent to which key business services are performed by the individual. If the individual performs key services provided, the employer is more likely to exhibit greater control over the individual’s activities.

A quick review with an experienced attorney by both the employer and new chiropractor to determine if the proposed arrangement is properly classified will prevent future upsets and reduce the potential of costly penalties imposed by the IRS.

Steven Conway DC, DACBOH, Esq., is a partner in True North Chiropractic Consultants LLC, which provides guidance and ethical solutions to the barriers found in chiropractic practices. www.truenorthchiropracticconsultants.com. He can be contacted through his Web site or by e-mail at chirolaw@aol.com.

DISCLAIMER: This column is provided for educational purposes only. The accuracy or timeliness of the information presented is not warranted. The information is not presented as legal advice and no attorney-client relationship is established.