You have decided to start your own private practice and it is going well. Now you considering outsourcing some tasks (delegation is key to a successful business!) or hiring clinicians and expanding to a group practice. One important consideration before taking this next step is how to classify who you hire. There are two main classifications, the 1099 Contractor and the W-2 employee. 

Understanding the key differences between these two types is essential. Misclassification can result in serious consequences. It can also result in your business not running as efficiently as it could. 

1099 Contractor 

• Contractor is liable for their own taxes
• Payer has the right to control or direct only the result of the work and not what will be done or how it will be done
• Typically do not receive benefits
• Sign a service agreement
• Use their own equipment
• Have the option to complete trainings and attend meetings
• Have flexibility to set own hours and schedule
• Complete specialized work
• Submit an invoice

W2 Employee

• Employer is responsible for deducting taxes from pay
• Business has the right to direct and control the work performed by the worker
• Employer can provide benefits
• Sign an offer letter
• Use equipment provided by employer
• Are required to complete trainings and attend meetings
• Have hours determined by employer
• Are expected to do work that is essential to the business
• Receive a paycheck

Consequences of misclassifying a worker:

• Taxes
  • The employer is responsible to withhold income, social security, and medicare taxes from the W-2 employee’s pay but not the 1099 contractor’s pay. 
• Requirements
  • The employer may also be responsible for a variety of other requirements depending on state and federal law, like overtime, family leave, and sick leave.
• Treating a contractor as an employee
  • If the employer dictates work hours, what tools the contractor should use, and how the work should be done but classifies the worker as a contractor, there could be consequences! Examples include:
    • Misclassification, whether intentional or unintentional, can lead to serious legal and financial consequences.
    • It can lead to reimbursement of unpaid wages, paying arrear workers’ compensation, retirement benefits, and other employee benefits.
    • It can include payment of back taxes, Medicare and Social Security benefits, and other penalties for state and federal taxes.
    • In serious cases, it can lead to a federal lawsuit.

Deciding How To Classify Who You Hire

Hiring a contractor or employee depends on the nature of the work, the amount of control over the worker, and the level of commitment expected. Employees are generally hired for long-term ongoing work requiring consistent direction whereas contractors are more appropriate for work that is project-baed, temporary, or specialized. If you are struggling to make this decision, you can seek out an employment attorney, accountant, or human resource consultant. You can also review the IRS guidelines.

Consider Us

The consultants at Compassionate Consulting Company are licensed independent clinical social workers located in Massachusetts who have been running successful counseling practices for years. Here are testimonials from clients that have worked with us. We enjoy working with entrepreneurs that are starting their business, expanding and hiring team members, as well as those who are considering diversifying and adding different income streams. Schedule a free consult so we can learn more about your business goals and share how we can help.