Independent contracting — is it right for you?
There are a few key factors to consider when thinking about
independent contracting. Are you looking
into independent contracting out of an interest in an entrepreneurial approach
to providing PA services? Or has an employer proposed this status to you when
you were seeking an employee role?
For business-minded PAs, becoming an independent contractor can offer increased
freedom of choice as to where, when and how you work, more income growth
opportunities, and greater latitude in deducting certain expenses and funding
large retirement benefits. On the downside, you could see an increase in your
work hours and a decrease in benefits and vacation time, and you will be paying
self-employment taxes, professional liability premiums, and equipment costs, as well as all the “fringe benefits” accorded employees,
such as health insurance. There is also the obligation of spending time on
administrative tasks like billing and negotiating with regulatory agencies,
insurance carriers and physicians, all while making sure to meet all the legal
requirements of billing.
For employers, there can be financial advantages to having independent
contractor partnerships through savings on payroll taxes and benefits that
would be paid to you as an employee. Tread cautiously if you are seeking a position
as an employee and are offered an independent contractor role instead. Retirement
and health benefits are provided only to employees.
Opinions vary about whether PAs qualify to be independent
contractors. As every case is different, each PA has to determine whether he or
she meets the relevant state and federal rules before working as an independent
contractor. Consulting a tax attorney
and an accountant is also recommended to help you understand Internal Revenue
Service guidelines, state regulations and third-party payment policies.
Be aware that this is a hot IRS issue: The employment tax
status of workers has become the most frequently litigated tax issue today. The
IRS has estimated that it loses $2 billion annually from worker misclassification.
The Balanced Budget Act of 1997 (effective January 1998),
specifically allows PAs to work as independent contractors under the Medicare
program in accordance with the law of the state in which the services are
performed, with payments continuing to go to your employer. It is good practice
to make sure your Medicare carrier will reimburse for medical services you
provide before you become a 1099 contractor.
Other Consideration for PAs
While checking for the availability of physician-PA team
opportunities in your area before deciding to be an independent contractor,
make sure to look at the make-up of current employees in the practice you are
considering. For example, federally certified rural health clinics must have a
PA or nurse practitioner W-2 employee staffing the clinic 50 percent of the
time it is open before hiring additional self-employed PAs.
Be sure to review with your attorney all relevant state and
federal laws and regulations that may also exist that would prohibit your
practice as an independent contractor. In Wisconsin, for example, PA practice regulations state
that “no physician’s [sic] assistant may be self-employed.”
The IRS Common Law Rules
The IRS relies on 20 factors to determine whether an
individual is an employee or an independent contractor (IRS Revenue Ruling 87-41 [PDF]). To qualify as an independent contractor, an
individual has to meet a “preponderance” of the 20 guidelines, not all of them.
Tests for determining whether a worker is an employee or an
independent contractor are based on “common law” rules that rely on custom and
usage rather than on written codes. Unfortunately, the absence of objective guidelines
often results in employment tax controversy between workers and tax
authorities. The key factor is the degree of control, or right to control, that
a business has over a worker.
Helpful Tips for Self-employment
- Establish yourself as a separate employer
(e.g., business cards, advertisements, letters of incorporation or the filing
of a Schedule C tax form).
- Have multiple sources of income.
- Offer special skills that the hiring
company does not possess.
- Provide your own equipment, supplies
and base of operation.
- Provide your own professional liability
- Make sure you receive IRS 1099 forms
for all income and that you are reporting such income on your tax return.
- Avoid frequent changes from independent
contractor to employee status.
- NOLO Law for All - Self-Employed Consultants & Contractors, an independent do-it-yourself
legal website, has a wealth of information for anyone who is self-employed.