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Classifying Your Health Care Workers: Independent Contractor or Employee

02-18-2022
Nadia Hercules

With talent shortages since COVID-19 began, it’s been challenging for many health care organizations to get staffed and running smoothly. If you’re the owner or administrator of a home care or home health agency or a senior care or skilled nursing facility, you may be spending large chunks of your time hiring and onboarding – on repeat.

If this sounds familiar, you have probably thought about – or even have – employed contractors. With that said, it’s important to keep in mind how to properly classify them to ensure you stay in compliance with FLSA regulations.

Unfortunately, workers are can sometimes be mistakenly classified as independent contractors or 1099 workers instead of employees. These mistakes can be costly because the putative employer is not paying payroll taxes, workers’ compensation premiums, nor unemployment insurance for workers classified as 1099. 

Wage and hour rules (e.g., overtime pay), employment laws (family and medical leave), and benefit requirements (e.g., offer of insurance coverage) are also disregarded – incorrectly – when companies misclassify workers as independent contractors.

So, how can you differentiate between the two?

According to IRS rules, “anyone who performs services for you is generally your employee if you have the right to control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.”

Meanwhile, someone is an independent contractor if you “have the right to control or direct only the result of the work and not the means and methods of accomplishing the result.”

In other words, it comes down to control. Specifically, you need to pay attention to three factors to make sure you don’t treat an independent contractor like an employee:

    1. Behavioral control: Avoid telling freelancers how to do their jobs. Don’t give them instructions on when to work, supplies to use (or where to purchase those supplies), or how to sequence their tasks. What’s more, despite good intentions to provide training, you should let freelancers manage their own professional development.
    2. Financial control: Likewise, you shouldn’t try to influence how independent contractors conduct the business aspects of their work. For instance, those noncompete clauses you may use with employees? Steer clear of them with independent contractors.
    3. Type of relationship: You want to establish clear contrasts between the benefits you offer your employees vs. independent contractors. The IRS is more likely to charge you with misclassification if you offer vacation pay, health insurance, or sick pay to both groups. Likewise, someone may be considered an employee unless your contract stipulates that the relationship is for a specific project or time period.

To help you avoid misclassifying workers, below is a list of questions adapted from the IRS. Although they are no longer used by the agency as official measures of worker status, they can nonetheless help you make informed determinations:

      • Is the worker required to follow specific instructions as to the means and manner of performing the work?
      • Is there a set number of hours and days that the person must work each week?
      • Does the employer supply the office, equipment, and tools needed to accomplish the work?
      • Must the work be performed on the employer’s premises? (Typically, a “yes” answer would indicate the person is an employee; however, there are instances where an independent contractor would be required to perform on the premises. You would need to consider your answer to this question in relation to everything else.)
      • Is the worker trained by the employer to perform the assignments?
      • Is the assigned work a part of the regular business of the employer?
      • How long does the relationship continue? (In general, the longer the relationship continues, the more the worker looks like an employee.)
      • Is the person paid in the same manner as employees, e.g., biweekly? (Again, typically a “yes” indicates the person is an employee, but there may be instances where the independent contractor is paid in the same or similar manner. Again, you will need to consider this factor in relation to all other factors.)
      • Is the worker prohibited or limited from hiring assistants?
      • Does the worker provide services only to your business?
      • Is there a written contract between the parties delineating their rights and responsibilities?
      • Can either the worker or the employer terminate the relationship at will?
      • Are you making any investment in the worker’s facilities or equipment?

The more “yes” answers, the more likely that the government would consider the worker an employee, in which case you should rethink how you hire and pay people. Independent contractors can still be a valuable part of your staffing plan. Just make sure that they aren’t really employees in disguise and consult with your legal counsel to be certain; some states also have their own guidelines for establishing 1099 vs. employee status, so be sure to be familiar with the rule in the states you operate in.

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