Should My Staff Be Independent Contractors?

Intro: [00:00:02] Broadcasting from the Business RadioX Studios in Atlanta, it’s time for Dental Law Radio. Dental Law Radio is brought to you by Oberman Law Firm, a leading dental-centric law firm serving dental clients on a local, regional, and national basis. Now, here’s your host, Stuart Oberman.

Stuart Oberman: [00:00:27] Welcome everyone to Dental Law Radio. And we’re going to jump on a topic pretty quick today that has been an ongoing issue for years, and this was brought to the forefront even more with COVID-19, independent contractors. So, near and dear to our dentist hearts. So, you know exactly what is it? What’s the issues?

Stuart Oberman: [00:00:53] So, you know, with independent contractors, we get a lot of questions. We’ll get a question, should my employees be independent contractors? Well, you can’t have an employee that’s an independent contractor. They’re either an employee or an independent contractor. Two separate contracts, two separate concepts. So, as a general rule, it is very, very difficult for staff members, if you will, to be independent contractors.

Stuart Oberman: [00:01:21] So, we get this question a lot regarding hygienists, are my hygienists independent contractors? I don’t want to pay them. They have certain work they need to do, certain qualifications. And I will tell you that as a general rule on a national basis, the areas that we have been involved in, commentary, research, consulting with other members throughout the country, that will be a losing argument. Just about every jurisdiction that we have reviewed, discovered, run across, will determine that a hygienist is not an independent contractor. They’re an employee. The key is time, place, and manner. If you control the time, place and manner, as IRS puts it, then you’ve bought that employee, then they are yours.

Stuart Oberman: [00:02:19] So, the question is, you know, working interviews. Well, if you look at the strict interpretation of a working interview, I would tell you, you’ve got to be very, very careful with working interviews. In a technical sense, working interviews are considered temporary employment. Now, there’s certain things that you can do with those to mitigate that risk. But as a general rule, working interviews are considered employees from the time they start that particular working interview. Period. Again, that’s a general rule. If you follow that rule, that’s going to keep you out of trouble.

Stuart Oberman: [00:03:02] But then, the question is, I got doctors that I pay 1099. Problematic. What do we do? Well, I pay them individual. Problematic. That’s a really bad thing to do. If you have a doctor that is working for you – I don’t care if it’s one day a week or five days a week – that doctor, if you’re going to qualify him as an independent contractor, you should not be paying that doctor individually on a 1099.

Stuart Oberman: [00:03:31] A doctor needs to get an entity formed. You need to pay that entity, a couple hundred thousand dollars or whatever it is, and that will look much better if an audit should occur. We’ve been involved in audits and investigators have told us that, literally, if you are paying an LLC, a professional corporation, depending what state you’re in, “We would not be sitting here.” That’s pretty strong. So, I would not hire a contractor dentist unless they have an entity. Pay that entity and let them do whatever they need to do with their taxes.

Stuart Oberman: [00:04:12] So, what brought all this out and why are we talking about this today? So, January 6, 2021, through all the COVID good stuff, the U.S. Department of Labor issued what they call a final rule. Well, the final rules have been ongoing, it seems like, for 20 years. But they have a very consistent theme as to what they’re looking at, what they need to do. And I would tell you that if you have a question whether or not a person is an independent contractor employee, err on the side of caution, make him an employee, talk to your CPA, give us a call. We’ll try to walk you through it.

Stuart Oberman: [00:04:55] So, on January 6, 2021, the Department of Labor, what was the rule? What came out? So, they reaffirmed the Economic Reality Test. So, one of the things they looked at is, is this independent contractor in business for himself or herself? Is that particular individual economically dependent on potential employer for work? Do they need you? Who needs who more, you or them?

Stuart Oberman: [00:05:31] There’s two core factors that they also cited and reviewed, the degree of control – which has been ongoing for 30 years – time, place, and manner, what is the workers opportunity for profit or loss. What basis of initiative and/or investment are we looking at? So, again, we got two, reaffirms the Economic Reality Tests and then we’ve got two factors, degree of control and the opportunity for profit or loss.

Stuart Oberman: [00:06:10] So then, the Department of Labor, infinite wisdom, went on to offer three other guidepost factors. Again, this is a whole topic for a whole another day that we could talk about for five hours with independent contractor status, time, place, manner. Does it fit, does it not fit, does it apply to my practice, not apply.

Stuart Oberman: [00:06:33] So, what are the three other guidepost factors that the Department of Labor indicated that we should consider? The amount of skill required for the work, what is that skill level, degree of performance of the working relationship, and whether or not the work is an integral part of your unit of production. Now, if you look at these three guideposts, that’s an enormous, enormous umbrella. So, again, all this came about during a period of COVID. But if you look at where this has been for the last 30 or 40 years, really nothing has changed. It goes back, like I said before, time, place, and manner.

Stuart Oberman: [00:07:27] And this looks at the Fair Labor Standards Act. Now, if you’re hearing that term for the first time, I would also urge you to reach out to us, get us to put you on our newsletters. This is what essentially guides the employees, the independent contractors, Fair Labor Standards Act. That is critical to the operation of a dental practice. It doesn’t matter if you’re one practice, three employees, or you’ve got 100 employees, 30 practices. It doesn’t really matter.

Stuart Oberman: [00:07:58] But these are key things that you should be consulting with your CPA on, your financial advisers, on a yearly basis to understand what you’re doing, where you’re going with it. Because the ramifications are really huge on the penalty side, on the economic side, on the expansion side, and on the operational side if you get hit with an audit. Because I will tell you, once they discover this, they may go back 12 months. But once you get the Department of Labor, State or Federal, dig it in, they’re going deep because one thing leads to another, leads to another.

Stuart Oberman: [00:08:38] And another thing we look at, a lot of times our doctors will employ family members. So, are you employing your family members? Are you employing that ten-year-old child and giving them $8 or $10 an hour check because they took pictures for your pamphlet? Are they on your internet? How are you doing this? Are you paying your personal services through the company? Again, as an independent contractor, how are you paying? It all goes back to what are you doing with your books? What shouldn’t be there, and whether or not you’re going to get caught. Because I will tell you, if you get a complaint to Department of Labor from an employee, they’re coming in and they’re going to look at who’s an independent contractor, they’re going to dig deep on all 1099s. They want to know, 1099s.

Stuart Oberman: [00:09:41] So, take a look at that. That’s the new development. But, conceptually, it’s been out there for many, many years. Do not get a contract for an independent contractor that you pulled off the internet or got from someone who didn’t know what they were doing. And, all of a sudden, you’re using terms like an independent contractor, employee, employees, control, those things are the death kill of an independent contractor agreement.

Stuart Oberman: [00:10:06] Again, some of these things or just, you know, what we discovered what’s sort of the hot areas, if you will, what’s coming down the pike with Department of Labor, what to expect. Sometimes there’s no guidance as to really how these are going to be interpreted. So, we just have to go from prior history, which is, you know, never necessarily good. But, you know, take a look at where you are on the practice, who’s your independent contractors, who are you paying, who’s on the payroll, who’s not on the payroll, who should be on the payroll, what are you doing internally, what are you doing with family members, what are you doing with everyone that’s not business-related, and how hard will you get hit if there’s an audit.

Stuart Oberman: [00:10:45] So, concluding, we’re going forward on some other internal matters with employment issues at a very high level on this, 10,000 foot view. We’re going to take a look at it. So, I want to thank you for joining us today, Dental Law Radio. And if you have any questions, please feel free to give us a call, Oberman Law Firm, 770-554-1400. Visit us, obermanlawfirm.com. Send me an email, certainly fine, Stuart, S-T-U-A-R-T, @obermanlaw.com – excuse me – that was obermanlaw.com. Have a fantastic day. And we’ll look forward to visiting with you on other podcasts. Thank you very much. Bye.