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The 1099 trap: why your independent contractors might be employees in disguise

By Paul Edwards  bio

To quote Shakespeare (kind of): “An employee by any other name is still an employee to the IRS and the Department of Labor.” If your office employs independent contractors, it pays to make sure they aren’t really employees that you’ve inadvertently misclassified. Classification mistakes can trigger a painful audit of your practice and a hefty tax bill.

This is an all-too-common situation—in fact, many employers and managers think using a 1099 form is an easy way to test a possible job candidate or create a casual business relationship. Unfortunately, the IRS and DOL do not agree.

So what separates an independent contractor and an employee of your practice? There’s no easy true/false test, but a carefully consideration of your business relationship with each worker will help you determine how “independent” that person truly is. The more exclusive and extensive the relationship between your office and the worker, the less likely they are to qualify as an independent contractor. Here’s what to consider:

  1. Behavioral control: Did your office train the worker, and do you control how and when they perform their duties? Independent contractors may receive guidelines, but they determine how to accomplish the job’s objectives and set their own work schedule.
  1. Financial control: Does the worker work primarily out of their own office or home, or almost entirely in your office? Do you provide the tools they use to do their job? An independent contractor usually brings their own supplies or works in their own location, whereas an employee is usually provided everything they need to complete their job by their employer.
  1. Type of relationship: Is your medical practice one of many businesses they work with, or do they almost entirely work for you? When hired, was it on a per-project basis, or indefinitely? If they work only for you, on a regular/permanent basis, this strongly indicates an employer/employee relationship.

These are only a few of the factors that help determine whether a worker is an independent contractor or a full-fledged employee. (If you or your doctor would like a copy of the Independent Contractor cheat sheet we use, just send me a quick email.)

Keep in mind: You don’t get to decide whether a worker is a contractor or not. No matter what kind of contract they signed, or what agreement you both decided on, it’s the job duties, location, and control that determine if this worker is an independent contractor… or an employee.

Why do the DOL and IRS care about whether you misclassified an employee? One word: taxes. Misclassification-related audits have been skyrocketing, and in 2010 the DOL began an $11 million “misclassification initiative” to reward states for detecting and prosecuting employers who fail to pay proper taxes because of this issue.

So if you have any contractors working for you now, take a few moments and carefully evaluate if they would pass the scrutiny of an audit. If you have any doubts, be sure to speak with an HR professional today.

Paul Edwards is the CEO of CEDR Solutions (, the nation’s leading provider of customized medical employee handbooks and expert HR support for practices of all sizes and specialties. He can be reached at 866-414-6056 or

The above information is shared by a guest contributor and does not necessarily reflect the views of Medical Office Manager.









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