Knowing your status as either an employee or an independent contractor is vital. It impacts tax liability for you and the owner dentist, as well as other liability issues.
Generally an associate in an office is considered an employee when the employer has the “right to control” how duties are performed. Employees are typically subject to the employer’s instruction, such as when and where to work, what supplies must be used, how work is to be completed and other procedures. Employees may not be required to invest in their own materials and may be eligible for benefits. For an employee, the employer dentist must generally withhold income taxes, withhold and pay social security and Medicare taxes, pay unemployment tax, and afford workers’ compensation benefits. In making a determination whether an individual is an employee or an independent contractor, governmental agencies will look at factors such as:
- How extensive the control is over behavior
- Financial control and
- The relationship of the parties.
Be careful though, as being an employee does not mean that the employee dentist can defer ethical responsibility for care. That always rests with the individual professional. “The boss made me do it” is never a good defense!
Independent contractors have more control and are often paid a flat fee for their work. They are not as likely to be reimbursed for expenses, nor to receive benefits and the relationship is usually just centered around the end results of the work, not the time at or means by which those results are accomplished. There is generally no requirement to withhold or pay taxes for independent contractors — the burden is on the independent contractor. Keep in mind that the final test comes from what actually goes on in the relationship. The label on a piece of paper doesn't matter as much as the day-to-day workings of the practice.
Talk with your own legal counsel to make sure your professional relationship is properly classified from an IRS perspective. Do this before you establish a working relationship to make sure you start out on the right path.