Sometimes there is confusion over what it means to work as an independent contractor vs. working as an employee. Here’s the IRS on the topic (PDF link):
“An employer must generally withhold federal income taxes, and pay unemployment tax on wages paid to an employee. An employer does not generally have to withhold or pay any taxes on payments to independent contractors.”(IRS Publication 15-A)
So is this just a matter of word choice? Absolutely not!
The ADA Center for Professional Success has more information:
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.
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.
If the IRS believes that a worker has been mis-classified, the business may be liable for back taxes. And it’s important to note that part-time or full-time status is not a deciding factor.
If you are concerned about the classification of those who work for you, or of the classification of yourself as a worker, it’s important to consult with a local employment attorney in your state of practice.
ADA members — check out the ADA Center for Professional Success at Success.ADA.org. Resources include financial calculators to factor loan payments and overhead expenditures, ergonomic tips to keep you healthy and patient communications strategies to build trust and increase patient satisfaction.