Independent Contractor vs. Employee: A Healthcare Guide
As a healthcare employer, you know the value in offering different types of employment statuses. Hiring a mix of full-time, part-time, and as-needed workers helps to meet the demands of healthcare staffing. It also allows care providers to choose a schedule that best supports their lifestyle. If your organization is considering hiring an independent contractor vs. employee care provider, take a moment to better understand the difference between the two.
Why is it important to distinguish between an employee and an independent contractor in healthcare? Knowing the differences helps you stay compliant with labor laws and decide which type is best suited for your facility’s needs.
Independent Contractors in Healthcare: Overview
When you think about hiring an independent contractor for a job, a service such as a home repair project may come to mind. A contractor is hired to complete a project and bills you for their services, completing the exchange. Is it possible for a similar type of exchange to occur in healthcare?
Yes, it is, but due to the dynamics of a healthcare setting, hiring contract workers is more complex. Although contractors function independently from a healthcare organization, they may not be completely self-employed. For example, a contract nurse may also work for a nurse staffing agency that arranges details like the scope of work and the terms of their contract.
Additionally, the way a care provider operates within your organization as a contractor differs from an employee — and can bring extra risk. It’s important to understand the difference between an independent contractor vs. employee in the practice setting to protect both yourself and the worker.
Below is a look at how that difference plays out in hiring, benefits, payment, taxes, and liability.
The hiring practice for healthcare employees is typically straightforward. A job candidate submits an application to human resources and receives a job offer. Then, they provide personal information like their Social Security Number and work authorization status to the employer.
On the other hand, independent contractors work on a per-project basis, often negotiated through a staffing agency. For healthcare workers, this is usually set up as a contract with a statement of work for agreed-upon dates. When the contract is complete, the contractor isn’t obligated to provide additional services at the healthcare facility. A nursing contract can be as short as four weeks long.
Job benefits can be a motivating factor for healthcare employees to join an organization. Full-time employees have access to benefits like health insurance and retirement funds that contractors must obtain independently. Additionally, healthcare employees may be covered by worker’s compensation or malpractice insurance, depending on the organization. In most cases, independent contractors are responsible for self-coverage.
One advantage of hiring contract nursing staff is that it allows employers to supplement staffing shortages while preventing the over-hiring of employees. It also reduces the costs associated with onboarding and training. This is because independent contractors have shorter training periods, and may even receive fewer training resources (although they may get additional support through a staffing agency).
Training is also one factor that’s used to indicate how a worker is “classified” for legal purposes. For example, even though a contract may be agreed upon, a healthcare contractor could still be determined to be an employee of the facility where they work and entitled to employee benefits based on how they perform their work. Facilities that train their contractors just like their employees — something that may be necessary in a healthcare setting — run the risk of being designated as an employer to those workers.
According to the Society for Human Resources Management, to avoid misclassification, employers should avoid giving contractors an employee handbook or name badge. They should also be restricted from attending staff meetings and performance evaluations, as these are all indicators of an employee relationship. This maintains the employee vs. independent contractor distinction that helps maintain compliance with the IRS 20-point checklist for independent contractors, but it can also create disruptions in a healthcare facility.
Healthcare employees, on the other hand, must complete mandatory training and education required by the organization. This may include a fixed onboarding schedule and annual performance evaluation.
Another key independent contractor vs. employee difference is the way they’re paid. Healthcare employees may be paid on an hourly or salary basis. They are protected by labor laws, which ensure they won’t miss payment for their work. According to state payday requirements, employees must be paid on a predictable and reliable schedule.
However, independent contractors are typically paid when a contract is complete, depending on the terms of their contract. They’re responsible for sending an invoice for their services and arranging when and how payment is collected. Independent contractors in healthcare, such as nurses or CNAs, may set up their terms of payment in a nursing contract. Because contractors may not be paid directly by an organization (again, this will depend on their affiliation with a given staffing agency), they must define terms of payment in a contract to avoid being underpaid.
It’s especially important to differentiate between an independent contractor vs. employee for tax purposes. The IRS uses a right-to-control test to distinguish the differences.
When employees are first hired, they provide their tax information including name, address, filing status, and tax exemptions on a W-4 form. During tax season, they report all of their earnings on a W-2 tax form. Healthcare employees may also report federal or state unemployment insurance.
Independent contractors don’t face payroll deductions for federal or state unemployment insurance, Social Security, or other taxes. When an independent contractor is initially hired, they fill out a Form W-9, which includes a tax identification number (TIN). Contractors should report all earnings above $600 on a Form 1099 as contractors pay their taxes when they file.
Employers should keep a record of the Form W-9 and send the contractor a Form 1099 NEC (nonemployee compensation) for all earnings over $600. Check out the independent contractor laws by state to avoid misclassifying employees as independent contractors.
Most healthcare employers have malpractice insurance policies that cover employees in the event of legal claims. Employers are not usually required to cover independent contractors in these policies. However, healthcare facilities can usually be found liable for staff members — regardless of their employment type — in the event of negligence claims.
For example, if a contractor nurse makes a mistake while working at your organization, the facility can still be held partially, or even fully, liable. It’s the organization’s responsibility to properly vet and train all staff working in their facility. Doing so can protect the facility from negligent hiring claims.
However, to minimize negligence and accidental injuries, facilities may seek greater control and direction over their healthcare contractors — but that also comes with risk. As federal and state agencies and private litigants are enforcing laws against the misclassification of contractors, the more control a facility exerts over its contractors, the more likely it can be deemed an employer and subject to fines, penalties, and other damages.
One way to minimize this Catch-22 liability is by utilizing W2 staffing partners who hire their healthcare professionals as W2 employees. While not a complete protection against liability, with a W2 staffing partner, you have another company holding themselves out as the employer of record and responsible for training, supervising, and directing any of their employees who staff your facility.
Stay Updated on Healthcare Workforce Trends
Is your facility weighing the benefits of working with independent contractor vs. employee healthcare staff? Learn more about the advantages of each in IntelyCare’s newsletter. IntelyCare is a staffing partner with your organization’s best interest in mind — stay connected to get the support you need.
Legal Disclaimer: This article contains general legal information, but it is not intended to constitute professional legal advice for any particular situation and should not be relied on as professional legal advice. Any references to the law may not be current, as laws regularly change through updates in legislation, regulation, and case law at the federal and state level. Nothing in this article should be interpreted as creating an attorney-client relationship. If you have legal questions, you should seek the advice of an attorney licensed to practice in your jurisdiction.