A Real Alternative to Laying Off Employees, Try Independent Contracting? First Understand the IRS's 20 Factor Test
The pendulum from employee to independent contractor has started to swing. As Covid-19 plays out in the economy, department heads of healthcare organizations are being asked to cut their budgets. Employers are unsure of demand and how to pay for employee salaries, payroll taxes and benefits. If there is not enough work to keep an employee working, employers are looking at independent contracting as an option to hold on to the worker. The following are some great ideas to evaluate and implement that can help save money and commercial relationship.
Compensation Models – Independent contracting compensation generally takes one of three forms or a combination there of: (i) pay by the job/task, (ii) pay by the hours worked, or (iii) pay for end financial results. The compensation can come in the form of an hourly rate, a fixed fee per procedure/task, or a percentage commission of the end financial result. Depending on level of uncertainty and the desired goal the employer has in mind, it might be best to come up with a blended formula that draws upon these compensation combinations and that serves both parties best.
IRS Requirements – IRS by far is the go-to authority on whether a person is an independent contactor or an employee, because it means collection of payroll taxes to the IRS. Not all relationships are independent and worthy of independent contracting according to the IRS. See IRS Publication 1779. Even though an employer and contractor may agree to be independent, the IRS will look at the following factors to determine the independence of contractors:
Behavioral Control: If the employer instructs the worker on how, when, or where to do the work, what tools to use, or what assistants to hire to help with the work; such extensive behavioral control make the worker more of an employee and less of an independent contractor.
Financial Control: The worker may be an independent contractor if: the employer does not reimburse the person for all expenses; if the worker realizes a profit or incur a loss in the relationship.
Relationship of the Parties: If there is a written contract that shows the mechanics of the intended transactions/work, that is also an indicia of the independent relationship. However, if the worker receives employee type benefits like insurance or pension or paid leave, then no the person is deemed an employee.
NOTE: Here is a downloadable Word file with the IRS's 20 Factor Test at www.bluwhealthlaw.com – Resources page: https://bit.ly/2zAKxSm;
Benefits of an Independent Contractor Relationship – Both the employer and worker typically have more freedom to contract with other. The employer is not burdened with employer taxes; while the worker typically gets paid at a higher rate and has the ability to write off expenses.
We help companies by putting together independent contractor agreement templates, so they can reuse them and lower their risk and costs. If you have a unique situation that you would like to talk through, call or text me for a free consult at (954)445-5503.
Ben Assad Mirza, Esq., LLM, CPA, MPHA, CHC
Healthcare Law Partners, LLC
401 East Las Olas Blvd., Suite 1400
Fort Lauderdale, Florida 33301
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