Why I Only Hire W-2 Therapists (W-2 vs. 1099 part 3)

I've noticed that private practice therapist tend to hire additional therapists as 1099 contract employees. Reasons frequently cited for choosing to hire therapists as 1099 employees is that they don't have to pay the therapists taxes. While it may be more "affordable" to hire therapists as contractors, in my experience, there are also "costs." (For an summary of the difference between W-2 and 1099 employees read part 1 in this series. To hear about my employment tax audit adventure read part 2.)

According to the IRS website, the general rule for classifying 1099 independent contractor is "if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done" (italics added). It also states that an employee is not a contract employee if the services "can be controlled by an employer (what will be done and how it will be done)" and if "the employer has the legal right to control the details of how the services are performed."

In consulting with therapists around the U.S. I've heard about some of the "costs" of hiring 1099 employees. Some of the costs high turnover rates due to the part-time and often temporary nature of contract employee relationships. Some of those "costs" include lack of control over how and where therapy is done, inability to require specific paperwork, inability to require attendance at staff meetings or trainings, inability to request that therapists network and participate in community outreach to boost referrals.

Here are the four main reasons I only hire therapists as W-2 employees:

1) Overall Cohesiveness

My vision for Wasatch Family Therapy has always been to build a cohesive team with a shared long-term vision of providing excellent clinical services to clients across the lifespan from an attachment perspective, not just have a group of therapist doing any kind of therapy they choose.  Now that we have grown into a clinic of 18 therapists at 3 locations cohesiveness is even more crucial. When therapists are hired as 1099 contractors employers are not supposed to tell the contract worker how to do therapy, or make other specific requirements of the worker, such attendance at trainings.

2) Higher Level of Quality Control

If a therapist is going to work under my name and my practice name or "brand", I want to be able to have a say in how, where, and when they do the work.  I've spend over 10 years building trust, credibility, and presence in my region and I want to be able to be able provide mentoring, direction, and training in how my clinical team provides services.

3) Ability to Require Certain Activities

I want to be able to require certain activities from my team members that hiring them as 1099 workers does not allow me to do. We have streamlined forms for notes and documentation in our EHR system. I require each therapist to engage in at least one outreach or networking activity each month in order to create strong referral sources. I require attendance at two monthly staff meetings, and a certain level of professional appearance at the office.

4) Implication of Long-Term Relationship

I am not interested in hiring temporary therapists to provide services. Hiring 1099 workers generally implies a short-term relationship. I am interested in hiring therapists who have a shared vision and who I can invest in long-term, and who will invest in building the practice long-term. I want to build mutually beneficial relationships not just provide services. Hiring therapists as W-2 employees shows a greater long-term commitment to them to build their practice for the long haul. I also allows me to expect a greater commitment from them.

The Difference Between Hiring Therapists As 1099 vs. W-2 (part 1)

Should you hire additional therapists for your practice as 1099 or W-2 employees? I'll walk you through the decision process in this blog series so you can make an informed decision.

If your private practice is thriving and you are considering hiring additional therapists, one of the major questions is how to structure the employment relationship. Should you hire additional therapists as a 1099 contractor or W-2 employee?

In my private practice consulting experience and based on recent discussions in my Private Practice Toolbox Group it seems that most private practice therapists favor hiring therapists as 1099 contractors. When I ask why I often hear something like, "I hire 1099's because then I'm not responsible to pay the therapists employment taxes and it provides some cushion against legal responsibility for the acts of therapists providing contract services." While these statements are true, there is a lot more to consider when structuring the employment relationship and misclassification can be a costly mistake.

So what what's the difference between hiring a 1099 and W-2?

An 1099 independent contractor is a tax-related and legal term referring to an individual who contracts his or her services out to other businesses. An independent contractor is considered self-employed and is not considered an "employee" of the practice. The 1099 workers pays all of their own income tax in addition to self-employment taxes.

"Independent contractors do the work where, when and how they choose. Nobody tells them what order to do the job in, what hours to work, or when they can take off, " says Employment Attorney, Donna Ballman, author of How To Stand Up For Yourself Without Getting Fired.

A W-2 employee is an official employee of a company, or a private practice, whose taxes are withheld from and whose earnings are reported to the IRS at the year-end via a W-4.  The practice owner participates in paying the employees state and Federal taxes and has the ability to control how, where, and when the work is performed by the employee.

Michigan attorney Donald A DeLong says that control is the key issue. "If you control when the therapist works, where he/she works, how and when he/she gets paid, you require that he/she use your equipment, etc., then that worker is a (W-2) employee."

As I've researched this topic it is clear that there are no easy answers and a lot of grey areas. I hope to share some helpful information and resources over the next several posts to help you make the best choice when it comes to hiring.

The costs of inaccurately classifying employees

Inaccurately classifying workers can be very costly to an employer warns Vincent Porter, CPA of Porter & Company CPAs in Arlington Tx. Porter shares these words of caution with employers.

The IRS can conduct an audit of a business that is paying employees on a 1099 and hit them with back payroll taxes that can be very costly to a business not in compliance. This is a big issue we face almost daily with clients. They should understand that if they were to be audited by their State Unemployment agency or IRS they could face severe penalties for improperly classifying employees as contractors. Not only could they face unpaid employment taxes they could face heavy penalties.

In my next post in this series I'll tell you about my employment tax audit experience a few years ago!

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