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Employee Versus Independent Contractor

If your practice plans on hiring part-time physicians, be careful to determine whether they are employees or independent contractors. The IRS looks at factors in three categories to determine whether a worker is an employee or an independent contractor.

Behavioral Control

”Behavioral control” refers to whether the business has the right to direct or control how the work is accomplished. Significant factors include:

  • Type of instructions given
  • Degree of instruction
  • Training
  • Evaluation systems

For example, if a medical practice retains the authority to tell a physician what to do and how and when to perform that work, the physician would more likely be considered an employee. The more detailed the instructions, the more control the practice exercises over the physician.

Financial Control

”Financial control” refers to whether the business has the right to direct or control the economic aspects of the worker’s job. Significant factors include:

  • The extent of the worker’s investment
  • The extent to which the worker has unreimbursed business expenses
  • How the business pays the worker
  • The extent to which the worker has the opportunity to realize a profit or loss
  • The extent to which the worker makes services available to others

For example, a practice might have to classify a physician as an employee if the physician has no opportunity for profit or loss in the practice, lacks a significant investment in the practice’s facilities or equipment, or is guaranteed a regular wage amount for an hourly, weekly, or other period of time. Independent contractors are generally free to seek out and remain available for other work opportunities.

Type of Relationship

This category includes factors that show how the worker and business perceive their relationship to each other, such as:

  • Written contracts
  • Employee benefits
  • Permanency of the relationship
  • Services provided as a key activity of the business

An independent contractor’s services are typically for separate and distinct projects. However, employees also may be hired on a seasonal or project basis.

Getting It Right

If a physician is your employee, you must withhold income tax and FICA (Social Security and Medicare) taxes from the physician’s pay and contribute the employer’s share of FICA taxes and the applicable unemployment taxes for the physician. With an independent contractor, you are not required to withhold income tax and the contractor is fully liable for his or her own self-employment taxes.

Because of these differences, worker classification is a significant issue for the IRS. Be sure you consider it carefully whenever you hire a new person.

(* Cejka Search and the American Medical Group Association, 2012)

Reducing Staff Turnover

Your practice pays a steep cost every time a high-performing employee leaves to work elsewhere. The amount you have to spend on advertising for the position and the time you must take to interview candidates and train a replacement can be disruptive to your practice. But more importantly, you’re losing an employee who knows your practice, is familiar with your patients, and who can be counted on to go the extra mile when necessary.

So how do you keep superior employees from walking out the door? Here are some steps you might take to help reduce staff turnover.

Ask Why

Identify the reasons superior employees are leaving. Is it salary, benefits, or work environment? Is it something intangible, such as a perceived lack of respect or a sense of not being recognized?

High-performing employees may be motivated by such intangibles as receiving positive feedback from people they respect, having a sense of doing important work, and being a part of an effective team. When these needs are met, high-performing employees are generally more content in their work.

To recognize high-performing employees, use staff meetings to publicly recognize their good work. Ask high performers to mentor new staff since doing so confers praise publicly. And consider asking high performers for assistance in analyzing a difficult problem or issue facing the practice. It sends a clear signal that you respect and value their intellects and opinions.

Look at Your Salary Structure

Dissatisfaction with pay is one of the primary causes of employee unhappiness. Find out whether your practice’s salaries are competitive with other similar practices in your region. If you determine that your pay structure isn’t competitive, you may have to boost salaries. However, once employees are compensated at the market rate, focus on raises or bonuses for superior performance rather than raises for longevity on the job.

Examine Benefits

Review your health, retirement, vacation, and sick leave benefits and compare them with what your employees could expect to receive elsewhere. If your benefits are not in line with other practices in your region, you may have to consider making them more attractive and competitive.

Consider Flexible Work Schedules

Offering flexible work arrangements can help attract and retain superior employees. Giving employees the flexibility they need in their work schedules to take care of personal and family needs helps make your practice an attractive place to work.

Taking some or all of these steps can help your practice hold on to those high-performing staff members who are vital to your practice.

Ask high performers to mentor new staff since doing so confers praise publicly.

HIPAA Compliance Traps

Fines for violating the Health Insurance Portability and Accountability Act (HIPAA) range from $100 to $50,000 per violation. Clearly, medical practices need to be extremely vigilant in ensuring they do not run afoul of the HIPAA regulations.

Audit data from the U.S. Department of Health and Human Services showed that small practices (50 or fewer providers) had more problems securing and protecting patient information than large practices. The nine major areas where small practices run into security compliance problems are:

  • Media movement and destruction
  • Encryption
  • Workstation security
  • Security incident procedures
  • Contingency planning and backups
  • Risk analysis
  • Access management
  • Audit controls and monitoring
  • Integrity controls

Security problems, such as administrative, physical, and technical safeguards, accounted for 60% of the findings and observations. Data privacy problems, such as access to patient health information, were observed in 30% of the audits.

Medical Briefs

Encouraging Interest in Primary Care

An anticipated shortage of 90,000 primary care physicians by 2020 is forcing medical schools to seek out ways to boost enrollments in primary care specialties. According to the Association of American Medical Colleges, more than 76% of medical schools have launched or are planning to launch at least one initiative to increase interest in primary care specialties. For example, 23% of medical schools are offering financial incentives, such as reduced tuition or debt reduction, to encourage interest in primary care. Nine percent of medical schools say they plan on offering financial incentives within the next two years.

More Older Physicians in Work Force

In 1985, 9.4% of the 476,683 actively practicing physicians in the United States were age 65 or older. The number of older practicing physicians has increased significantly since then, according to American Medical Association data highlighted in “Approaching the Issue of the Aging Physician Population.” In 2011, 15.1% of the 697,340 physicians in active practice were age 65 or older.

Can We Help?

Our Firm provides a broad range of services for medical practitioners, including:

  • Accounting and Financial Management
  • Tax Services
  • Internal Accounting Controls
  • Government and Third-party Payer Regulations
  • Practice Management Consulting
  • Practice Development
  • Office Automation Consulting
  • Personal Financial and Estate Planning
  • Practice Valuation
  • Financing Consulting

The general information in this publication is not intended to be nor should it be treated as tax, legal, or accounting advice.

Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice based on their particular circumstances before acting on any information presented.

This information is not intended to be nor can it be used by any taxpayer for the purpose of avoiding tax penalties.