Independent contractor or employee: Do you know?
Relief veterinarians, part-time surgeons, and groomers who sometimes work at your clinic are independent contractors.
True or false?
The answer is … maybe. They may be contractors, or they may be employees. Practice owners would always prefer them to be independent contractors. It’s cheaper that way—employers can offer these workers few benefits, little or no insurance, and so on. But you’d better know the difference when the IRS comes calling. And the IRS is calling. The taxman is auditing 6,000 companies in the next few years as a start to kick off a period of more rigorous enforcement of independent contractor rules.
Now before you panic and start frantically unearthing your tax forms, you should know that veterinarians likely aren’t the big fish the IRS is hoping to fry. You may work with one or two independent contractors while other companies deal with hundreds, says Tom McFerson, CPA, of veterinary accounting firm Gatto McFerson in Santa Monica, Calif. But that won’t work as an excuse if the IRS ever decides to poke around your practice. Better safe than sorry.
McFerson says the question of independent contractors is not black and white. But if you can make a strong argument for why you designate certain workers as contractors, the government is more likely to accept it. McFerson says these are the three factors to consider: control, payment, and frequency.
Do you exercise significant control over the person and his or her work? For example, a traveling surgeon who shows up with equipment once a week to perform procedures at your clinic is likely an independent contractor. However, a relief veterinarian without equipment who shows up and does what you tell him twice a week could be considered an employee.
How is the person paid? Our traveling surgeon is probably paid fees for the services she provides. That’s an independent contractor. A relief veterinarian who’s paid hourly or a flat fee per shift may be a full-fledged employee.
How often is the person at your hospital, and is he or she they available to other practices? In the case of our relief veterinarian, if he’s filling in for a few weeks, that’s likely contracting. If he provides relief services at your hospital and others, that’s a freelancing independent contractor. If he’s at your practice for many months and isn’t working at other hospitals, he’s probably an employee.
In addition to considering those three factors, the IRS also wants to see that you’ve got a contract spelling out the relationship between the self-employed freelancer and your practice, McFerson says. And the more benefits you provide an independent contractor, the more chance there is that the government man will see him or her as an employee. As always, consult with an accountant or business adviser on tax issues.
Got more questions? The IRS has answers. Click here to visit the agency’s Web site for independent contractor rules.