Chapter Summary Edited By: Muhammad Alghanem, MSIV Medical Student, Midwestern University - Chicago College of Osteopathic Medicine
Summary Series Editors: Muhammad Alghanem, BS, and Andrew W Phillips, MD, MEd
Employee Versus Independent Contractor
As an emergency medicine physician, your work arrangement may be either as an employee or an independent contractor, hired by a hospital or group. Each arrangement comes with pros and cons which should be considered and reviewed with an experienced attorney.
An employee position generally comes with benefits such as vacation time, medical coverage, disability insurance, education allowances, and options for a pension plan.
A position as an independent contractor may provide more flexibility. However, this comes with greater fiscal responsibilities such as buying your own personal insurance, reporting taxes on a quarterly basis and paying the employer share of social security and Medicare taxes.
Because of favorable tax treatment for independent contractors, the IRS has developed a “Twenty Factor Test” to help differentiate between an employee and an independent contractor.
Some factors that are associated with being an employee include being required to comply with certain instructions and trainings to complete your job, working a set number of hours or working “full-time” or “part-time,” being reimbursed for various expenses, being furnished with tools and materials to complete your job (with some exceptions for hospital equipment), being required to regularly report to an employer controlling you, being paid by the hour, week, or month rather than by the job performed, and having the right to be fired or to quit.
On the other hand, some factors that are associated with being an independent contractor include providing services independent of hospital or group operations, having the right to utilize other privileged physicians to perform the contracted job, having the right to hire, supervise and pay assistants out of personal pay to perform a job, having the right to contract at more than one hospital and being available to do so, having the potential for profit or loss, having the right to determine the order that patients are seen and the nursing orders that are written, a requirement to lease or provide any necessary administrative space needed and the right to renegotiate a contract if a different management group takes over.
The full list of the 20 factor common-law test can be found in the Resident Rules of the Road booklet, or on page 3 (5th true page of the pdf) of this IRS document: http://www.irs.gov/pub/irs-utl/x-26-07.pdf.
As you can see, emergency medicine physicians who work as independent contractors may have challenges with these rules. Section 530 allows a relief that can be filed with the IRS for reconsideration of classification as long as the hospital has treated physicians the same way since 1978 or its founding.
There are many factors that one needs to take into consideration and be aware of with regards to reviewing a contract’s drafting terms.
The introduction, or “recitals” of the contract, introduces the contracting parties, the reason for the contract and the date that the contract becomes effective.
The, “representation and warranties,” (obligations) of the contract are guarantees that each side holds are true or will happen. These could include hospital administrative policies and staff bylaws. Copies of documents that are referred to in the contract should be provided and reviewed by the physician and his/her attorney.
Compensation includes pay such as an hourly rate or salary, as well as possible bonuses and various benefits. This section can be more detailed and should include a “‘stop loss’ provision in case there are any significant changes in volume or acuity.” Malpractice insurance covers any claims made while employed. A “tail” retroactively covers any claims made after leaving a workplace.
Responsibilities outlined in the contract include scheduling as well as any non-clinical responsibilities such as administrative or teaching duties. A minimum number of shifts protects doctors from losing their work by not being assigned any shifts.
Restrictive covenants are better known as non-compete clauses. These could limit a physician from working in a specific geographic region for a period of time after a contract ends. The laws on these clauses can vary significantly by state.
Indemnification means that if a party in a contract is found to be negligent, it is required to pay the other party’s legal expenses. “Hold Harmless” means that if there is a lawsuit by a third party, the physician and the group or hospital cannot sue each other to recover damages.
The term of the contract and rules for its termination or renewal are also noted. In case of a breach of the contract, remedies may be outlined.
Finally, an amendments section can state that any part of the contract can be amended if all parties mutually agree with a modification.
Of course, one blog post or booklet chapter cannot do this discussion justice. For more information regarding employee contracts, take a look at your copy of AAEM's Rules of the Road for Emergency Medicine Residents. We are not attorneys or financial advisors. Working with an experienced attorney is strongly advised to help review your contract and explain the obligations you — the physician — and your hospital or work group may have and to ensure that important points including benefits and job duties are clearly and specifically defined.