January 6, 2023

Employee vs. Independent Contractor

Question: I need to hire a dentist to work in my practice part time, maybe one or two days per week. I interviewed a dentist who has formed a corporation. She is asking me to enter into an independent contractor agreement with a professional corporation she owns. I would pay the corporation instead of her for her services. She claims that this would be advantageous for me because she would not be my employee. I would not have to provide her benefits, pay her overtime, withhold taxes, etc. Is this true? I have always thought that the people working for me had to be treated as employees for tax and other purposes, since I am controlling when and how they provide their services.

Answer: There are advantages to engaging a dentist on an independent contractor basis. They include:

  • Not having to comply with many employment laws (e.g. wage and hour regulations, exempt vs. non-exempt overtime requirements, Family Medical Leave Act, certain discrimination laws, etc.)
  • Not having to withhold income taxes.
  • Not being liable for the employer portion of FICA taxes.
  • No obligation to provide worker’s compensation coverage.
  • No additional unemployment compensation insurance premiums, rate increases upon termination, etc.

The disadvantage when engaging individuals as independent contractors in uncertainty whether taxing and other authorities will respect the independent contractor relationship and, if not, what the consequences will be (for example, you having to pay FICA taxes, penalties, and interest after the fact, becoming liable under an employment law for discrimination or back pay because of not paying overtime, etc.)

Read the complete Q&A in the Journal of the Michigan Dental Association on page 26.

About the author:

Daniel J. Schulte answer questions about health care lawDaniel J. Schulte has more than 25 years of experience helping clients solve tough problems and capitalize on opportunities that require a blend of business and legal expertise. His practice focuses on addressing the legal, business, licensing, and regulatory challenges of health care professionals, organizations, and facilities. Dan understands how legal issues impact business objectives and, as a result, offers his clients practical, results-oriented advice. He is a Certified Public Accountant, former managing partner and current executive committee member of the firm. Dan also serves as co-chair of the firm’s Health Care Practice Group.

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Daniel J. Schulte

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Health Care Law