Independent contractors have their role in the workplace, and a lot of care providers use independent contractors for a variety of reasons. But how do you know if you should be hiring someone as a W2 employee? It can be tempting to think you will save money by hiring an independent contractor, but if they are misclassified, you could put your organization at bigger risk.

What is an Independent Contractor (1099 employee)? 

An independent contractor is technically not an employee. They employ themselves and work when and how they want. The IRS and the U.S. Department of Labor, along with state agencies, have specific criteria for determining who is an employee and who is an independent contractor (1099 employee). 

Do not designate someone as an independent contractor if:  

  1. The company provides training on a certain method of job performance and indicates how and when they want the employee to work.  
  1. Tools and materials are provided to do the work.
  1. Employees must follow a schedule and show up at specific times.  
  1. The company provides benefits such as vacation or overtime pay for the role. 

A common misconception is that you can hire an independent contractor for a temporary or short-term role. If the above conditions are met, it does not matter how long the role will be needed, but how the work will be conducted. If the role requires that someone show up to the office or facility, follow a company dress code, and answer to a supervisor is most likely a traditional employee.

An independent contractor makes their own schedule, can turn down shifts, uses their own tools and work materials, and does not answer to a supervisor. You do not train and direct the work of a 1099 employee. 

Who Can Be an Independent Contractor in a Healthcare Setting?

Typically, for anyone providing direct care, the employer wants to manage performance, quality of work, and tools/materials used. Generally, this expectation disqualifies an employer and independent contractor relationship. In addition, anyone providing care must meet licensure requirements for training hours, orientation, professional licenses, background checks, ongoing supervision, and the like, and therefore, will not be able to meet the requirements to be an independent contractor. 

There are several instances where it is appropriate to hire an independent contractor, including positions in cleaning and maintenance, bookkeeping and accounting, and consulting services. It’s even possible to outsource HR services, although due to the nuances of healthcare, it’s recommended to partner with a professional employer organization (PEO) rather than hire an independent contractor.

In general, it’s unlikely that the following would qualify as independent contractors:

  • Caregivers
  • Certified Nursing Assistants
  • Nurses – Nursing Manager, Nursing Director, RN, LPN

Remember, that the designation of an independent contractor is not about the longevity of the role but how the work is required to be performed. When in doubt, use the safest method and hire new team members as W2 employees.

Liability Risks of Independent Contractors 

The risk of committing a medication error or any error while providing care could cause legal issues. Unfortunately, many independent contractors while encouraged, often do not carry their own liability insurance or medical malpractice insurance due to the expense, and the employer’s insurance will not cover a 1099 employee.  

Additionally, as the employer, your worker’s compensation insurance often must cover an “independent contractor.” Our HR Directors recommend avoid agreeing to a contract with an independent contractor who doesn’t meet certain requirements, such as maintaining a separate business with an office, equipment, materials, and other facilities; has a federal employer identification number (FEIN), and will incur the main expenses related to the services he/she is performing. 

How to employ an Independent Contractor:  

If you reviewed the IRS and Department of Labor requirements for classifying a role as an independent contractor, the next step is to make sure you have an agreement that protects both parties.

  1. Put everything in writing so it is clear what the work agreement is. A signed contract should include topics such as:  
  • Work Status 
  • Start Date 
  • Services Provided 
  • Compensation  
  • Insurance  
  • Travel Expenses  
  • Materials 
  • Relationship Defined  
  • Legal Notices 
  1. Consult with a legal or certified HR resource to help decide if a position qualifies to be a contractor or not. They can help you assess potential risks with the IRS and Department of Labor. 

If you’re not sure if you should hire someone under a W2 or 1099, reach out to the HR experts at Procare HR. We have expertise in organizations that serve seniors and individuals with disabilities such as Assisted Living, Group Homes, Memory Care, Home Care, Day Programs, Skilled Nursing, and more. Procare HR alleviates the burden of managing HR all on your own so you can focus on delivering care. Get HR Help Now.

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