Rehab

Home
- » Rehab Main Page
  - » e-Newsletters
    - » Rehab Regs

Know the rules for using part-time therapists

Rehab Regs, December 1, 2004

Essential information for facilities that use independent contractors

Therapist X works three days a week for a local rehab agency. It pays her an hourly wage without any tax deductions and does not provide benefits such as health insurance, a retirement plan, or sick and vacation time.

She may consider herself a part-time worker, but in the eyes of the Internal Revenue Service (IRS), she may be considered an independent contractor. As such, the IRS has strict guidelines that both Therapist X and the facility she works for must follow.

A facility may use an independent contractor to

develop a cache of therapists who may be willing to work hours and days that are less desirable to full-time staff

avoid incurring costs such as workers' compensation and insurance

have independent contractors pay the employer's share of payroll taxes

From a therapist's point of view, the pros of an independent contracting arrangement include

a higher hourly wage

flexible hours

the feeling of being your own boss

But there are also some cons for both parties. Because paying contractors becomes expensive, it's often best for facilities to use independent contractors only to fill in staffing gaps, for example.

In addition, using these workers regularly can also result in a lack of staff continuity because they will be less familiar with patients, policies, and procedures.

"In many small companies, the independent contractors are used as back-up people when the full-time therapists want a vacation," says Karen Eyberger, MEd, CRC, rehabilitation development manager for Genesis HealthCare System in Zanesville, OH.

For therapists, being an independent contractor means not receiving benefits and experiencing a lack of common goals with the facility and its workers, say experts.

The IRS says . . .

The distinction between worker categories can be a slippery slope for rehab facilities because although the Joint Commission on Accreditation of Healthcare Organizations and the Commission for Accreditation of Rehabilitation Facilities encourage contract staff to be as educated and involved as regular staff, the IRS wants to see a clear difference in the way facilities treat the two groups.

If you're not sure of your official work status or if you have hired some part-timers and don't know whether they officially qualify as independent contractors, the IRS has some pointers on how to tell.

"The IRS is very clear regarding how much control the independent contractor has v. the employer," says Angie Phillips, PT, president and chief executive officer of Images & Associates in Amarillo, TX. "The independent contractor truly has to be independent."

For example, a rehab manager could call up independent contractors and ask them whether they would like to work on New Year's Day. The therapist could then accept or decline. Conversely, if that same facility has a holiday rotation policy in which every full-time employee must work one holiday a year, that employee can't refuse to work the holiday to which they are assigned.

"[Independent contractors] can decline any assignment, and because they aren't employees, I can't tell them when to work," says Eyberger. "But a holiday rotation can be an expectation for an employee."

Here are the three main areas of control:

Behavioral control addresses whether the facility has a right to direct and control how individuals do their work through instructions, training, or other means.

Requiring an independent contractor to work an additional eight hours one week would be exercising too much control, says Phillips.

Financial control addresses whether the business has a right to control the financial and business aspects of the worker's job. "It really comes down to who has control over the work, the work schedule, and the work product," says Phillips.

Type of relationship addresses how the facility and the worker perceive their business relationship. It includes

- written contracts describing the relationship the parties intend to create

- the extent to which the worker is available to perform services for rehab facilities

- whether the facility provides the worker with employee-type benefits such as vacation and sick pay

- the permanency of the relationship

- whether the services performed by the worker are a key aspect of the company's regular business

Final pointers

Whether you hire independent contractors or are one, Eyberger and Phillips offer some additional advice:

Keep a file. Retain all information about the arrangement you've created. This includes any contracts or agreements, as well as lists of duties or responsibilities required of independent contractors at the facility. "Independent contractors must purchase their own professional liability, and it is vital that a verification of such be part of the file," Eyberger states.

Save your money. If you are hiring independent contractors, you will have to pay them a substantially higher hourly rate than you pay your full-time employees. If you are an independent contractor, you will need to have money available for April 15, when the IRS will require you to pay taxes on your earnings.

"Because they are independent contractors, we don't withhold federal, state, or local taxes," says Eyberger. "They have to declare the money they made as income and pay it all at once."

The IRS also may require you to pay your taxes quarterly instead of owing such a large amount in April.

Avoid perks. By including independent contractors in events like holiday parties or employee appreciation days, the lines between employee and contractor can get blurred. Be careful who you invite, or whether you attend these kinds of gatherings.

"Don't treat independent contractors like employees. While it is important to ensure that your contractors receive adequate orientation and are competent on the job, the more you treat them like employees, the more you'll put yourself at risk from the IRS," says Eyberger.

"By including them in various activities, the more likely they may be to say 'yes' to assignments, but the company needs to be cautious."

According to Eyberger, the bottom line is that the IRS should be able to see a clear distinction between an employee and an independent contractor. Otherwise, the IRS could decide you owe that worker back pay for benefits because you treated him or her like an employee in other ways.

Visit www.irs.gov/pub/irs-utl/emporind.pdf to view information from the IRS regarding differences between employees and independent contractors.