Transcript
Voice Over: You’re about to listen to an episode of What the Hell Just Happened?! Join Paul Edwards and his guests as they discuss interesting HR topics and solve some of our listeners’ submitted questions.
Paul: And occasionally I’ll go off HR topic and talk about whatever I want to talk about. Think barbecue. Space exploration. Technology. Money. Managing. Business. Things that interest all of us.
Voice Over: We get a lot of emails with questions. Stay tuned for details on how you can submit yours to the show. And now let’s get started.
Paul: In today’s episode, we’re going to nerd out with you. I’m going to be bringing in one of the experts, Moriah, from the Solutions Center over at CEDR and what we’re going to do is HR Nerd and kind of go down the classification conversation, independent contractor versus employee. I find this a fascinating subject. I’ve had to explain it and Moriah, when she comes in, she’ll tell you she’s had to help hundreds of offices get this right. In this case, we’re going to talk about a dental hygienist in a dental office and whether or not they can be classified as an independent contractor. So it’s a subject near and dear to my heart. Because we are an HR podcast called What the Hell Just Happened?! – What the Hell Just Happened?! is, is that the IRS and the DOL have their own set of rules that have been in place forever, and they make determinations and give us the tools in order to be able to make the determination of whether an employee is an employee or an independent contractor and What the Hell Just Happened?! is someone misclassified a hygienist and now they’re going to have to pay. Moriah, how are you?
Moriah: I’m rocking and rolling.
Paul: You’re rocking and rolling?
Moriah: Yeah.
Paul: How’s the Solutions Center looking over at CEDR?
Moriah: It’s awesome. This time of year gets really busy with those end of year requests and everybody looking at their handbooks and their benefits.
Paul: Oh, you guys got a bunch of laws changes too that you’re working on over there. So for anybody who’s listening for the first time or maybe the second time, Moriah is one of our experts in the Solutions Center, what we call the Solution Center, at CEDR. CEDR’s job is to provide compliance and then problem solve. Right?
Moriah: Yep. Mostly day to day HR Issues being brought to us and then, of course, just day to day operations and maintenance of those policies and making sure they’re compliant. So yeah, lots of end of year stuff. It’s a big HR thing.
Paul: It’s a big HR thing.
Moriah: Yeah. We get a lot of traffic at the end of year, but I also get a lot more energy because it’s cooler temps. So hopefully we’re all feeling up to the challenge.
Paul: We live in the desert, so we get excited. The temperatures drop below 100 for the first time in late October where we live, if you’re listening. So part of what we do is provide all kinds of analysis to help on the compliance side. So an analysis from us could be something like, “I have an employee, this is the problem,” and our analysis goes into, “Well, what else is going on? What kind of documentation do you have?” So analysis. Another place where we help, we provide a lot of guidance (which is what we’re going to talk about today) is an analysis of whether a person is an employee or an independent contractor.
Moriah: Yeah.
Paul: And we’re going to kind of go through and just do the analysis with you. So I think the best way is to kind of role play this? Kind of role play it, right?
Moriah: Absolutely.
Paul: By the way, if you’re listening: This is going to be some HR Nerd stuff right here, but I swear we’re going to make it interesting.
Moriah: This is the nitty gritty, fun stuff that we love to dissect, and so anytime we get, we see somebody pulling an article or something that they feel really strongly about or they’re fighting back on classification stuff that we know? We do love to pick apart these things and go deeper into the analysis.
Paul: So somebody will write an article that doesn’t agree with us and they’ll put it out and then we have to deal with that.
Moriah: And oftentimes that looks like a good source, a reputable source.
Paul: It does. I like healthy pushback. It’s not that we don’t learn something. It’s not like there isn’t something else for us to learn in this area.
Moriah: Absolutely, always.
Paul: But a lot of times we see these articles there’s some self-serving thing to it. Like it’s a temp agency somewhere making the case that someone can be classified a way that we just don’t agree with. By the way, we’ll get into who we are and why we would agree and what resources we would use to form those opinions. So, look, I want to do this analysis like we would do any other analysis. So I think we need facts, right?
Moriah: Set the stage for me, Paul.
Paul: So I’m going to create a case, okay? All right. So first of all, we’re talking about a dental office, but everybody we could be talking about any kind of office. It doesn’t matter who you are listening out there. You could be medical, you could be dental, you could be a medi spa. Doesn’t matter. You have to classify your employees, and this question of whether or not an employee is an employee or an independent contractor comes up across all industries –
Moriah: All industries, yeah.
Paul: Not just kind of medical related. I mean, even on car dealerships and mechanics and all sorts of things. So in this case, the facts of the case is it’s a dental office. The worker performed services for this dental office we’re talking about as a dental hygienist. The place that she worked – and most dental hygienists are “she” so I’m just going to assume “she.” For all the guy dental hygienists out there – I’m sorry.
Moriah: [laughing] We know you’re there.
Paul: So this is an important part of the thing: How did the business report the payments to this person? And they reported them as a 1099, which means they withheld no taxes whatsoever. They just came to an agreement with this person and they gave the person a certain amount of money.
Moriah: That she was classified as an independent contractor.
Paul: Yup. They felt that since the worker…So their reasoning for doing this, they did their own analysis, right? Did an analysis, or maybe someone helped them with it. I’m saying they felt like the worker was licensed. So it’s a licensed dental hygienist. It feels like they got a professional licensing and they were filling a temporary position. So they were only using her part time and to support that, she was also working in other offices. So these are speaking to this thing that we’ll get into maybe a little bit deeper, which are these sets of parameters, facts, things that have to be true. There’s about 50 of them, roughly. Again, roughly. The IRS has a set and the Department of Labor has a set, and a lot of the things that are in their lists are the same. They cross over, but there’s a few things that are unique. The uniqueness doesn’t matter in today’s talk. So they’re kind of using that test and they’re saying she doesn’t work here all the time. She’s free to work other places and she does and we have an agreement with her.
Moriah: And Paul? The FLSA and the IRS double down on the fact that those factors do not rule. So the answer to one factor does not mean that you have finished your analysis.
Paul: You can check off 12 of the 50 and think, “Well, I got 12, that’s a majority,” and still fail the test. That’s what they call it: “The Test.” So you can still fail the test. It’s not like most other tests. You could actually get almost all of them checked off and still fail the test. It’s kind of an interesting way to look at it. So they felt like she could qualify as an independent contractor. This should really sound familiar to people that are listening right now. She was then converted to an employee status at the first of the year, so she had worked there, I think, in 2017 –
Moriah: In a temporary capacity?
Paul: In a temporary capacity, and she was filling in. In 2018, they were like, “Hey, we’d like for you to come over here and start only working for us.” Okay? The employer would have indicated that the work assignments were based on her availability and patient load, which is kind of interesting.
Moriah: And I would say that’s one of the biggest red flags that we see with these misclassification issues is when they are classified as an independent contractor, and you’ve attributed certain factors to that analysis, that classification, and then later they’re classified as a regular employee.
Paul: It gets changed.
Moriah: In the same position or a similar position.
Paul: Yeah. So the worker would contact the dentist if there were any complaints or problems. So if we give some of the fact pattern in here: The hygienist is supposed to be acting independently, and I think in this scenario she’s still an independent contractor as she’s converted to their kind of full time dedication to them. So they had her as an independent contractor. That felt like it was going right, and so now she’s full time. They still have not changed her to an employee. She’s still an independent contractor. The worker would then let the practice know a week in advance if she was available. They would then schedule patients accordingly. She was not required to attend staff meetings and so somewhere they picked up that if you have them attend meetings that you control them in that way. So they were thinking, “Well, we won’t have her come to staff meetings,” which I just want to say, if you have a full time person working with your patients and in your business who doesn’t have to come and join in and be a part of the team? That’s a whole nother problem.
Moriah: Sure. Absolutely.
Paul: I mean that’s a whole nother issue. So the last few parts of this part of the fact pattern: Didn’t have to go to the meetings. The practice did provide the hygiene instruments in the room. Provided patients.
Moriah: She’s using all of their equipment.
Paul: Yeah she’s their equipment. She’s doing all the work on their facility. She was paid on a per diem daily basis.
Moriah: Okay.
Paul: Every day, whatever she did, whatever their agreement was, she was paid the full amount, no taxes withheld. Then they made it clear that either party could end this at any time. So that’s kind of an At-Will kind of thinking about this. So I gave you what the practice told us, right? So let’s see what the worker said. So the worker stated she was asked to cover shifts of other employees if they were unable to come in. So she’s supposed to cover for other people. It could be for pregnancy for someone else if they’re sick or whatever.
Moriah: Like another employee would be asked to.
Paul: So she’s a little bit on standby. She indicated also that the practice determined the day she worked as well as the scheduled patients.
Moriah: Element of control there.
Paul: Well, what she said and what they said were two different things. They said that she would tell them –
Moriah: Her availability.
Paul: And then they would schedule patients. And she’s saying, “No. They would tell me when they had patients and when I was supposed to come in,” which I think probably converted when she went from being available as a part time hygienist to working at the practice full time, because that’s what the practice needs.
Moriah: Stability.
Paul: Yeah, they need the stability and predictability of scheduling. She agreed that she was paid on a per diem. She agreed that the patient didn’t pay her, they paid –
Moriah: The practice directly.
Paul: And then the practice would pay her her per diem. Again, that’s a determining factor. The firm did carry worker’s compensation insurance. I’m just throwing that in there because there’s a…Well, we’ll come back to it. How about that?
Moriah: Absolutely.
Paul: I’m throwing that in there. But there was worker’s compensation for the business and then all the work was performed under the business’s name
Moriah: And onsite.
Paul: Onsite.
Moriah: Okay.
Paul: All right. So, now that we have some facts, and these should sound familiar to people who are listening, and here comes the fun part, everybody: So we need to do an analysis.
Moriah: Yeah. I mean, the first part of breaking this down is considering that ultimate control and oversight that they had over her position and her procedure for doing her job. So they she did state that she was required to notate each patient chart in the treatments delivered. So she’s following a procedure that is in line with their operations. They’re requiring to know and understand what has been done and also how it has been performed. So they want to retain that element of having the right to address her performance.
Paul: They want control.
Moriah: They want control and they’ve invested in the equipment and the financial aspect of the business and where she’s performing. So they need to retain that ability, even if they don’t engage in corrective action, for instance, or if they don’t need to follow up and tell her how to do her job? They do retain the right to do that for liability sake.
Paul: Makes sense and for continuity and to just make things work. Right?
Moriah: Yeah. Even her fitting into that sense of procedure of notating patient charts, probably being asked follow up questions on occasion where there may have been insurance, pushback, etcetera. You know, that’s an evidence of both the control and lack of independent control over her procedure, how she performs that job.
Paul: I’m going to introduce the term here, and look, everybody, I don’t want to go down the rabbit hole on this, but the term I’m going to introduce is “Common Law,” which basically it is exactly what it sounds like. This is the common law that people have to follow, as stated that you will find, that the IRS has in this case – Remember, we said the IRS or the DOL can run this analysis. So you can get attacked from both or either side. Common law is that list and all of the determinations, the lawsuits and the findings –
Moriah: The court’s interpretations of those –
Paul: Okay. So under common law, is there something in our common law that we would say at the beginning of this analysis? There’s something we’d bring up?
Moriah: It’s that behavioral control over her position and it’s the element of her performing a necessary aspect of their operations.
Paul: Got it. So generally, the relationship from employer to employer exists when the person for whom the services are being performed for has the right to control and direct.
Moriah: Correct.
Paul: Generally. So we’re beginning to see some cracks in the independent contractor facade, right?
Moriah: With some evidence of that control.
Paul: Yeah, with some evidence of the control because she said something different than they did: “They tell me when they need me to work,” –
Moriah: In terms of her schedule, but she was required to follow their systems and procedures.
Paul: So when you’re determining whether or not an individual is an independent contractor, under that term we use, under common law…Look, all that, everything about control or the lack thereof, when you take that into account, you really do have to consider the whole thing. I think people get caught in that trap because they see it on the lists. They see that control or lack thereof on that list and then they try to kind of game the lack of control.
Moriah: Right.
Paul: And that’s the thing I want to point out here is it doesn’t matter what an agreement says or what you say, it’s what actually is going to happen in practice and pattern inside of the business.
Moriah: Right. So she’s qualified for the position, she can perform as a dental hygienist, but say she’s using one of the tools incorrectly. The employer wants to retain that ability to follow up with her and let her know that she needs to follow their systems and procedures.
Paul: The patient doesn’t get in touch with her and tell her that there’s a problem.
Moriah: Exactly.
Paul: The patient comes to the doctor and says, “You know, that didn’t go well,” or, “I didn’t think it went well. I went to another dentist and they said she didn’t clean my teeth right.” They don’t go to her. They come back to the practice.
Moriah: I think that leads right into the financial control aspect.
Paul: Okay, let’s do it.
Moriah: If this hygienist is coming on, working within your business and as a necessary, an integral part of that business, she’s not engaged in an independent enterprise. So she hasn’t invested any financial capital. She doesn’t have an opportunity for profit or loss in that situation.
Paul: So people mistake the ability to get paid a certain amount with whatever they may be able to deduct from their taxes as some kind of a business profit and loss thing, and that is not the case. So when they just pay her, she doesn’t develop the patients. She doesn’t advertise for them. She doesn’t intake them. She doesn’t bill them. She doesn’t pay the 3% credit card bill. She doesn’t do any of those things. Even if she did some of those things, it still would not be a determining factor that would push it over the edge. But I’ve never had the hygienist had me swipe the card. [higher pitched voice] “I’m done with your cleaning!” And then she breaks out –
Moriah: Her little square? [laughing]
Paul: Her little square machine and is just like ‘swipe!’ and off you go. Okay. So as you said, financial control, who controls the finance of what’s been going on? I want to back up just a little bit because at the beginning of the fact pattern, I inserted that there was an agreement. That agreement could be oral or it could be written. Again, I see these agreements written where they’re trying to game that system in and address, “I don’t have control here. They get to make their own schedule. They get to do all those things.” I just want to reiterate, everybody, that agreement holds no water whatsoever. Now, if you look at the list and you’re trying to pile on and make the case, the fact that an agreement exists is a good thing. That’s a good thing. It does help, but it is not by any stretch a determining factor.
Moriah: So we would say, “You can’t pay people in chicken even if they agree to be paid in chicken.”
Paul: That’s exactly right.
Moriah: But the IRS says that an agreement like that is without merit.
Paul: They just don’t care. Yeah, the DOL feels the same way. Okay, So wake up, everybody. No, I’m just kidding, because I know. A few people were listening to this before they went to bed and they’re like [snoring noises] They’re snoring and I’m just like, ”Wake up!”
Moriah: [laughing] Because we’re nerding out over dental hygienists.
Paul: Because we’re nerding out over a dental hygienist and independent contractors. Okay, so let’s continue our analysis. So if you take everything and apply what we just talked about –
Moriah: Well, that last piece that we talked about in terms of an agreement is, is that relationship between the employer and the employee.
Paul: Right.
Moriah: And I think that’s maybe where people tend to discount the factors that are really concrete that we’ve talked about, which is the behavioral and financial control. If you go into that agreement and you say, “Well, no, you know, she and I had an arrangement,” or, “It was a verbal agreement,” again, without merit. Some of those factors might change from industry to industry. When we talk about the dental hygienist, this all wraps back around to the fact that the dental hygienist, like you said, can’t perform her services without the supervision of a doctor.
Paul: Nope. The only state I know of where a dental hygienist can do it, is Colorado.
Moriah: Which still doesn’t remove those elements of control.
Paul: She wasn’t at her office. She wasn’t in her own place. She wasn’t taking payment. All those things. So if we look at the factors, okay, I just kind of want to break those factors down. I think they call them the category of evidence or something like that?
Moriah: Yeah.
Paul: So right to control how the worker performs the tasks they perform. This includes things like training, instructions that you give them: “This is how we do it. This is how you’re going to do it. This is how we chart all of this. This is where it goes in our software – “
Moriah: Retaining the right to do so.
Paul: Retaining the right to do all those things which, you know, is the smart thing to do. Retaining the right to go through all the methods. These are the facts that we just have gone through. All right. The last thing I want to do is revisit the factors that illustrate how the parties perceive their relationship, right? Because remember, everybody we said the agreement doesn’t control, no one thing controls. So now that we’ve given you everything, practice says one thing about who controls when they come in, the employee says a different thing. So we’ve got to take all that stuff and bring it to bear. So the factors that illustrate how the parties perceive the relationship, what do they include?
Moriah: It includes that written contract, that transparent agreement, whether that be an offer letter or some sort of agreement with maybe a compensation structure. The provision of or lack of inclusion with employee benefits –
Paul: Which is one of the things on the list is do they get to be on your benefits thing.
Moriah: And it can be a really big area of liability in certain states where employees have rights to protected sick leave or protected leave of absence policies. So you’re really opening yourself up to a lot of liability there in terms of not offering that to someone who should be classified as a regular employee.
Paul: Okay. Then the permanency. So the right to end the relationship at any time.
Moriah: Well, and the fact that the length of employment does not actually have an impact on this analysis. So you could have a dental hygienist come in for one day, be paid a day rate, and they should still be classified as not an independent contractor, as a regular employee.
Paul: I’m going to speak to this very quickly. There’s this $600 thing out there that says that if you pay someone less than $600, you don’t have to report it to the IRS. People take that and take it a step further and say that also means that you can treat anyone who you pay less than $600 as an independent contractor.
Moriah: It doesn’t translate.
Paul: I am not an accountant, but I can tell you, nowhere in the statute does it say that when it comes to employees. So you just take that $600 and that’s for maybe your person who comes in and cuts your lawn in the summer. I don’t know how you get that done cheap. Well, here in Arizona, it’s easy because no one cuts lawns.
Moriah: [laughing] It just dies.
Paul: Yeah, they come out and they scrape your rocks for you. Nonetheless, I just want to say that $600 doesn’t matter.
Moriah: Well, I think that’s important as well for not always taking, you know, a CPA or something you read on the Internet for its face value.
Paul: Yeah. Let’s also add more factors to this. In this case, I’m going to say that the worker wasn’t engaged in any kind of an independent enterprise. Now, we didn’t really get into that, but I’ll give you an example of an independent enterprise outside of where we normally talk: A car dealership has the need to have certain cars that come in, the seats in them reconditioned, things need to be repaired in them. Not every car that comes in needs that. Only some cars that come in and not every car is going to get that because of the value of it, it doesn’t warrant putting that kind of work in it. They just put it on the lot and sell it like it is.
Moriah: You’re talking about a project with an end result.
Paul: I’m talking about a project, and a specialized…And so what they have is they call a guy or gal and that guy or gal, that’s all they do. They fix seats and then do the cleaning and bring them up. They have their own tools, they have their own specialized knowledge, their own training. They tell you when they’re coming and you know, you can tell them, “I need it done by Thursday.” They’ll tell you, “Well, we’re going to be there Wednesday -”
Moriah: “I want you to use this type of method,” potentially. But you’re not specifying the procedure that they’re using.
Paul: Well, you just want it to match, that’s all you’re saying. You don’t tell them how to match it or doing that. Okay. So that’s someone who has their own independent enterprise and we could apply that down many, many avenues. This dental hygienist does not qualify for an independent enterprise. She’s doing the work of the practice. All general dental practices, practically all general dental practices. I shouldn’t say all because there’s always one guy out there who would be like, “Excuse me!”
Moriah: “I sure do not.” [laughing]
Paul: “I do not care if their teeth are clean.” Everybody cleans teeth, if you’re in a general dental practice. It’s just part of the –
Moriah: Integral part of business.
Paul: Yeah, it is an integral part of the business. That last thing we put in that both parties retain the right to just end this at any time, and that is one of the factors. A true independent contractor has to be able to do work for other people. So the guy that comes or gal that comes in to fix those seats at that car dealership, they go to their competitor the next hour over. Just go over and they start repairing seats. They’re capable of freelancing. But see, that’s not the determining factor that made them an independent contractor. Their ability to go work at another place is the same as the fact pattern here.
Moriah: Absolutely.
Paul: But they’re an independent contractor whereby this dental hygienist is not.
Moriah: They have a financial investment in the profit and loss.
Paul: Yep, yep, yep. If they give a price of $60 to do the job and it takes them four times longer, they don’t get to come back and charge more money. They bid $60, they take $60. They have the ability to have a profit loss.
Moriah: So as an employer, Paul, when someone says during a hiring process, “I am an independent contractor. I want to be classified as such.” And say they’re a dental hygienist, how do we respond?
Paul: I don’t care what you want. I don’t care what your accountant wants.
Moriah: I cannot classify that position that way. It would be opening us both up to potential risk.
Paul: Yeah. It doesn’t matter what they want. I mean, I just want to be really clear. This is applied to associate doctors in other areas. If you’re listening and you’re the employer or the manager, the IRS, the DOL put this right in your lap and they say it doesn’t matter what the other person wants. You have to start with, is this person an employee or an independent contractor? And then split them off and put them where they’re supposed to.
Moriah: Right. The burden of proper classification is on the employer.
Paul: And they can’t absolve you. They can’t sign something that says if they get audited, they can’t do anything –
Moriah: They can’t sign away those employee rights.
Paul: Right. So let’s jump to the conclusions, because I know everybody is riveted out there and they want to know how this is…I think everybody can tell where this is going to go. So I’m going to kind of go through the conclusion. Do you mind?
Moriah: Not at all.
Paul: Okay. So, look, based on the analysis as we laid it out, I will conclude that the firm had the right to exercise direction and control over the worker to the degree necessary to establish, in my opinion, that the worker is actually an employee and not an independent contractor. The fact that the worker is a licensed dental hygienist and they perform services on a part time basis, at least in the beginning, doesn’t indicate that they’re an independent contractor. It just doesn’t.
Moriah: It doesn’t hold weight in that analysis.
Paul: It carries no weight. It’s true. It is part of the overall list, as I’ve been saying, but it doesn’t help. Dental hygienists are required by law, for everybody who’s listening, and this is important (if you don’t know about dental hygienists): They’re required by law to perform their services under the direction and supervision of a fully licensed dentist. So they cannot have that independent enterprise unless they are in Colorado, and I think there may be one other state. But again, as we told you before, it doesn’t matter. It matters how they’re applying right now. Again, I just want to say this: The practice scheduled the patients. That’s how that’s going to go. They collected payment from them. So that’s another kind of strike against the independent contractor argument. The worker, as we said, is a trained hygienist. So direct supervision wasn’t necessary, because that’s the other argument we get is, “I never go in there and tell the hygienist – she knows how to do her job.” You got to understand that the fact that they can work independently, that they’re capable of working on their own in a room and doing their job, is not the same as an independent enterprise. They still, by law, must work for you. They have to work for a dentist, if you’re listening.
Moriah: So she could go and do her services somewhere else, but still under the supervision of a doctor.
Paul: Still, there’s got to be a doctor there. The fact that the worker performs services for others in many instances, to include the one in the scenario that I’ve laid out for you, does not indicate, as we’ve said, that a person or a business is a business themselves, but they’re merely trying to work a full time schedule. I mean, that’s all she’s trying to do is just earn money.
Moriah: That doesn’t translate to a permissible independent contractor classification.
Paul: So in this particular instance, she may have performed the same services for other dental facilities, but again, she would have had to practice under the direction of, like you said, a dentist.
Moriah: This is analysis we’re familiar with. We do this break down all the time. We walk employers through this and the ways that we’re seeing it bubble up is in guidance, published guidance, by temp agencies. We see people trying to give legal advice through this. So if you go and just do a Google search, you’re going to come up with a lot of different answers to this type of analysis.
Paul: Yeah. I think the big reveal here, if you’ve stayed here the whole time, is that we may sound kind of smart and we put this whole thing together and we put this scenario for you. We gave you the analysis and how it would have to turn out. I hope we sounded really smart, but the thing that we probably need to confess here is, is that we are reading directly almost word for word from an SS8 determination. It’s a determination for public inspection from the IRS whereby this exact scenario in 2017 was given to the IRS and this is what the IRS said, is what we just told you. Now we feel good because this comports with what we’ve been saying for 18 years. We got this right right out of the gate. So we feel good that it comports with what we are doing. We just want to be clear here. We told you earlier, we’d explain this to you. We didn’t make these rules up. We’re just following the rules and if you look at the determination from the IRS, based on a scenario that everybody who’s listening here has gone through, there’s no doubt that this person is an employee. Now, what happens is the hygienist gets audited.
Moriah: Herself. Personally.
Paul: Herself. She gets audited, she catches an audit or the other practice that she works for catches an audit. They make the determination that she’s been misclassified over there. They come to her and they ask her to fill this out, fill out this form of facts. You can see that she shifted. You could see they said one thing. They said, “No, she determines when she’s available.” And she said, “No. They tell me when I’m supposed to be there.” Ultimately, they hired her on full time, which was a nail in the coffin when they did that. In the end, we don’t make up these rules, right?
Moriah: No, and we see the Department of Labor always trying to return to this long standing interpretation.
Paul: Yeah, and they’re not moving from it. We have 16 different versions of this, but getting back to somehow she filled this form out with the IRS. The reason why is because the IRS still wants their Social Security and they still want all their matching taxes and the Department of Labor and your local Department of Labor wants their taxes. So everybody wants their money here, and so you’ve been paying this employee for four years. She gets audited. Now it’s determined that she’s an employee. You’re going to have to go back and pay all the penalties, the back taxes. You might have to hire an attorney at $400 an hour. So let’s add another $15,000 in there.
Moriah: You might be looking at back owed over time.
Paul: Oh, yeah.
Moriah: Let’s talk about the benefits that are required in your area. So you might be in a heap of trouble.
Paul: You could be really in a heap of trouble because you’re trying to save 7% on social Security because somebody told you that you could do that when clearly you’re not supposed to be doing that. I’m an entrepreneur and there’s a risk and reward. There’s a way to, at what point, who’s going to know? I’m going to be realistic here. I’ve operated businesses forever. If we audited the first businesses that I owned, the window washing business to start with, which was fabulously successful, by the way, everybody. I broke every labor law in the world. We were up ladders. I was paying people under the table. There were no taxes. I didn’t know any of that. What are the chances I was going to get caught? They were pretty low, but that’s not a good defense for a medical or dental practice.
Moriah: No. When you think about all of the other liability areas you opened yourself up to, it’s just not worth the risk.
Paul: Yeah, just lay this on you: If your worker’s comp doesn’t cover independent contractors on the face of it, right? So the guy that comes in, that comes through, that fixes that car, that car seat, if he cuts himself while he’s doing that, that’s on him to go to the hospital. That car dealership’s worker’s comp will not cover that independent contractor.
Moriah: Right.
Paul: So everybody who’s listening understands how insurance companies work. They make their money off of not paying out and denying. So you’ve set yourself up for them to deny the worker’s comp claim if she were to get a stick.
Moriah: And then what is she forced to do?
Paul: Well, she’s forced to throw you under the bus. She needs to be reclassified as an employee. She’s going to get it.
Moriah: She also maybe gets a needle stick and needs treatment, and then the cap on what she can pursue in terms of damages?
Paul: Yeah. So we have a ton of this information at our, at CEDR’s website, all kinds of guidance on this.
Moriah: Trainers and advisors that will happily walk you step by step because we love this stuff.
Paul: Yeah. If you feel like you have somebody that you’ve misclassified, maybe someone’s told you it’s okay, you’ve gotten it from some kind of consultant or something, I urge you to go to a CPA. Not your local accountant. Not your payroll company. Not your best friend who’s doing the same thing you’re doing. I urge you to go to a CPA and ask them and I think they’re going to tell you exactly what we’ve just told you here. You know, ultimately, guys, your hygienists and your associate doctors who are working for you, doing the work of your business, they are not ICs. They do not qualify for that underneath the IRS or the Department of Labor’s rules.
Moriah: Correct.
Paul: Okay, everybody. I know we went down the HR Nerd hole, but I love this subject and we’ve been fighting this battle. It’s like we win for about two years and then the flow goes the other way –
Moriah: And we see a pop up in media again and everything.
Paul: Yeah, it keeps coming back up again. So, this is our talk on an independent contractor versus employee and we put it in the context of the dental hygienist.
Voice Over: Thanks for joining us for this week’s episode of What the Hell Just Happened?! If you have an HR issue, question, or just want to add a comment about something Paul said, record it on your phone and send it to podcast@wthjusthappened.com. We might even ask if we can play it on the show. Don’t forget to Like and Subscribe and join us again next week.
