As the owner of a dental practice, you may wonder if it is beneficial to classify your dental associates and dental hygienists as independent contractors.
However, you can get into hot water with the IRS if you misclassify members of your staff.
Read on to understand the difference between these classifications and learn how to determine if a worker is an independent contractor or an employee.
Related: Before You Sign: 7 Questions To Ask Your Future Dental Employer
Simply put, an employer has the right to control how an employee does their job, while independent contractors can make more of these decisions for themselves. Independent contractors usually receive a flat fee for their work and the relationship with the employer is based on the results of their work, not the time it takes to accomplish it.
Employee: The employer decides how, when, and where an employee does their job.
Independent contractor: Doesn’t require guidance or training and can choose when and where to work.
Employee: Employers must withhold income taxes, pay social security and Medicare taxes under the Federal Insurance Contributions Act (FICA), as well as an unemployment tax. Employers also must afford workers’ compensation benefits.
Independent contractor: Independent contractors pay their full FICA tax and have no unemployment insurance or workers' compensation injury insurance.
Employee: Employers are legally required to give their employees work and lunch breaks and pay overtime. Employees also receive civil rights protection under the Equal Employment Opportunity Commission (EEOC).
Independent contractors: Employers aren’t legally required to provide breaks, and independent contractors accrue no vacation time, sick leave, or retirement funding. Independent contractors are exempt from EEOC protection.
Some dental industry employers choose to misclassify employees as independent contractors because they believe it will save them money on taxes. However, this is not only wrong but also illegal. It’s bad for employees because it means the employer is not paying their share of taxes or withholding the employee’s share.
In recent years, the IRS has begun to crack down on these misclassifications. A business can be held liable for employment taxes for a worker who has been misclassified as an independent contractor. If the IRS suspects fraud or intentional misconduct, it can impose additional fines and penalties. State governments can also collect their own fines for misclassified workers.
CPA firms that specialize in dental accounting are experts who know what litmus test to use when it comes to employee classification.
The experienced dental accountants at Chaliff + Associates can assist with employee classification and any other dental practice financial needs, including help optimizing your cash flow, choosing the best dental accounting software, and even calculating your overhead costs. Our dental practice accounting experts provide sound financial management, so you can focus on your patients. Request a consultation with a Chaliff + Associates dental CPA today!