“Should I be filling out a W2 or 1099?”
The dividing line between optometry employee or independent contractor can feel easily blurred, but in a conversation with Dr. Matt Geller, CPA Gary Topple and CFP Adam Cmejla go into detail about what employees and employers can do to make the line clear.
“Are you controlled or are you not controlled?” Gary asks. “You’re an employee if someone exercises control over what you do and how you do it. If you make your own appointments and rent out space in another ODs office, you’re truly independent. Anything short of that is grey to no you’re not.”
In these situations, knowledge of what exactly the positions duties are and how the position operates within the practice can help both the employee and the employer to figure out what exactly the role is. And it can be confusing for both parties! In fact, Dr. Geller estimates that 9 out of 10 employers will base the decision to hire an independent contractor off of advice from other ODs who have as much knowledge as they do which just leads to more confusion.
Gary recalls another client of his, a chiropractor, who experienced significant blowback for not being properly informed about the distinction. The chiropractor in question was set to go on a week-long vacation, and she needed somebody to cover for her for while she was away. She decided to hire somebody on for 2 days of that week because the candidate was already employed 3 days a week at another practice. Without a second thought, the doctor took her vacation.
When the employee lost her other job, she filed for unemployment and listed the chiropractor as an employer. Ultimately, the State of New York sided with the employee’s claim because the employer set the doctor’s hours and appointment schedule, even though she had only worked two days during the whole year.
In situations like this especially, Gary states that “the risk is probably greater to the employer than the employee.”
If employees are hired, mis-categorized, and the IRS performs an audit of the business, employees that are listed as independent contractors, and therefore excluded from retirement plans or health benefits, “the whole plan falls apart.” At which point the employer may be responsible for taxes on all contributions made for all the years that they paid for the plan.
“Taxes plus applicable interest,” Adam adds. Taking into consideration “the plan, the match, profit sharing, plus lost earnings if there’s more there. That can be a lot of cash to the business owner.”
It’s important to remember, however, that the employee isn’t off the hook if they’re paying their own health benefits, they started their own retirement plan, and they improperly designated an independent contractor, then they lose the deduction for the health benefits they were taking and they have to unfold the retirement plan and they have to pay taxes on all the contributions they made.
If you’re an OD getting ready to start a new job, and your new prospective employer offers you a position as an independent contractor, discuss the role with them. If you really don’t know whether you should be classified as a contractor or an employee, reach out to an accountant. It’s essential that you know the difference between the two. Knowing the difference can also be used as a bargaining chip. If the employer is only looking for a contractor, let them know that you’ll dictate your own hours, see your own patients, etc. or you’ll be classified as an employee!
At the end of the day, knowing the difference between an employed position and a contractor position, regardless of whether you are looking for a position or hiring for a new employee, can save you a lot of time, a lot of money, and alleviate a lot of stress.