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Employee or independent contractor?

Monday, Apr 9, 2018

 

 
 

For many years, dental practice owners have treated associates and some registered dental hygienists as independent contractors. Practice owners need to be aware of updates to California laws that specifically pertain to independent contractors and that these laws have increased the penalties for the misclassification of workers.

CDA Practice Support recommends that employers treat the independent contractor relationship as a vendor relationship contracted on a short-term business-to-business agreement rendering services for a specific result. If the dentist controls when, where and how the work is done, the relationship is likely one of employer-employee.

The classification of an individual as an independent contractor is largely dependent on federal and state tests, not an employer’s desire to reduce administrative burdens or payroll costs. The standards for determining whether an individual is an independent contractor or an employee are different under federal and state laws depending on the purpose of the analysis.

Under California Law, various tests apply to determine whether an individual is an employee or independent contractor for the purposes of workers’ compensation, unemployment insurance benefits, compliance with wage and hour laws and protections under the Fair Employment and Housing Act. When determining the status for an individual, it’s helpful to remember that this list is not exhaustive and the answer to any single test is not the determining factor. The Employment Development Department provides a comprehensive Employment Determination Guide (DE 38) that contains a worksheet of questions that California employers can use to determine employment status.

It’s not uncommon for Practice Support to receive questions regarding the classification of registered dental hygienists. When considering an employment status for an RDH, generally this individual worker would not meet the definition of independent contractor. The nature of an RDH’s work is largely dependent on the diagnosis and direction of the treating dentist, has little control over the practice schedule, is provided tools and is expected to be integral to the practice’s overall business. Given this, it is advisable that employers err on the side of caution and classify RDHs as W-2 employees to avoid any risk of misclassification. 

Misclassification of an employee creates a potential liability for employment taxes and penalties and liability for failure to fulfill the many legal obligations owed to an employee, such as unpaid overtime or meal- and rest-break violations.

Before classifying an employee, employers should consider the following factors:

  • The individual takes instructions from you or a manager regarding when, where and how work is completed.
  • The individual receives training from your practice, is required to attend meetings and is expected to abide by practice policies.
  • The practice is somewhat dependent on the type of service provided by the individual.
  • The individual must personally perform the contracted services.
  • The practice supplies support staff (DA, RDA) to assist the individual.
  • The individual provides ongoing services to the practice.
  • The practice determines the individual’s work hours.
  • The expected duration of the relationship is long term.
  • The individual performs the work on practice premises.
  • The practice provides equipment, tools or other supplies to the individual.
  • The practice has the right to discharge the individual.
  • The individual may terminate his or her services at any time without penalty.

If the employer marked several boxes above, it’s likely that the person is an employee and not an independent contractor.

Enforcement efforts to combat misclassification are on the rise and the obligation to prove an individual is not an employee is placed squarely on the shoulders of the employer. Questions surrounding the legitimacy of an existing independent contractor-employment relationship can arise in many forms, including:

  • Filings for unemployment insurance (UI) benefits
  • Claims for unpaid wages
  • High Form-1099 volume
  • Claims for workers’ compensation injuries
  • Charges of employment discrimination
  • Investigations by the IRS, the Department of Labor, the Department of Industrial Relations and Employment Development Department to audit wage payments, workers’ compensation coverage and unemployment insurance fund contributions. Visit CDA.org for full article.

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