Dental offices are made up of a variety of workers filling a broad set of essential roles.
Most of these roles in a dental office are filled by permanent employees, but temporary staff are part of many great practices. These temporary workers can offer practices flexibility and specialized services, but the penalties for improperly classifying these employees as contractors can be high.
Kwikly offers services that help you hire both long-term and short-term employees. Whether hiring for a temporary fill or a permanent role within your dental practice, Kwikly assists you in finding the right talent to ensure stress-free and consistent patient care. However, it is vitally important that you classify these employees correctly when bringing them onto your team.
Independent Contractor vs. Employee
If you were to define the difference between employees and independent contractors in one word, it would be control. Whether an individual gets classified as an employee or an independent contractor depends on how much control your dental office has over the individual.
Unfortunately, the differences aren’t always black and white, and they matter a lot in how you pay and allocate benefits to workers. Outside contractors typically get paid on a per project basis. They usually don’t get things like a regular wage or employee benefits. Since contractors have to handle their own taxes, employers avoid many of the employment taxes they’d typically owe.
For example, a dentist who is brought in on a temporary basis to perform a specialized task and paid per procedure is likely going to be an independent contractor. A dental hygienist who is on a six-month contract where you dictate their schedule and hours is almost certainly an employee.
Watch this webinar to learn more: Hire Smarter, Staff Happier: Mastering Dental Hiring & Classification
Taxes and Employee Classification
Classifying independent contractors and employees is most important when it comes to taxes. While employees offer stability, control, and culture-building for your dental practice, they also incur a high tax burden on their employer.
That’s because while employees are staff members who pay taxes, your dental office as their employer pays a lot of other taxes on their behalf. This includes Medicare and Social Security taxes. Employers must also withhold, report, and pay other employment taxes.
Independent contractors do not qualify as employees. They’re not typically eligible for unemployment payments — although the coronavirus pandemic changed this somewhat — and they don’t receive employee benefits. They also have to handle their own taxes every year. It places a large portion of administrative burden on the contractors and gives the practice less control over their hours and services. Temporary staff who are still classified as W-2 employees are the best middle ground for most practices.
Want to see how much having temporary staff on call can save you in lost production? Check out Kwikly’s Savings Calculator.
The “New” IRS Independent Contractor Test
Dental office managers would love to be able to choose whether a worker qualifies as an employee or an independent contractor – they’d save a fortune on taxes! However, that’s not how the law works, and many companies across the business world get in trouble by trying to skirt the law. The more common situation for dental professionals, however, is the accidental miscategorization of temporary employees and associate dentists.
The following Independent Contractor Test comes directly from the Internal Revenue Service.
1. Behavioral Control
How much control does the practice have over a worker’s activities? Do they set specific work hours or dictate certain ways jobs should get done? Or does the individual choose these things as long as the finished product is up to the company’s standards?
Think about the specialized dentist versus the contract dental hygienist from before. One of them has much more control over their time and pay.
2. Financial Control
How is the worker paid? If a dental office provides a regular or guaranteed wage — or if someone is salaried — it’s likely that person is an employee. Independent contractors are typically paid on a per-job or per-project basis.
3. Type of Relationship
What is the relationship between a company and a worker? If someone’s work relates directly to a business’s core function, the IRS is likely to view them as employed by your office. This is also true if you provide certain benefits (e.g., health insurance, paid holidays). Long-term workers are also more likely to qualify as employees.
Is an office manager, hygienist, or dental assistant essential to your day-to-day business and needs approval to take time off? If the answer is yes, they’re probably an employee.
These three factors should make it easier for you to classify those who perform work for your dental practice properly. If you’re still having trouble understanding the difference or dealing with other compliance issues, reach out to us at HR for Health for additional guidance.
What Forms Should You File?
If one of the workers in your dental office qualifies as an employee, you’ll need to provide certain benefits and withhold, report, and pay applicable taxes. You’re required to file a Form W-2 every year for each employee. If you pay an independent contractor more than $600 during a tax year, you’ll also need to file Form 1099-MISC and arrange a Form W-9.
Recommended reading: DOL Clarifies Independent Contractor Rules
Why Do Employers Misclassify and How to Avoid It
Misclassification of employees can be accidental or intentional. Some employers purposefully misclassify employees to avoid the taxes they’d otherwise have to pay. Because of the complexity and nuance of the rules, though, most private dental offices, DSOs, and smaller businesses that make this mistake simply didn’t understand classifications.
Avoiding this is as simple as reviewing the IRS Independent Contractor Definition. If you’re at all unsure about the right definition, it’s safer to go with a designation of employee rather than an outside contractor. Of course, this can get expensive as time passes. Your safest bet is to schedule a consultation with someone knowledgeable (we recommend the experts at HR for Health) to learn proper classification rules.
What Happens If I Misclassify an Employee as a Contractor?
Misclassifying an independent contractor as an employee has consequences, but misclassifying an employee is far more serious.
If you’ve misclassified a dental assistant, for example, and the IRS notices, you will need to pay back taxes, as well as additional penalties for not having paid them before. Penalties will also be assessed from Social Security, income taxes, unemployment taxes, and Medicare.
Dental offices also frequently have to reimburse misclassified employees for paid time off, higher wages, and other benefits they should’ve received as an employee rather than an independent contractor.
How Kwikly and HR for Health Can Help
Kwikly makes it easy to find all kinds of employees to keep dental offices running smoothly, whether in private practice or part of a DSO. With all kinds of employees comes all kinds of decisions in how to classify them.That can be tricky. While honest mistakes happen all the time, they can still lead to major repercussions for dental practices. Kwikly has a lot of resources that can help, but if the issues come up a lot, you probably need a team of human resource professionals on your side.
HR for Health is the only HR software platform built for dental and healthcare practices. Our goal is to ensure your practice remains in compliance with applicable employment laws. Whether it’s properly classifying independent contractors or working within the confines of federal regulations, we’re here to help. Contact HR for Health to schedule a consultation and learn how we can help your office excel.
