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In the past several weeks we have been unpacking a question that I had received from an anesthesiologist:
“I have a potential new contract with the hospital in September to serve in a GME role. Would like to take this as 1099 income to a PLLC. A partner is in a similar arrangement but the hospital is refusing 1099 and instead doing W2 with tax withholding. We are not employed by the hospital currently. We work for an anesthesia management company contracted with the hospital. Not sure if you can help with this, but figured it was worth the time to type it out.”
I have discussed elements of this question in my 2 previous posts:
Employee or Independent Contractor: Doctors Are Long-Term Contractors
What’s Your Why?
Today we are going to take another look at this question from the vantage point of why you want to be empowered to self-define your worker classification. Understanding your “why” of choosing to be an employee or an independent contractor puts you in a position to build your best life as a doctor, rather than putting others in control of your life.
Start With The End In Mind
My advice is that you get yourself ready for your best future by being prepared to choose whether you want to be an employee or an independent contractor. Understanding the differences and how they will affect your career path is important. As this graphic demonstrates our lives are basically comprised of 3 phases with the latter phase being a state of identity and independence that is no longer tied to your work. Phases 2 and 3 of your life are influenced heavily by your worker classification.
Knowing what you want your phase 3 to look like is a critical element to your decisions in both phases 1 and 2 of your medical life. Thus, you don’t want to wait to decide which worker classification is best for your future with a reactive and uncertain mindset. Your passivity about this will typically result in you being forced to be an employee by default. This is not a horrible position to be in, nor is it a lifetime commitment because in reality, virtually every employment contract is only a 90-day rolling agreement regardless of its length.
In general independent contractors will arrive at the 2nd plateau of financial independence faster than employed doctors, and will do so having far greater personal and financial autonomy along the way. This all adds up to greater freedom if you go that route.
Choosing employment has its strengths as well, as we’ll dig into later.
Which path you take to traverse phase 2 of your life and then embark on phase 3 should be a matter of choice. It is all baked into your “why” decision about your worker classification. Ultimately, I don’t think that choice should be controlled unilaterally by the large corporations that now dominate the marketplace.
Changing Worker Classifications Is Hard To Do Later
Having been in those shoes I can tell you that you don’t want to make a passive decision at the beginning of the relationship and then hope to make an adaptive change later.
Because the hard truth is that once a corporation hires and classifies you as an employee there are a number of reasons that will make it very difficult to change you to an independent contractor designation later.
After things are set in motion, the corporation paying you is in complete control of the present and future decisions about your worker classification.
I have seen the desire to change classifications happen repeatedly to physicians over the years as I have coached them. The question often arises in the context of liking their current job, but they are looking for solutions to reduce their W-2 tax burden—which is one of the many advantages of a micro-corporation with an employment lite structure.
Regardless of how much the employed doctor may want to change their worker classification without changing their job, more times than not, their employer will deny it. Their unwillingness to allow you to convert to long-term independent contractor classification is typically due to their unreasonable fear of both IRS penalties for misclassifying you, as well as the fear of losing control of your professional services.
As it turns out, coming back to our introductory question from the anesthesiologist, this is the exact response that he got back (after some coaching from me) from the EVP of the anesthesia management group that employs him, where is he was told:
“We are not interested in our employees converting to a 1099 or “semi-permanent” locums because of increased IRS scrutiny over the past 2 years. There are also some credentialing issues with payers due to these arrangements. The anesthesia group’s liability is high and increasing due to the vast move of anesthesia providers to the locum’s life.”
And his response to me after meeting with management was like most doctors who have the transition door slammed shut on them, they just keep on dutifully working as a W-2 employee. It is better than the alternative of a disruptive professional job change.
He said:
“There are certainly many individuals moving towards 1099/Locums work in my field, but that is not my desire at the moment.”
My takeaway from these repeated experiences with coaching doctors is that being labeled as an employee sets in motion a nearly irreversible work relationship at your job. The only way to break free from it will be to hit hid the hard reset button, and change jobs. Frankly for many, like this anesthesiologist, it’s easier to not make a change.
Employed Doctors Are Non-Permanent Workers
In my last post, I made the case for why physician labor needs re-defined and why most employed doctors work under contracts that legally frame them as non-permanent workers. Thus every doctor should be given the choice to classify themselves as long-term independent contractors or employees within these jobs.
There are two obstacles to this functionally happening in today’s employment climate:
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Corporations are responsible to the IRS to classify every worker as an employee or as an independent contractor. Following traditional views of labor, they consider any long-term working relationship with a doctor to be classified as an employee. This is safer, easier, and saves them money in comparison to the most common independent contractor physician labor which is locums. The bottom line is you will be considered an employee by default.
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Most physicians are unprepared for this moment, have little coaching and understanding of why they even would want to be a contractor, and most importantly lack the proof needed to confidently allow someone hiring them to classify them as a contractor in the IRS’s judgment. And as I stated in a previous blog there it is a subjective decision for all parties through which the IRS does provide some objective guidance. The bottom line is you will be an employee by default.
Why Would You Want To Be An Employee?
There are lots of benefits to physician employment after all, and those include:
Just like there are two sides to every coin, the downside of employment becomes clearer a few years into the job. Over time those negative elements begin to inflict harm on you as an employee and those moral injuries include:
The current burnout crisis for physicians is tightly connected to these employment forces that erode our well-being. Yes, there are a number of ways to adapt to these forces and resilient physicians do so as a matter of survival. The horrible truth is that after 30 years of preparation in phase 1 of your life, phase 2 provides just a 50-50 chance that you won’t become a casualty.
I call it insanity and it’s why I wrote a book about it.
This a tragic statistical endpoint for an esteemed and altruistic profession like ours, and it’s not necessary!
Systemic change needs to happen to fix this problem, and one of the systemic changes that are needed is empowering you to choose your worker classification.
The Power to Choose
Regardless of the corporation you go to work for, what I am pushing for is your empowerment to allow you to choose whether you want to be classified as an employee or an independent contractor. The corporation that hires you shouldn’t get unilaterally determine this on your behalf.
But this is the current status quo—where large corporations that hire you get to define whether you are an employee or not. The issue for them, and for you, comes down to one critical word- control. Employees are controlled by employers, and contractors are not. Thus they want to define your relationship with them right from the beginning as one of co-dependent control by them.
That control is subtle at the beginning but gradually can become suffocating.
How To Empower Yourself to Choose
Now that we have covered some of the “why’s” involved with you being empowered to define your worker classification, in my next post we cover the “How”.
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