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Employers Like Control
Physician employers don’t love you, they love you for what you can do for them. The age-old expression“It’s not personal, it’s just business” pretty much sums up how they will view you.
Thus they are initially going to roll out employment contract options that favor them keeping maximum control over your revenue-generating powers. That is a good business move on their part.
In the end, their business model for your professional services will be based on:
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The revenue you generate for them
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Your alignment with their business system
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Your costs to them as professional labor
The more control they have over you, the more they can maximize their return on investment in you as a business asset.
Remember it’s not personal, it’s business—and in the end, you are simply a business asset to them—like a piece of machinery that churns out money.
You Should Control Your Professional Life
However, if you can embrace your employer’s mindset of “it’s not personal, it’s just business”—you can empower yourself to define the relationship as business to business right from the beginning. This framework is powerful because it serves to preserve a measure of your control over your professional autonomy that will prove important in the long run.
It all begins with your understanding that you are a business.
You a living, walking professional micro-business—as an individual physician you have earned this super-power.
What this means is that you have the power to engage in business contracts as either an individual or as a business. It’s your choice and not your employer’s.
So as a business person, you don’t have to accept their initial traditional contract that is generically a business-to-individual contract.
Instead, you can politely acknowledge that although you could engage with them in a business-to-individual contract (traditional employment), you would prefer to engage with them in a business-to-business contract.
By defining the relationship from the beginning as business to business you signal to them that you want to be seen as a short-term or long-term independent contractor. If your plan is to settle down, buy a house, and create roots in one place, which is pretty typical for most doctors, then you should look at being a long-term independent contractor with them.
You need to think of yourself as a professional micro-business engaging in long-term independent contracting work.
This mindset for you is critical for you to embrace in order for you to thrive in the evolving macro-economic world of healthcare.
Long Term Independent Contracting Is the New Normal
As the gig economy continues to grow, more and more professionals are opting for long-term independent contractor positions. This arrangement offers a level of flexibility that traditional employment cannot match and offers a great deal of flexibility and autonomy.
Long-term independent contractors are typically highly skilled professionals who have chosen this path as a career choice. They are not just freelancers looking for short-term projects, but rather individuals who want to build a long-lasting relationship with their client-employers.
For businesses that employ doctors, hiring long-term independent contractors can be an excellent way to access specialized expertise without the overhead costs associated with full-time employees. You can bring a wealth of experience and knowledge to the table, often at a lower cost than hiring someone in-house.
Overall, the rise of long-term independent contractor positions is changing the way we think about employment and work relationships. As technology continues to advance and location indendent work becomes more common, we can expect this trend to continue growing in popularity.
Business-to-Business Contracts
Now that you signal to your employer that you view yourself as a professional micro-corporation and want to engage with them as a long-term independent contractor, they will typically reluctantly close their contract file marked ‘traditional employee”.
Please note, at this juncture, they are likely to push back and try to persuade you that they only offer traditional employee contracts if you want to work for them long-term. Although this may be their preference, practically speaking it is typically not true.
So, if you confidently hold your ground, and competently communicate that you prefer to engage with them as a professional micro-corporation—they will—In turn, open up their hidden contract file that is preserved for business-to-business contracts with individuals. Generically these are called professional service agreements (PSAs). and they are mostly used for locums but also apply to long-term independent contractors.
Much like a traditional employment contract, they will choose the one that offers them the most control over your revenue-generating powers—and this is the employment lite agreement.
Employment Lite
An employment lite agreement is strikingly similar to a traditional employment agreement—primarily because it helps maintain an employer’s control over your professional services. Both types of agreements used to include non-compete clauses but with the recent FTC changes, these are becoming a thing of the past.
So, I suggest right from the beginning you ask for a PSA, aka employment lite agreement. For your reference here is what it looks like:
The only thing that keeps you from asking for an employment lite agreement is YOU. And if you are unprepared for the moment—you will be escorted unknowingly through the traditional employee door. To understand how to not miss this moment read my blog “Empower Yourself To Choose Your Worker Classification”
After the initial recruitment is over and mutual interest is confirmed, their first move is to consider you an individual tax-payer, like most doctors, and therefore they will pull the traditional employment contract out of their files. It’s what they want you to see, and it’s what they prefer you sign with. That is because this contract provides them with the maximum control over you. Employment by IRS & Department of Labor standards may as well be translated as Control.
Employment Lite Keeps Employers in Control
However, employment lite maintains the integrity of an employer’s trifold business model for you-including their control over:
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The revenue you generate for them
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Your alignment with their business system
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Your costs to them as professional labor
In the end, employers get to keep their control of your professional services, and the associated business that is generated by your work, but as I will explain later, they can do it for less costs in an employment lite agreement, than with traditional employees.
A PSA is a business-to-business contract that allows you to fully align with the employer (thus they retain the business purposes of employing you)—but provides you with the freedom to engage in work outside of your primary job (professional autonomy).
The extreme control that employers place on you in traditional employment ultimately creates a burden and sense of entrapment for us as doctors—and thus sets in motion the cascade that leads to burnout.
Employment lite allows them to still have control, but it is far better for your general well-being and financial health.
PSAs ultimately are a solution to the burnout crisis created by traditional employment.
The Three Revenue Channels You Provide to Employers
As a reminder, there are three primary channels that employers make money from you:
All three of the channels function the same whether you are traditionally employed, or whether you are in an employment lite contract. In essence, both types of contracts are revenue equivalent for them. So from a business standpoint, which contract you want to choose has no consequences on how much revenue they will make from you. This is a huge point for both parties to understand.
Knowing that the revenue generated for the employer is equal in both contracts, the next consideration for both parties is to compare are the costs of each labor model.
Do PSAs Cost Employers More?
Employers often worry that a professional services agreement will lead to more expensive physician labor expenses for them in comparison to employment. This is because PSAs are part of what is called “contracted labor”—and contracted labor is usually more expensive.
Thus if you approach them about the employment lite option, they will typically say “no” due to cost concerns, as well as other alignment and control concerns.
This is critical for you to understand because you may have to take a few minutes to explain to them that you are talking about long-term contracted labor (employment lite) which is substantially different than their most common professional service agreement which is short-term contracted labor (locums)
Locums represent temporary physician labor and are a much higher cost to any large corporation due to the added expenses associated with its temporary state, and the 3rd party locum’s agency fees. Most hospital-physician employers are always trying to reduce and minimize their physician labor expenses in this “contracted labor” category. In fact, this is one of the top methods they will use to cut their physician labor costs.
Thus, their first instinct is to say “no” to any version of contracted labor.
But as I will explain later, employment lite is a type of contracted labor that will actually cost them LESS. You will have to remind them of this point.
Long Term vs Short Term Physician Labor
Although locums and “employment lite” technically both use professional service agreements, and both represent “contracted labor”, their functional role in providing professional services to a health system’s patients, as well as their costs are much different.
Because of their difference, I believe they shouldn’t be placed in the same “bucket” or line item on the corporate spreadsheet.
Locums is a short-term, or interim physician labor category. Much like “travel nurses” are a short-term or interim category for nursing labor. Both cost the corporation more money than traditional employees, and both are temporary stop-gaps that keep revenue flowing.
“Employment lite” is long-term contracted labor that is highly aligned much more like their employed peers within a health system. They are both long-term physician labor that provides professional services to a health system and thus provide more secure, predictable, and reliable revenue streams for a health system.
Re-Thinking Labels and Terms
In reality, “employment lite” should be considered a type of long-term physician labor expense similar to employed doctors, rather than equated to short-term “contracted labor” like locums. The term “contracted” is antiquated and progressive terms like “short-term labor” and “long-term labor” are more appropriate in the evolving world of physician labor.
Thus the two main types of long-term professional services provided by doctors to a health system’s patients should then be either traditional labor (employment: W-2) or contracted labor(non-employment: 1099). Both are acceptable, and both benefit the employer equally in terms of reliable revenue generation.
Labor Expenses
The system expense for fair market compensation for long-term physician labor professional services should be exactly the same for employees (W-2) and non-employees (1099).
The earnings for your professional services regardless of whether it is a salary, salary +, or productivity compensation formula should be same fair market valuation whether you receive it as an individual or whether you receive it as a micro-corporation.
Employers typically provide a benefits package and malpractice insurance to the employee and this has a definable value. As in independent contractor, you will be expected to source your own benefits and malpractice insurance. Contractors can be compensated an equitably valued dollar value for these expenses within their contract, and this is pretty simple pass-through math.
This means both employed and independent contractor doctors providing long-term professional services to a healthcare employer will cost the employer exactly the same amount of money for their labor expenses. They are apples to apples when it comes to compensation and employment expenses for their labor.
But hold on, there is a catch, and it involves taxes.
Payroll Taxes & Savings For Employers
Employers financially will come out ahead by choosing to use Independent Contractor based employment lite for their long-term professional services for doctors. That is because corporations don’t have to pay their half of the payroll taxes for contractors like they do their traditional employees. For expensive labor like doctors, this can save employers $10,000 or more annually per doctor (employers pay half of an employee’s payroll taxes if you didn’t know this). We are talking about large savings for a health system when this is multiplied out by the hundreds of employed doctors they may have. I hope those in the C-suite who might be reading this, have had their ears perk up after hearing this.
Keeping it real, those payroll taxes don’t just disappear if you receive your earnings as a 1099 contractor. Because now you will be fully responsible to pay for both the employer and employee halves of the payroll taxes ( you are now self-employed technically). Before you worry that a micro-corporation and employment lite structure will cost you more in taxes, let me inform you that it won’t. This is because there are unique tax options available to small businesses that you now be able to access via your micro-business. These options are not available to individual taxpayers.
In fact, this structure, when constructed and managed properly by agencies like SimpliMD, will lower your effective tax rate in half compared to the >25% effective tax rate that traditionally employed doctors experience. That is a lot of tax savings!
Cost Savings
When viewed from the traditional viewpoint of contracted labor being associated with locums, contracted physician labor truly does cost employers more money. Corporations justify this extra cost because it is better than their lost revenue from a physician vacancy.
Short Term Independent Contractors (locums) Prevent Revenue Losses
Physicians are a primary revenue-generating source for employers, and if vacant positions remain open for prolonged periods, healthcare organizations can take a big hit on their bottom lines due to the loss in revenue. Revenue is king in big business. Bringing in short-term contracted labor helps reduce the revenue losses until longer-term solutions can be resourced.
“More and more healthcare organizations are weighing the cost of bringing in locum tenens providers versus the cost of not having coverage and finding that locums make a lot of financial sense,” says Michael DePaolis, senior vice president for Weatherby Healthcare.
Simply put, short-term contracted physician labor to provide professional services to a system’s patients will help retain service levels and a reliable revenue stream. And this is why short-term contracted labor will continue to play an important role in filling physician labor gaps.
Long Term Independent Contractors (employment lite) Save On Labor Expenses
When contracted labor is innovatively re-thunk and re-organized into short-term contracted labor and long-term contracted labor, now corporations get the best of both worlds via the use of the employment lite model.
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They maintain robust physician-based revenue with reliable long-term labor
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But they reduce their labor expenses compared to both traditional employees and locums.
As you can see, long-term contracted labor is actually less expensive to the employer than traditional employees. This is further broken down in the following graphic.
When comparing traditional employment with an Employment Lite structure, large corporations should be very interested in this progressive view of labor expenses and the cost savings associated with long-term independent contractors like employment lite.
Alignment Is Important Too
But what they fear within employment lite is the loss of system alignment and the loss of control over the physician due to their independent contractor designation and the introduction of a doctor’s micro-corporation that can contract with other healthcare entities for their professional services.
Let me reassure you and them-this that long-term contracted labor is still very aligned long term with the large corporation much like any employed doctor. In essence, employment lite is a functionally a type of long-term physician labor for corporations very similar to employment. This graphic from the January 2023 edition of the MGMA magazine nicely affirms this truth.
Win-Win
In the end employment lite provides doctors with a win by preserving their professional autonomy, preventing burnout, and improving their financial well-being.
Employment lite provides employers with a win by giving them long-term physician labor that generates the same amount of revenue as traditional employees but does it at a less expensive price point.
Employment Lite truly is a win-win for both parties.
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