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For 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 3 previous posts:
Employee or Independent Contractor: Doctors Are Long-Term Contractors
Why You Should Control Your Worker Classification
Today we are going to take our last look at this question from the vantage point of how you can be empowered to self-define your worker classification. But this will require some preparation before the moment arrives with the company hiring you.
This reminds me of my days of youth when I was inspired by the philosophy of Robert Baden-Powell, the English soldier who founded the Boy Scouts. He penned the original motto of “Be Prepared” in his 1908 handbook, Scouting for Boys. This scouting principle is applicable to our tribe when it comes to getting ourselves ready to flourish as professionals in the modern landscape of medicine.
In the context of our question from the anesthesiologist this week, you can see that it’s important for YOU to be prepared for the moment when the corporation hiring you knows you are serious about being considered a 1099 independent contractor. The lack of preparation will give them sole power to classify your worker status themselves and they will nearly always lean towards calling you an employee. That is what we see in our real-life example:
“A partner is in a similar arrangement but the hospital is refusing 1099 and instead doing W2 with tax withholding”
The Status Quo of Control Over You
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 be able to unilaterally determine this on your behalf.
But the current status quo is the large corporations hiring you have the power 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. This idea of control is central to the IRS’s definition of employees where they state: Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.
Thus the corporations that classify you as an employee are legally empowered by that classification to control your professional life right from the outset.
This power structure is likely to be referenced from the beginning but it does define your relationship with them right from the start. Ultimately it will become the foundation for a co-dependency with them as your life and their life become more deeply entwined. Statistically 50% of the time the relationship will be mutually beneficial, but 50% of the time will spiral downward and injure you in a typical toxic relationship pattern (we call this burnout).
Changing The Status Quo: Systemic Change Is Needed
That control over you is subtle at the beginning but gradually can become suffocating.
One of the most fundamental systemic changes that are currently needed in medicine is the restoration & preservation of the professional autonomy of doctors. The loss of professional control is harmful to our tribe.
Choosing to be classified as a long-term, or short-term independent contractor while you do your work for a large corporation will empower you to hold onto control of your life, benefit your well-being, and reduce your risk for burnout.
My message to you is simple-long term independent contracting work is far better for you than working as an employee and is the needed systemic change that will help resolve the burnout crisis in medicine.
You can get a copy of my new book “Doctor Incorporated: Stop The Insanity of Traditional Employment and Preserve Your Professional Autonomy” which fully dives into this thoroughly on March 28th, 2023. Go here to sign up to get a copy for 99 cents the first week.
To understand all of this better, we need to break down how corporations have traditionally viewed physician labor.
The Past Views of Physician Labor
In the past, there was a resounding strong preference for all of a company’s physician labor to be permanent and by default employment-based. Long-term professional services allow corporations to create predictable and sustainable service lines that can be more reliably profitable, as well as scalable.
Long-Term Work Horses
This is all built around the notion that physicians are low-risk business workhorses who can be relied upon for extended periods of time to produce revenue for the corporations that employ them. Employers prefer to view this as a permanent relationship but typically build in 2-3 contractual terms with 90-day no-cause opt-out clauses.
That really doesn’t sound so permanent, does it?
Short-Term Gap Fillers
In comparison, corporations also hire non-permanent labor to meet their physician labor needs. Non-permanent labor has always been synonymous with locums. In most instances, locum tenens will cost a corporation more money and on top of that they lack the ingredients to sustain and grow a service line. In essence, they are gap fillers.
The Changing Reality Of Physician Labor
In the modern world, permanent labor has taken on a new meaning. It is no longer just about finding a job and sticking with it until retirement. Instead, workers are looking for ways to become more agile in their career paths and strive for personal growth. Medical corporations are now more likely to hire independent contractors or remote workers for their labor, instead of relying on permanent staff. This is especially true for jobs that require specialized skills or tasks that can easily be outsourced. There is a growing space of telehealth jobs that are filling this niche.
Additionally, employers have also become open to part-time positions as an alternative to full-time employment which opens the door for part-timers to become long-term independent contractors as well.
Permanent Labor Is Declining
Permanent labor has changed significantly over the years, as the development of technology has enabled more flexible work arrangements. For workers, especially college-educated professionals, this now means being able to move freely between jobs, combining a mixture of long-term & short-term contracts, or creating one’s own business. For workers, it is about having the flexibility and freedom to pursue the career of one’s dreams and make the most out of life opportunities. Quality of life and lifestyle are emerging as more important to many physicians than job permanency.
Long-Term and Short Term Non-Permanent Professional Labor Is Rising
Due to the fact that physicians are uniquely equipped with the superpower to be a micro-corporation, and given the demand for a physician’s professional services, this evolving labor landscape places modern physicians in a position to manage their medical careers differently.
They can mirror their preference for flexibility, work-life balance, and quality of life with their power to be a fully functional independent contractor who embraces the modern view that all labor is non-permanent.
The growing realization is that designating doctors as permanent professional labor is truly an oxymoron. Although some will still be ok with being identified as an employee, others will prefer to be called a long-term independent contractor.
The idea of long-term independent contractors is a newer idea and needs to be legitimized as a job space that is separate and different from employment as well separate from short-term independent contractors.
Long-term independent contracting truly adds an important 3rd category for workers and embraces the evolving cultural views of the labor force.
It is very likely that newer generations of doctors will choose to embrace all 3 categories and build their medical career around a self-directed combination of employment, long-term independent contracting jobs, and short-term independent contracting jobs. The total workload will be self-determined and will support their holistic personal and professional goals.
How To Earn The Right To Help Choose Your Worker Classification
Getting this organized properly for yourself right from the beginning of your career is critical for a number of reasons, the most important being that once you are locked in as an employee, it becomes much more difficult to convert into an independent contractor with the same employer later.
Take These Steps To Be Prepared
Whether you are currently employed and plan to take on a side job, you are currently employed and plan to make a job change, or if you are just getting ready to go after your first job as an attending physician— I invite you to ready yourself for the moment in the following ways
1. Form a micro-professional corporation that can be used for your professional services in any long-term or short-term job, or in any primary or side job. You declare yourself an unincorporated sole proprietor for your tax status, but believe a professional corporation is better for a number of reasons.
2. Identify more than one source of income for yourself. For most doctors, this will include a primary job and some side work. The dollar amount with the side jobs is less important. The multiple income channels provide additional proof that you are contracting out your professional service to multiple businesses.
3. After these two ingredients are in place, you have met what I would call the minimum needed characteristics for a company hiring you to truly view you as a contractor.
4. Next, if this was a primary job, I would recommend that you communicate how you view this as a long-term relationship (if it is indeed the case), BUT that you want to discuss with the corporate employer whether it should be framed as a permanent or non-permanent job.
You should note that although they might favor calling you an employee, the contract that they are offering you, in reality, is legally a 90-day renewable contract of 1-3 years, and this more consistent with non-permanent labor.
You can then share that non-permanent labor can be classified as an employee OR as a contractor.
-At this point, if you prefer to be an employee, you can walk through that door. Be aware that once you accept this classification, it will be difficult to ever be re-classified within the same company.
-If you prefer to be a long-term independent contractor you can show them your evidence and walk through that door. Be aware that can easily choose to convert to an employee later with the same corporation.
-This latter point about converting your classification later is often overlooked by doctors. But I know from having counseled and coached many doctors who wanted to convert from employee to independent contractor status that most employers won’t cooperate with this conversion out of fear that the IRS will scrutinize their decision and penalize them.
There are other characteristics that will demonstrate to a corporation that you are a contractor and they are included here:
If you choose to be classified as an independent contractor, your earnings will be sent to you as 1099 income. This will create another “Y” in your professional road, meaning you will get to choose the tax entity that receives those earnings. 1099 tax entities are a classification of self-employed workers or business owners who receive income outside of traditional employment.
Choose Your Tax Classification As An Independent Contractor
You will have several self-employment tax entity options. Each one provides you as a micro-business owner with flexibility and control when it comes to managing your taxes. Depending on your individual situation, you can choose from different options – sole proprietorship, LLCs, S corporations or partnerships. Each of these options has different advantages and disadvantages so it is important to understand them before making a decision. I encourage you to work with a tax professional to help you make the best decision.
There are many options, but single-member businesses will typically choose either to be called a sole proprietor or a micro-professional corporation.
Sole Proprietor vs Micro-Corporations For Doctors
I am a big fan of single-member micro-corporations for doctors such as Professional Corporations (PC) or Professional LLC (PLLC). This business structure is wise because your liability risks are high, and you are a high net-worth individual with assets that need protection. Take a look at this comparison graph for business entities that can receive your 1099 income. You are considered a sole proprietor by default by the IRS.
For a number of reasons, I believe every doctor should form their own micro-corporation right from the start of their career. Then you can determine how you want to use, or not use that business structure within ANY job situation.
If your primary job is to provide professional services to for a large corporate employer’s patients (if you are employed, they are not YOUR patients), then you would be wise to consider receiving those earnings as an independent contractor (1099) rather than as an employee (W-2). Before you launch into assuming this means you going into private practice, let me make you aware of the hidden, but the best flavor of employment available to doctors. It’s called “employment lite” and it is a fusion of employment and independent contractor work through what is called a professional services agreement. Think of it like long-term independent contracting work.
This arrangement is far better for you for many reasons, but taxes are an especially compelling reason to consider it due to the way it can lower your effective tax rate.
“Employment lite” is a professional services contractual agreement by which the hospital-corporate employer contracts with your micro-corporation for your professional services. This is what it looks like.
You Are Qualified To Join In The Decision
After you set all of this up for yourself, now you have demonstrated the proof needed that you are qualified to join in the decision of classifying your work status as an employee (permanent or non-permanent) or an independent contractor (long-term & non-permanent).
Each classification has its strengths, but I believe choosing to be called a long-term independent contractor will provide you with all of the predictability and security that you want, but equally provide you with the flexibility and quality of life that you need.
I know this because after working as a traditional employee for 15 years, I transitioned to a long-term independent contractor at the same job with the same corporation about 10 years ago. It was the best decision I ever made (beyond the decision to marry my dear wife).
But if you want to be considered an independent contractor, you should have a few things in place because it will empower you to have options as you evaluate any job. In particular, having these items in place will demonstrate to those hiring you that you are prepared to legitimately be considered an independent contractor.
When I transitioned long term independent contractor status (employment lite), the biggest step involved starting my own micro-corporation, but a few other things were needed as well.
Don’t Repeat Your Mistakes
Unfortunately, and unknowingly, most employed physicians get stuck and held hostage to the co-dependency of working for a big corporation. Of course, they can always break free by moving or changing jobs, as painful as that is. But if you do that, please don’t turn around and sign another long-term labor contract as an employee, rather do it as a long-term independent contractor.
Whether you are just getting ready to start your career, or if you planning to make a job transition, I invite you to do the following prep work that will allow you to seize the moment and sign your contract as an independent contractor:
Decide if you plan to be a sole proprietor, or if you will form a micro-corporation for your professional services. I highly recommend the latter, and also recommend using someone familiar with physicians to help you do this efficiently and properly. Because a micro-corporation is a highly personalized legal entity, it will take a bit of time to effort to form it around your personal and professional goals. The personalization process and built-in fringe benefits baked into your micro-corporation will cost you anywhere between $3000-$10,000 but those dollars will easily pay for themself over time
Outsource by choosing a physician-centric agency to help you manage your micro-corporation and build your individualized fringe benefit plan, insurance needs, accounting services, tax, legal, wealth management, and business coaching. You can hit the easy button and choose SimpliMD who will comprehensively do this for you, or you can formulate your own team of professionals to support you. This outsourcing relationship can start slow, and gradually be scaled to incorporate side jobs, primary jobs, and your combined personal and professional finances.
Diversify your income channels by considering side work that is outside of your primary job. Again, start slow and create a combination of primary and side jobs that all add up to you to meet your personal and professional goals. The old paradigm involved having one job, but the more progressive approach involves diversifying the jobs in your micro-business and thus empowering you to adjust the volume controls for each of them.
Be Ready For The Opportunity(s)
In order for you to be considered an independent contractor in these situations, you have to be ready for the moment by organizing yourself to choose whichever path works best for you.
The question of whether you are a contractor will repeatedly come up over your career, especially in regard to side jobs, thus it is valuable to start a micro-corporation for your professional services early in your career because you will inevitably use it.
In my opinion, the latter half of your residency is ideal because you can use it for moonlighting but also put you in a position to use it for your first attending physician job.
It’s Time For Systemic Change
The last generation of doctors has become convinced that traditional employment is in their best interest, and corporate employers are doing their best to convince you that it is best as well, especially with the financial incentives they offer at the start of your career.
But it’s time for doctors to be awakened from their slumber through blog posts like this, and through my book coming out in March. Grab your 99-cent copy on March 28, 2023, by signing up here.
It’s insanity to believe that it’s in your best interest to be traditionally employed and then experience a greater than 50% burnout rate.
How do you avoid this? Start out your career with the determination to be contracted from the beginning as a long-term independent contractor. The more physicians demand this type of arrangement, the more employers will be forced to embrace the idea.
We need to be placed back in control of our profession and forming a micro-corporation and using it in the marketplace will help emancipate us from the corporations that seek to control us.
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