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Employment, Side Jobs, and Micro-Corporations
We spent the last month exploring various nuances of physician labor, worker classification, and independent contracting based on a question I had received from an anesthesiologist. You can check those out below.
Employee or Independent Contractor: Doctors Are Long-Term Contractors
Why You Should Control Your Worker Classification
Empower Yourself To Choose Your Worker Classification
The $400,000 Question- Employment + Side Jobs
The core question that this employed doctor brought up was how he could receive his side job income as a 1099 worker rather than a W-2 worker. I think most of us are aware that the Biden administration has publicly declared those who make over $400,000 a year are their target for taxation.
The Biden administration has proposed a new set of tax plans that will target those who make over $400,000. This plan is aimed at raising taxes on the wealthiest Americans in order to fund social programs and reduce the national debt. Under this proposal, those making over $400,000 annually would face higher taxes on their income, capital gains, and estates. Additionally, it proposes an increase in the corporate tax rate from 21% to 28%. These changes are part of President Biden’s plan to create a fairer and more equitable economy for all Americans.
When you are a W-2 worker who makes more than $400,000 you are like a sitting duck for the IRS because you have very few tax mitigation strategies.
So let’s return one more time to the question from the anesthesiologist.
The Question: How To Best Receive Side Income?
“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. We are not employed by the hospital currently”
Basically, this doctor is asking a very important question about how to optimally receive his/her side income.
Adding his side job earnings to his current W-2 income will only raise his tax burden and thereby reduce the amount of those earnings that he will actually land in his household.
So he is asking the right question about side income and proposing to receive it in the best way via 1099 income.
Unfortunately, because he was not prepared for this moment, the company hiring him for the side job had the full power to decide unilaterally how they would classify his worker status.
A partner is in a similar arrangement but the hospital is refusing 1099 and instead doing W2 with tax withholding. Not sure if you can help with this, but figured it was worth the time to type it out.
Unfortunately for him, the gatekeeper corporation offering him the job would not budge on his worker classification, thus his extra dollars earned were dumped into his W-2 income.
You Don’t Know What You Don’t Know
As I’ll unpack in a case study in my next blog, that decision will cost him a lot of money in taxes.
Most doctors just don’t know what they don’t know when it comes to side job income & primary job income and taxes. The end result for W-2 workers in particular is the more you earn, the less you get to keep.
As I will explain, it doesn’t have to be this way.
Professional Micro-Corporation for Side Jobs
Forming a professional micro-corporation is a smart move for both your primary job (employment lite) and also for side jobs. The reality is that side jobs are an inevitable part of many doctor’s professional life. That is because the demand for your services and business powers is growing in our economy which is driven by an 18.3% healthcare GDP. Large corporations and private equity groups recognize your unique small business powers and need you to tap into those healthcare GDP dollars.
Virtual Side Jobs Are Plentiful
Side jobs used to be almost exclusively connected to local opportunities that were limited to your physical presence, but now with the advent of telehealth, the opportunities for doctors to do extra work everywhere in the world are exploding exponentially. For example, I spoke to a pathologist today who lived in the Southeast US and was just signing a contract to do work remotely with a university medical system on the East Coast.
There is now no need to move, or commute to earn extra income as a large amount of your work can be done remotely through the use of your most important asset—your medically trained brain. Your medical intelligence and decision-making prowess make you a worthy business asset to pursue. At this point in time, your intelligence is still far superior to AI and this is likely to remain for the foreseeable future.
The space of employed doctors taking on side jobs is expanding and will only continue to grow due to physician shortages and the expansion of telehealth technology.
You need to be prepared for those opportunities before they arrive in order to maximize their personal and professional benefits to you.
Be Ready For The Opportunity(s)
In order for you to be considered an independent contractor and receive your side job earnings as 1099 income, you have to be ready for the moment. Here are 11 characteristics of independent contractors.
The question of whether you are a contractor will repeatedly come up over your career, especially in regard to side jobs. Thus there is value in starting 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 the ideal time because you can use it for moonlighting (the classic resident side job), but it also puts you in a position to use it for your first attending physician job. In addition to that it allows you slowly become comfortable with the operation and management of your micro-corporation. (Unless you outsource this to companies like SimpliMD who do it for you)
Side Jobs
The anesthesiologist’s GME opportunity is a classic side job proposition for a doctor. It’s not uncommon to have a primary job and then be asked to do something else that is professionally interrelated, but not directly connected to your primary work.
For side jobs, it’s much easier for a corporation unrelated to your primary job to ask you whether you want to receive the earning as a W-2 employee, or as a 1099 independent contractor. In fact, some won’t even give you the option, and will only give you the earnings as 1099 income because it saves them money, administrative work, and other corporate risks associated with employees. The very nature of it being on the side often implies that it is temporary work or long-term temporary work and thus can easily be framed as 1099 independent contractor work.
Thus it’s not clear to me in the case of this anesthesiologist why the hospital is resistant to viewing him as an independent contractor. Unless they are stuck in a time warp and won’t break from the traditional view that any long-term worker must be called an employee. My previous blog debunked this mindset that is all too common for large employers.
Side Jobs Through Your Primary Employer’s Enterprise
As this question illuminates, side jobs within a primary employer’s enterprise are not uncommon and can include numerous things like call coverage, mid-level oversight, medical directorships, GME, governance, research, and others. Although the dollars may come from the same corporate conglomerate, in my experience the actual payment is generated from a profit/loss center that is separate from your primary job.
For instance, I receive call coverage and pediatric hospitalist payments from my acute care hospital, and these dollars come from a different source than the payments that I receive from the physician network for my employment lite-based wRVU compensation. Both the hospital and the physician network are owned by the same enterprise, but they are separate corporations in the enterprise.
Although these side jobs can be interconnected to your primary job, they are separate and considered more temporary jobs, often being labeled as addendums to your primary contract. These jobs can be stopped or started based without jeopardizing your primary job in most cases.
Thus if you are prepared to receive those earnings in a business-to-business relationship through your micro-professional corporation, your employer’s enterprise may be willing to classify you as an independent contractor since it is non-permanent work and the funds come from a different location in the enterprise than your primary employment does.
Side Jobs Unrelated To Your Primary Employer
In my case, all of my work is organized as independent contracting jobs, but it is possible that your primary job could be classified as W-2 traditional employment, but then your side job earnings could be classified as independent contracting 1099 income.
Side jobs are a common occurrence for our tribe, thus having some side income separate and unrelated to your primary job is not unusual. In fact it so normal that this subject is important for every doctor to grasp whether you are W-2 employed or not. I like my friend Dr. Jordan Frey’s list of common medical and non-medical side jobs for doctors if you need a little inspiration here.
The normality of this is why I frequently field this question from my readers—they want to know whether it is best to receive the side income as a W-2 income or as a 1099 income. The answer is that it depends on the company hiring you, how much money you are talking about, and how much money you earn with your primary job. But if you are at or over the $400,000 marker, it’s not even a debatable matter.
I’ll tackle the minimum value proposition question in my next post, but in the meantime, I will point you toward my new book that will be published on March 28, 2023 “Doctor Incorporated: Stop The Insanity of Traditional Employment and Preserve Your Professional Autonomy.” You can grab a copy and check out the complete financial breakdown about employment and side jobs there.
The Benefits of the Professional Micro-Corporation
In the end, when you have your own micro-corporation you will find that it benefits you in many ways including using it for side jobs only, but it also can fully incorporate your primary job via employment lite.
The advantages over traditional W-2 employment are numerous and include:
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Greater professional autonomy
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Unique tax strategies
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Deductible business expenses
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Retained income
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Larger Retirement Funding
Take the Next Step
You should take the next step and form your own micro-professional corporation and then start using it with the healthcare economy. Not doing it is costing you a lot of money, and a whole lot of professional autonomy.
If you are not sure how to set up and operate your professional micro-corporation, let me suggest that my company SimpliMD can help you.
I found that the gap between knowing it will be helpful to have a professional micro-corporation and actually doing it was extremely wide. Doctors tender to be business illiterate and thus are at risk of being too busy to act on their knowledge, or even worse yet, being taken advantage of by unscrupulous business and financial salesmen.
I Can Help You
I am not a salesman, I am one of you. I am simply one doctor altruistically trying to help other doctors arrive at their best life.
Informing you and inspiring you (Dr. Inc) about why you should do this is one thing, but then offering to help you actually do it is another thing (SimpliMD). Both elements are needed and they are inter-connected.
Some of you would prefer to DIY, thus I am providing you are roadmap in a previous blog post. Others of you have professionals in your life who can help you do this, I say go work with them.
Yet, I also recognize that many of you need a trusted physician-centric agency to depend on in order to do this right. Back when I did this, I had to figure it out for myself. It took a little time to assemble the right team who understood me and my doctor’s life.
Now I want to share what I discovered works best and provide a simple access point for you to follow my lead. This is why I created SimpliMD as a unified team of business professionals who specialize in helping physicians hit the “easy” button to both setup and operate their own professional micro-corporation.
FREE Business Coaching Session
In fact, I am so passionate about this, I’ll provide you with a free business coaching session worth $500 for FREE.
Take the next step by signing up for 45 minutes of free business coaching where I’ll listen to your situation and provide you with some coaching tips. You can set up this free meeting at the following link.https://calendly.com/drinc/45min.
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