Successfully establishing yourself as an independent contractor
For some business-minded physician assistants (PAs), independent contracting offers a versatile and entrepreneurial way to practice medicine — allowing for significant flexibility in hours, increased freedom of choice and income.
However, experts warn the process is not simple. In addition to having to meet legal requirements and state laws, an independent contractor must also assume the administrative tasks associated with being self-employed.
“The most significant challenges relate to fulfilling the Internal Revenue Service definitions of independent contracting, which include shouldering the costs of one's own benefits and working for several practices or institutions,” explains Jennifer Anne Hohman, assistant director of professional advocacy at the American Academy of Physician Assistants. “It is very important that a PA who becomes an independent contractor does so having fully researched the tax and legal implications of this type of working arrangement.”
According to the IRS website, the organization has “imposed severe penalties on those companies who incorrectly identify employees as independent contractors.” As such, they have issued guidelines, some listed below (view the rest at the IRS website), meant to distinguish between regular employees and independent contractors
- Training. An employee may be trained to perform services in a particular manner. Independent contractors ordinarily use their own methods and receive no training from the purchasers of their services.
- Hours. An employee usually has set hours of work established by an employer. An independent contractor generally can set his or her own work hours.
- Payments. An employee is generally paid by the hour, week, or month. An independent contractor is usually paid by the job or on commission only.
- Investment. An independent contractor has a significant investment in the facilities he or she uses in performing services for someone else.
- Specific job. An independent contractor usually agrees to complete a specific job and is responsible for its satisfactory completion, or is legally obligated to make good for failure to complete it.
Hohman cautions PAs to be aware of employers who propose this type of arrangement. “I have spoken with PAs who have had independent contractor status proposed to them by prospective full-time employers, because they do not want to offer the PA employee benefits,” she says. “This is generally not a good scenario for practicing PAs, as this does not constitute genuine independent contractor status, and could easily put the PA in violation of IRS regulations.”
If independent contractor status appeals to you, the American Academy of Physician Assistants suggest the following tips:
- Establish yourself as a separate employer (e.g., business cards, Yellow Pages listings, advertisements, letters of incorporation, or the filing of a Schedule C tax form).
- Be able to show that your income is derived from more than one source.
- Be able to show that you offer special skills that the hiring company does not possess.
- Provide your own equipment, supplies and base of operation.
- Provide your own malpractice and other types of liability insurance.
- Make sure you receive IRS 1099 forms for all income and that you are reporting such income on your tax return.
- Avoid frequent changes from independent contractor to employee status.