Employer, Employee, or Subcontractor: what is your status?

With apologies to Joyce McDougall, this is a plea for a measure of formality:

Are you an employee or a subcontractor? Do you have employees or subcontractors working for you? How do you know? Sometimes the job title doesn’t match the responsibilities, and when that happens confusion makes its grand entrance. Part of this difficulty is the natural result of importing employment classifications originally designed for industry into the field of healthcare.

It seems obvious, but the business of mental health practice isn’t the same as that of a retail establishment. It also isn’t the same as a factory or restaurant. Yet, mental health practitioners utilize the same body of law to address workplace disputes and this can result in some confusion. Ultimately the determination of employee/subcontractor status is usually determined by consulting the Internal Revenue Code, but that doesn’t stop employers, employees, and subcontractors alike from trying to gain an advantage via these labels.

In many cases clinicians and their employers have a relatively straightforward employer/employee relationship. Other times, clinicians work as subcontractors on a per-case basis. (This is often the case when clinicians perform occasional assessments for an agency or practice that rarely has the need for such services.)

Depending on the type of work, it can be advantageous to either party to classify professional services as the functions of an employee or subcontractor. For employers, work with subcontractors frees them from the headaches of payroll and some other accounting obligations. It also affords employers significant flexibility in staffing. The tradeoff is that employers lose some control over the ways in which subcontractors perform.

For those hired by employers, subcontractors give up the security and convenience of employment for more control over their work. Subcontractors can claim expenses and have more freedoms than employees, but they must also pay their own taxes and benefits.

In part because of the abilities of subcontractors to deduct expenses from income (and the attendant temptation for abuse and tax fraud), the IRS prefers to construe employment relationships as employer-employee, rather than employer-subcontractor. The definitions as to what constitutes an employee vs. subcontractor for tax purposes are outlined in the Internal Revenue Code and it’s a very good idea to speak with an accountant or CPA for advice on tax-related questions.

The employer/employee/subcontractor question often comes up in clinical practice, particularly with regard to training and assessments. It is ordinarily something that isn’t discussed in depth until there is a problem. In fact, employment-related disputes is one of the more common reasons clinicians seek the services of an attorney. Many professionals, mental health clinicians included, don’t realize that the parameters of an employment relationship are set at the outset of the relationship. Others do, but prefer not to think about the downsides at such an optimistic time. Still others don’t believe that they can negotiate these terms.

As is the case with longstanding interpersonal relationships, things change in the professional world, too. Problems can develop when work relationships start out as subcontractor/employer relationships, but shift over time into something that more closely resembles an employer/employee relationship. It is often unclear exactly when the nature of the relationship changes and this is largely because (in addition to the Internal Revenue Code) states have different statutes and caselaw that speaks to the differences between employees and subcontractors. In California, courts weigh a number of different factors to determine the nature of a working relationship; a typical analysis involves a consideration of factors that militate for or against a particular designation. The designations used in the workplace aren’t as important as real-world activities. There are few things as disruptive to clinical practice as dealing with an employment dispute or having to reorganize employment relationships.
A lot of the problems that arise from these ambiguities can be addressed with some initial clarity and stick-to-itiveness, which brings us back to the plea for a measure of formality. At the outset of a working relationship, be clear about the nature of the relationship: who has responsibility for what, whether there is a supervisory relationship (not in the clinical sense but in the workplace sense), and the nature of self-direction that the parties enjoy. These discussions tend to work best when all parties are transparent about their expectations. (For employers, it is a good idea to have a good understanding of whether and how your oversight and employment activities can “convert” your subcontractors into employees.)

It is also a good idea to have check-in conversations every so often to clarify roles. As clinicians we are used to doing this with our patients, but there’s no reason we can’t extend this practice (no pun intended) into our professional relationships, as well. And of course, if you need further clarification or guidance about your specific situation it’s always best to talk with an attorney who is familiar with these matters.

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