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1099 or W2 – Knowing the differences

Do your workers fall within the guidelines of an Independent Contractor or an Employee – Read below to see if you’re doing the right thing when it comes to hiring personnel

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Last September at our MedSpa Conference 2013, one of the biggest issues our medical spas expressed was how to categorize their employees.  We received questions such as, “I provided training, but they make their own hours- Are they an employee?” Or, “Should they be independent contractors since we didn’t sign an agreement?”  Attorney speaker, Nancy Rader Whitehead of Scott & Whitehead in Newport Beach, gave us all some simple rules to follow when differentiating the terms, ‘W2” and “1099”.

The IRS’ Common Law Rules consider facts that determine whether a worker is an independent contractor or an employee.  These facts fall into three categories:

  1. Behavioral:  Does the company have a right to control what the worker does and how it’s done?

  2. Financial:  Are any business aspects of the worker’s job controlled by the payer?

  3. Type of Relationship:  Are there written contracts or benefits?

Your workers may be employees if:

  1. If you control where, how, and when your worker does their work

  2. If you tell them what tools to use and/or tell them where to purchase supplies

  3. If you provide assistants to help them complete their work

  4. If you are reimbursing your workers for expenses

  5. If you provide training about procedures and methods to perform your business in a certain way

  6. If you provide benefits to your workers

  7. If you hire a worker with the expectation that the relationship will continue indefinitely

Your workers could be independent contractors if:

  1. If you give your workers less instructions about what should be done, rather than how it should be done

  2. If you do not provide training about methods and procedures that your worker needs to follow

  3. If your workers make their own investment in their work or realize a profit or loss

  4. If you do not reimburse your workers’ expenses

  5. If you do not give benefits to your workers

Although there are some ‘gray’ areas in the law, these are the general rules to determine how you should categorize workers at your practice.  If you follow these simple rules, you’ll better protect yourself and your practice in the future!

Jamie Parrott, MBA
Executive VP
MedResults Network

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