Independent Contractor Issues & Contract
"People such as doctors, dentists, veterinarians...who are in an independent profession in which they offer their services to the general public are generally independent contractors."
— Independent Contractor as defined by the IRS
This simple definition belies the potential complicating factors
that define the IC status in the eyes of the IRS.
It is highly recommended to visit the informative IRS website for the most up to date information on Independent Contractors' status.
Helpful Tips for Independent Contractors and Employers:
— Summarized from the SDCVMA Independent Contractor Handbook for Relief Veterinarians (see Historical Perspective below)
- It is recommended for ICs to possess a business license and business cards.
- Advertising that states you are available to work for the veterinary community at large supports IC status.
- Submit a written service contract that stipulates an equipment lease payment and have both parties sign it. (see sample contract).
- Employers must retain a copy of an independent contractor’s Form W-9. Submit billing invoices for services rendered and receive 1099 tax forms for compensation payments.
- ICs are responsible for their own liability/malpractice insurance as well as health and disability insurance coverage.
- An independent contractor may/could file a claim to be classified as an employee. Employers must save documentation to prove the independent contractor work relationship.
- If the IRS reclassifies an independent contractor as an employee the employer will owe back taxes, penalties, and interest. The employer is not permitted to seek compensation from the employee.
- Do not hire former employees as independent contractors to perform the same job tasks as before.
- It is best not to generate compensation payments to independent contractors on the same day as employee paychecks are issued.
- Keep independent contractor records in vendor files separate from employee records.
- It is best not to invite independent contractors to functions designated for employees only.
- Exercise diligence in the effort to establish IC status.
- The IRS recommends filing Form SS-8 to determine the worker's category if there is uncertainty about the independent contractor status. The tax I.D. number of the business and the worker are required on the form. Tax consultants regard submitting this form as an invitation for both parties to be audited by the IRS.
Common Law Rules:
The IRS formerly used a 20 Factor/Rules test but now instructs businesses to consider three categories of “facts that provide evidence of the degree of control and independence” in the relationship. The three categories are:
- Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
- Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
- Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
Further details for each category are available on the IRS site here:
In the 1990s the IRS, the EDD (Employment Development Department of California), and worker's compensation insurance agencies increased their audits of businesses, such as veterinary hospitals, that hired independent contractors.
The stakes were high. If an employer was determined to have misclassified an employee as an independent contractor said employer would owe back taxes, penalties, and interest.
There was controversy and concern about the legal ramifications of practicing veterinary medicine as an independent contractor. The SDCVMA would meet the challenge of resolving the debate.
The IC Handbook History:
The SDCVMA formed a committee chaired by Dr. Rochelle Brinton that would study the issues. These devoted committee members researched employment law, met with legal counsel, compiled reports from personal experience with the audits, and from these years of labor they created an Independent Contractor Handbook for Relief Veterinarians.
The 100 page handbook was the go-to resource of its day. It defined the independent contractor veterinarian and the central tenet of "Control." It explained the legal attributes of the IC status. It provided a sample contract agreement. There was guidance on obtaining a business license. There was a list of the then IRS 20 Common Law Factors and Safe Harbor rules regarding independent contractor status along with the six unique law factors of the EDD.
Prior to the Handbook there was no specific guidance provided for relief veterinarians or the hospital owners who hired them. Veterinarians who benefited from this document and who continue to be protected by its legacy owe a debt of gratitude to Dr Brinton and fellow committee members.
The Handbook has a section on what to do if you are audited. There were articles of the month from veterinary consultants discussing IC issues. There were committee reports and letters from meetings with employment law attorneys. There was even retirement planning advice for relief veterinarians.
The Handbook ends with a reprint of a May 3, 2001 letter from a workers compensation insurance company to Dr Michael Clark. Dr Clark was an SDCVMA member who was disputing the insurance company's claim that he owed back taxes for misclassifying hired veterinarians as independent contractors. The company was forced to reverse its decision as it listed 11 factors that supported the good doctor's position. The letter is as relevant today as it was then and serves as a reminder of how important it is to document and adhere to the recommendations that establish the independent contractor status of veterinarians.
Sample Contract & Attorney Article:
Being an independent contractor takes more than just saying you are one. In the eyes of the Internal Revenue Service, you need to act like a contractor in the legal sense. There are certain rules to follow and having a reliable contract is foremost. The San Diego County Veterinary Medical Association provides a sample reliable, attorney-vetted contract at no charge to Independent Contractors or hiring hospitals.
Article authored by Attorney William Browning, for a 2010 Intercom publication:
Guidelines for the Independent Contractor Veterinarian
William K. Browning, Esq. Browning│Hocker, 619-234-2194
501 West Broadway, Suite 540, San Diego, CA 92101
All communications are provided as a courtesy for individuals seeking information on the subject of Independent Contractor status. The San Diego County Veterinary Medical Association makes no warranty, expressed or implied, and assumes no legal liability for users of the content. Please consult a tax and legal professional for your specific situation.