Should I be a dental employee or an independent contractor?

First things first: when you’re reviewing an employment agreement, make sure you understand whether you’re being hired as an employee or an independent contractor.

These are legally meaningful concepts that define the relationship in which one individual or entity retains another to perform certain work. Whether the dentist is an “employee” or an “independent contractor” is a matter of great importance, and mischaracterization of this relationship could result in adverse or unintended consequences, in such areas as tax law.

An independent contractor is a self-employed professional who exercises independent judgment and renders services as specified in a contract. The independent contractor is able to control the means and methods by which the work is performed while the party who retains the contractor is able to direct what work is to be performed but does not control when and how the result is accomplished.

Generally, an independent contractor exercises more personal autonomy and carries greater financial and management responsibility than does an employee. In general, the independent contractor will have greater control than an employee in terms of hours, fees, personal work routines, appointment book control, and treatment and planning.

An employee follows an employer’s directions and supervision as to what and how work is to be performed (e.g., what order or sequence to follow when performing the work, when and where to work, procurement of supplies and equipment, what workers to hire or assist with the work, etc.). In general, the employer controls the details (such as the “when” and the “how”) of the employee’s service.

Broadly speaking, a worker’s status is based on the engaging entity’s degree of control over the work performed with reference to three general categories:

Behavioral control. Does the engaging entity have the right to control the what, when, and how the work should be performed? This includes the instruments, equipment, schedule, what order or sequence to follow, and who can hire workers to assist with the job. An employee has less behavioral control than an independent contractor and is subject to the engaging entity’s direction.

Financial control. Does the engaging entity have the right to control fees, payment and collection policies? How is the worker compensated for performance and reimbursed for expenses? To what extent will the worker incur a financial profit or loss from his or her activities? An independent contractor generally exercises greater financial responsibility and faces a greater risk of financial loss than an employee.

Nature of the relationship. Are employee-type benefits, such as insurance, vacation pay, or sick pay, provided to the engaged dentist? Is the worker responsible for securing all of his/her own patients, or are patients provided by the engaging entity?

See more: Am I an employee or an independent contractor?

A dentist may prefer to be engaged as an independent contractor if he or she desires greater decision-making, self-management and increased personal autonomy. This dentist may want the ability to build his or her own practice while limiting immediate financial overhead. The engaged dentist may prefer that the employer not withhold taxes (income, Social Security) and prefer to manage his or her own tax liabilities; however, this may prove a risky strategy if the dentist does not save adequately to pay the un-withheld taxes when they come due.

A dentist may prefer to be hired as an employee if he or she seeks a stable income stream, benefits (such as health insurance, workers’ compensation, credit towards Social Security), and less management responsibility.

Not sure which is right for you? Ask yourself:

• Do you prefer a steady income or an income more based on your ability to secure patients?
• Are you comfortable seeking patients if the practice does not provide or refer patients?
• How important are employer-provided benefits? Do you have others (spouse, parents) who can provide benefits (such as health insurance) if your employment does not?
• Are you comfortable or experienced in managing, marketing and exercising financial responsibility?
• Do you want to practice with one practice or have the ability to market to others?
• How comfortable are you in a controlled environment, as an “employee”?

For more details on the implications of being an employee dentist compared to an independent contractor, review chapter 4 of Dental Employment Agreements: The Devil’s In the Details. This chapter also includes sample clauses with language you may see in your own contract.

Learn more about negotiating and understanding dental employment agreements and contracts. Check out the full list of clauses and topics and download the ebook, which is full of sample language, examples and in-depth explanations.