Like owners of other businesses, dental practice owners often hire staff members as independent contractors rather than as employees. They do so to keep expenses down, minimize tax obligations, and reduce time spent worrying about personnel and payroll matters such as overtime pay, sick leave, insurance, and other employment law issues. Ultimately, however, whether an associate dentist, hygienist, or other team member is appropriately classified as an employee or contractor isn’t up to the practice owner. It is up to the law and the rules promulgated by the U.S. Department of Labor (DOL) and the Internal Revenue Service (IRS). And under a proposed rule recently issued by the DOL, more dental workers are likely to be considered employees instead of contractors, no matter what label a practice owner uses for them.
Published on October 13, 2022, the proposed rule would revise the DOL’s analysis for determining employee or independent contractor classification under the Fair Labor Standards Act (FLSA). Specifically, the DOL is proposing to rescind a rule promulgated under the previous administration which identified five “economic reality factors” to be used in determining whether a worker was an employee or independent contractor. Under the prior rule, which is still controlling until the new proposed rule becomes final, two of the five factors— “the nature and degree of control over the work and the worker's opportunity for profit or lost” were designated as “core factors” that were to carry more weight in the analysis.
That rule was generally seen as more employer-friendly in that it made it easier to classify a worker as a contractor. Under the new proposed rule, the “core factors” mentioned above would no longer be part of the analysis. Instead, the new rule uses a “totality-of-the-circumstances” approach and an “economic reality test” that looks at the economic reality of the worker’s activities and the nature of the working relationship with the employer.
The new proposed rule sets forth six factors to be used in determining whether the “economic realities of the working relationship” reveal a worker to be economically dependent on the employer – in which case they would be likely considered an employee – or whether the worker is in business for themselves such that they are an independent contractor:
Illinois Law Makes It Even More Likely That a Worker Will Be Considered an Employee
Making matters even more complicated for Illinois dental practice owners, state law establishes its own criteria for determining a worker’s status and presumes that a worker is an employee unless and until it's proven in any proceeding that:
It remains to be seen whether the final rule ultimately promulgated by the DOL will be the same or substantially similar to the proposed rule. Regardless, practice owners need to understand that just calling someone an independent contractor does not make them one. Given how much employee misclassification hurts workers who inappropriately wind up treated as contractors (and how much tax revenue is lost when businesses wrongfully classify workers), it’s no surprise that the federal government and individual states are cracking down on the practice. When they do so, they crack down hard. The financial cost to the practice can be substantial, but it can also cost owners personally, as they can be held liable individually for any intentional misclassification.
To avoid such consequences, dental practice owners should discuss any questions or concerns with an experienced employment and dental practice attorney.
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