As I review job postings for clinicians, I see a disturbing trend of nonprofits hiring independent contractors rather than full- or part-time employees. Although there can be some benefits for both the nonprofit and the contractor at times, many liabilities can come into play as well. This article is not meant to be an exhaustive exploration of the topic, and I am far from a legal or tax expert, but my hope is that this column might inspire you to think carefully before posting or replying to an ad for an independent contractor.
The status that you work or hire under can offer either liability or protection, depending on the situation. The liability can come in the form of IRS penalties and potential loss of eligibility for unemployment protection and malpractice insurance protection. FindLaw (findlaw.com) and EmployeeIssues.com are two resources that can help you learn the basics of these issues, but there is no replacement for meeting with an expert if you are contemplating moving your hires to independent contractors. Personally, I prefer to hire folks for my nonprofit as part-time employees so I can avoid potential issues with the state department of labor and the IRS. I can hire them as part-time clinicians who are paid by the session if that is what I need, but this way we both know we have certain protections in place. The choice, however, is yours.
Overview of employee vs. independent contractor
Here are a few quick points concerning the differences between an employee and a contractor.
- Typically work full or part time for one or more employers with set work hours and days (which can change week to week in some cases)
- Have some type of benefits package
- Have needed parts and supplies furnished by the employer
- Have taxes taken out of their salary and are eligible for unemployment compensation should work stop
- Have employment protections, including workers’ compensation
- Are protected by minimum wage and other labor laws
- Must have cause to lose their job unless hired “at will”
- Provide consulting or other services for a wide range of places
- Set their hours and days as they see fit
- Have their own offices independent of their placements, although they may also be given access to an office to use while at their job sites
- Receive no benefits from the employer
- Do not have their supplies covered by the employer
- Do not have taxes taken out by the employer, nor are they covered by workers’ compensation or other policies
- Have a set contract time period and hours
- Generally are not protected by employment laws
When it can get murky
Years ago, I was a consultant for a local Head Start program. I had a contract that made it clear how much I would be paid per hour, how many hours I was allowed to work during the contract period and the hours the program was open so I could be sure to complete my time within those parameters. For the most part, I came and went as I decided and used my own agency forms for performing tasks. Although I contributed to the organization’s newsletter, I was able to pick the topics and allowed to opt out of an issue if I so desired. To me, this was a classic example of what an independent contractor’s role should be.
A few years later, however, several changes occurred that made my independent contractor status a bit harder to justify. I now had set forms to use, supplied by the agency, and was given less ability to customize how I did my job. I also needed to follow set protocols and several other parameters that I had experienced in the past only as an employee. I opted not to continue the contract after the initial time period, partially because it felt like I got to experience all of the red tape of being an employee without enjoying any of the protections or benefits.
The IRS view
The IRS looks into common law to help determine the proper classification of employees. It uses three broad categories in helping to make this determination: behavioral control, financial control and the relationship between the parties. The following is taken directly from the IRS website (see irs.gov/taxtopics/tc762.html):
Behavioral Control covers facts that show if the business has a right to direct and control what work is accomplished and how the work is done, through instructions, training, or other means.
Financial Control covers facts that show if the business has a right to direct or control the financial and business aspects of the worker’s job. This includes:
- The extent to which the worker has unreimbursed business expenses
- The extent of the worker’s investment in the facilities or tools used in performing services
- The extent to which the worker makes his or her services available to the relevant market
- How the business pays the worker, and
- The extent to which the worker can realize a profit or incur a loss
Relationship of the Parties covers facts that show the type of relationship the parties had. This includes:
- Written contracts describing the relationship the parties intended to create
- Whether the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay
- The permanency of the relationship, and
- The extent to which services performed by the worker are a key aspect of the regular business of the company
As we start the new year and contemplate either adding workers or signing on to an existing agency, it is imperative that we consider the type of position we are becoming associated with and the potential implications from a liability standpoint. Here, as in many other situations, doing a little homework and consulting with knowledgeable professionals can go a long way toward protecting yourself or your nonprofit program.
“Doc Warren” Corson III is a counselor, educator, writer and the founder, developer, and clinical and executive director of Community Counseling Centers of Central CT Inc. (www.docwarren.org) and Pillwillop Therapeutic Farm (www.pillwillop.org). Contact him at email@example.com. Additional resources related to nonprofit design, documentation and related information can be found at docwarren.org/supervisionservices/resourcesforclinicians.html.
Opinions expressed and statements made in articles appearing on CT Online should not be assumed to represent the opinions of the editors or policies of the American Counseling Association.