Employing Physicians as Independent Contractors or as Employees?

Employing Physicians as Independent Contractors or as Employees?

One of the crucial questions that a traditional business would consider before hiring into their medical practice is whether to engage a fellow physician as a contractor or recruit as an employee. A great deal of thought goes toward what will earn the most benefit and minimizes the risks for the practice.

Although this decision may be simple for some traditional businesses, it can be more complex for the medical practice industry since, you know, most physicians prefer to work as independent contractors within a practice. For practice owners, this question of ‘Should we hire physicians as independent contractors or as employees?’ is not as straightforward as one might hope.

Physicians prefer working as independent contractors because of the perception of flexibility and higher pay it offers. However, in the eyes of the law, a contracted physician may, in certain circumstances, be deemed an employee. It can become highly problematic for the medical practice owner. The determination rests on facts and a multitude of indicators.

In this article, we explore how an independent contractor and employee are differentiated, what indicators help determine the employment status of physicians working within the practice, and how businesses can minimize the risks.

An independent contractor has their own registered business with a CRA-issued tax id, etc., and the obligations that go along with business ownership. Such an independent contractor will be responsible for their tax and superannuation. On the other hand, an independent contractor would be deemed an employee if the practice pays for the physician’s superannuation, payroll tax, and any leave entitlements.

The crucial risk factor for the medical practice or business is that it is not the practice owner or the joining physician who decides the terms of employment, even if the Contractor’s Agreement is in place. Instead, the law determines if someone is a contractor or an employee.

Unfortunately, there are cases where, for example, a contracting physician left practice, and it becomes apparent that the physician is an employee. As a result, upon exiting, the practice owners were left with hefty tax bills for unpaid payroll tax, superannuation, and leave entitlements to cover.

For this reason alone, it is a valuable exercise to go through what is involved in determining whether contracted physicians could be deemed as an employee. It is crucial from the beginning to set up everything correctly as per the law.

Indicators of when Physicians are not Independent Contractors by law

The crucial part of ensuring one is on the right side of the law is understanding the indicators that help determine whether a contractor or employee relationship exists. They should not be construed as rules, as none of the indicators will determine whether the relationship is that of a contractor or an employee. Instead, we need to consider each of them on its own merits, then examine all the pieces together to determine which type of relationship exists between the practice owner and physician.

Control and independence indicator

Independent contractors have control over how many hours and what hours they work. If the practice owner imposes on the contractor when, where, and how to perform their work? The owner may be positioning themselves as an employer. This control can create difficulties for practice managers who ensure that the practice has enough medical physicians available consistently to see patients. However, let’s say, the practice manager engages a medical practitioner to work Monday, Tuesday, and Wednesday. That is not necessarily taking away their control and independence, particularly if working hours were negotiated with the physician during the hiring and contracting stage. However, the practice hired the physician on these terms, and then one makes additional demands or requirements, for instance, they must arrive 15 minutes before their shift for a team meeting, or they must be available on call after hours, would be moving into an employer/employee relationship.

Other examples include expectations that they schedule at least x number of patients a day or they must not take more than 2 x 15-minute breaks in between the scheduled appointments. One can see how this quickly changes from an independent contractor to an employee-employer relationship.

Equipment indicator

Contractors must provide their equipment. In some circumstances, where the medical equipment is specialized or expensive, it may be necessary to share resources, so physician contractors use this equipment to undertake the work required.

As a rule, contractors must be responsible for providing their tools, including laptops and other medical equipment required to complete their contract.

Delegation indicator

The ability of the contractor to subcontract or delegate their work under the contract is one of the indicators that can determine whether they are in a contractual arrangement or are an employee.

This indicator can be another challenging indicator for practice managers and owners. Practice owners invest time in ensuring they engage the right practitioner for the practice, someone with the right experience and skills. The practice owners don’t particularly want the contractor to delegate their role to one of their employees if the practice owner cannot determine whether that physician possesses the experience or skills one might expect. This issue can be easily solved by having a clause in the contract stating that subcontracting is permitted only with the consent/approval of the practice.

Payment including tax indicator

One of the other reasons contracting is such a tricky area for medical practices is the traditional assumption that a contractor will set their fees for their services and get paid as per terms set out in the contract. Contractors are also responsible for their tax obligations and do not receive sick leave or holiday allowance.

However, in the case of medical practice, the OHIP pays the fees for the services to the physician. Often the Medical practice collects these fees on behalf of the physician. There are many ways to structure this point according to my experience, for example, from practice managers paying per hour or day, per patient seen, the compensation fees less the cost of leasing the consulting rooms, or the compensation less the overhead fee.

A payment calculated based on time given by the practitioner is more likely than not an employment arrangement. On the other end of the spectrum, an agreement in which the entire OHIP fees get remitted to the physician and the physician pays the practice a separate overhead service is the clearest indicator of a contracting arrangement.

If the physician merely uses the only facility of the practice, has no control over their work, and is not able to delegate, in such case, it is crucial to note that even if one structures the payment as an overhead or service fee. The authorities might still find the structure as a tax avoidance scheme.

Risk indicator

The final indicator is Risk. It is said that the risks run with control of the contract. Meaning, when the owner transfers independence and control over to the contracting physician, the owner is essentially transferring the risk liability to the physician. This transfer of the risk means that all self-employed physicians should hold their professional indemnity insurance. However, one should note with caution that when a contractor’s agreement assigns risks to an employer for work performed by a contractor, it may indicate an employer/employee relationship. If the contractor is a physician, the contract should have a warranty that they will always hold sufficient and valid professional indemnity insurance.

How to minimize the risks to your medical practice?

As you can see from the indicators above, this can be quite a complicated area for medical practices. So, it is wise to leverage the expertise of someone with significant experience in this space to help you ensure you are acting within the parameters of the law.

As medical practice consultants, our expert team can help you get the structure of the contracts right or review what you already have in place. If you are considering bringing in a new physician to your practice, start the relationship between your practice and the physician off on the right foot by aligning expectations, reducing the risks of conflict, and ensuring everyone is aware of the rights and obligations of each party.

If you already have physicians in your practice or are looking to employ a physician soon, Underlyte has created a questionnaire to help you confirm whether the physicians on your team would be classified as an employee or a contractor at law. Contact us for this questionnaire at info@underlyte.com

How Can We Help?

Our team offer General Physicians help with finding jobs and a career pathway, and medical practices to find a new Medical Practitioner. We also help with the application process with CPSO. Please connect with us at info@underlyte.com.

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Underlyte consists of a team of professionals with a passion for guiding those specializing in the medical industry to find their career pathways and settle in Canada. We have extensive experience in the recruitment of Physicians and Pain Management Specialists.