Therapists: Hiring Independent Contractor vs. Employee

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Because you chose a calling that centers around healing the emotional pain of those around you, you’re probably a helper at heart. Imagine this: Lately things have been picking up and you’ve decided to hire another therapist to take on the additional workload. You’ve found that you could use some help yourself!

Well, help us help you take on a helper.

Perhaps the biggest question to ask yourself before hiring a team member is: Do you want this team member to be an employee or an independent contractor (AKA a freelancer)? The decision is yours because, chances are, you’ll see interest from applicants either way. We can’t make this decision for you, but we can break it down to make the decision clearer.

How Much Control Do You Want Over Your People?

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As a business owner, it is your prerogative to decide how much control you want over your team. Please understand that we’re not making any value judgments here. Some employers have the desire or need to set required hours for team members, and for this you must hire employees. On the other hand, with contractors the basic rule is that you can’t set their office hours; you can just require that they are available for each of their clients at the scheduled meet time.

Your business may make use of both employees and independent contractors to fill various needs depending on the level of control necessary. For example, many small businesses have no need to hire their own lawyer and, instead, pay a freelance lawyer on an as-needed basis when they need to draw up a contract or ask a legal question.

The official word from the IRS is, “[A]n individual is an independent contractor if the payer [you] has the right to control or direct only the result of the work and not what will be done and how it will be done.”

Perhaps a good analogy is the difference between hiring a maid for help with chores or asking your spouse to do them. With a maid, you can set required hours for them to be in your house, and you can instruct them on how to go about cleaning your place. Your spouse, on the other hand, is probably going to want the autonomy to choose their own “hours” and methods. Of course, you do have to pay independent contractors.

Beyond all this, there are other functional differences regarding control. You can require employees to attend staff meetings and engage in continuing education. Independent contractors don’t have to do these things. Also, independent contractors don’t have to work exclusively for you and may choose to work for another company. They may even be incorporated as a business and see their own clients!

The Financial Aspect: How Pay Differs

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There are big differences between how you pay an employee and how you pay an independent contractor. Employees are paid through a regular payroll, which is complex enough that we recommend that you use specific payroll software even if you only have one employee. For Washington State employees, you must pay L&I (workers’ compensation) tax, unemployment tax, and the employer portion of payroll tax. Each of these taxes is run by a different government entity.

For an independent contractor, you just hand them the money directly and they are responsible for paying their full payroll tax and remitting any necessary funds to the government. Independent contractor pay is very “hands off” from your perspective. Generally speaking, if all else is equal, an independent contractor will be less expensive for your company to hire than an employee. This makes sense because freelancers are, naturally, allowed more freedom over how they work.

The form you use to report your team’s pay also differs: You submit a W-2 to your employees, and you send a 1099 to your independent contractors.

Whichever You Choose, Follow The Rules Closely!

Therapists hiring employees or independent contractors

Because it’s your choice to hire either employees or independent contractors (or both), it’s your responsibility to follow the rules of each. This is especially important for those who hire independent contractors but try to exercise too much control over them. You may remember that Microsoft ran afoul of this decades ago and had to pony up quite a large amount of cash for benefits in arrears to former contractors who were retroactively ruled to be employees.

When in doubt, err on the side of allowing your contractors at least a bit more freedom than is absolutely required. If you are unsure about whether you’re keeping a contractor on too tight a leash, contact us for guidance! Just keep in mind that we are not attorneys and can only provide general advice on this.

In our experience, most of our clients choose to hire employees so they have the ability to control scheduling and assign therapists to clients for additional profitability. Also, because employment is more formal and less tenuous than independent contracting, it can be easier to keep hold of your good employees in the long run. We often see freelancers drift away from the therapy practices that contract them to start their own operations at the 1- to 2-year mark.

TL;DR: Independent contractors and employees are not the same thing. As a business owner, you have much more control over the hours, therapy style, and work life of an employee. Generally, the paperwork and financial burden of having independent contractors is lower. Beware of asserting too much control over independent contractors though — they aren’t called “independent” just for kicks. There is a long history of companies being sued for keeping their independent contractors on too tight of a leash.

P.S. Want to learn how to manage your money better as a therapist? Now you can learn directly from Toni Cameron, CPA with our new on-demand webinars! Check out our most popular webinars here.
Khaled - TLDR

Khaled Albadawi, CPA

Principal & CEO

Khaled joined TL;DR as Principal in December of 2022, and has quickly hit the ground running offering a fresh new perspective for the TL;DR team and clients. He’s a natural entrepreneur & leader, starting his days at 4 AM with a nice cup of coffee to get a jumpstart on projects before the business world wakes up. His one piece of advice to business owners? Ask yourself if you are creating just another job or a business. Ideally, you should be building something that doesn’t require you to be there 40 hours a week!

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