As your dental practice grows, you’ll likely consider bringing on additional professionals – perhaps an associate dentist, specialist, or hygienist. But before you extend that offer, there’s a crucial decision that could significantly impact your practice’s financial health: determining whether to classify them as an employee or independent contractor.
As a dental tax and advisory firm, we often hear from practice owners wrestling with this exact question. While the allure of independent contractor relationships might seem appealing, especially if you are thinking about reduced payroll taxes, making the wrong classification choice could expose your practice to serious risks.
Understanding the Stakes
“But they’re only working two days a week,” you might think. “Surely they can be contractors?” Not necessarily. The IRS and Department of Labor are taking an increasingly close look at healthcare practices, including dental offices, to ensure workers are properly classified. Misclassification isn’t just a minor paperwork error – it could result in significant back taxes, penalties, and even legal action that could have been easily avoided with proper planning.
Learn More about our Dental Services
The Control Factor: The Heart of Classification
Here’s what many practice owners don’t realize: the classification decision isn’t about how many hours someone works or even how they’re paid. Instead, it all comes down to control. Let’s break this down into practical terms you’ll recognize in your daily operations.
Think about your hygienist who works Mondays and Wednesdays. You provide the operatory, equipment, and supplies. You set the schedule, determine the fees, and require them to follow your clinical protocols. Even if they only work part-time, these control factors strongly suggest they should be classified as an employee.
Now consider a visiting endodontist who brings their own specialized equipment, sets their own schedule, and maintains their own liability insurance. They might be a legitimate independent contractor because they maintain significant control over how they deliver their services.
Real-World Application in Your Practice
Let’s look at associate dentists, since this is where we see the most confusion. Many practice owners assume that part-time associates can automatically be classified as independent contractors. However, if you’re:
- Setting their schedule
- Providing all equipment and supplies
- Requiring them to follow your protocols
- Including them in staff meetings
- Controlling which patients, they see
Then regardless of hours worked, they’re likely employees in the eyes of the IRS.
Protecting Your Practice
So how do you make the right choice for your practice? Start by asking yourself these key questions:
- Who controls when and how the work is performed?
- Who provides the equipment and supplies?
- How integrated is this person into your regular practice operations?
- Do they have the opportunity to make business decisions that affect their profit or loss?
Moving Forward with Confidence
The good news? You don’t have to navigate these waters alone. As dental financial advisors, we’ve guided countless practices through this decision process, helping them structure relationships that make sense both operationally and legally.
Whether you’re considering bringing on new team members or reviewing your current classifications, taking the time to get this right is crucial for your practice’s long-term success. It’s not just about saving on payroll taxes, it’s about creating sustainable, compliant relationships that support your practice’s growth.
Need help determining the right classification for your dental professionals? Let’s talk. Our team at Rea specializes in helping dental practices make informed decisions that protect their financial health while supporting their growth goals. Contact us today for a consultation. Let’s build our future together.
By: Kara Hutcheson (Zanesville Office)