- Oct 26, 2007
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Defining Independence
Independence. What does that term mean? I get asked occasionally how I’m able to maintain my level of “independence” within the Wal-Mart system given that I charge considerably higher than standard rates, practice full-scope optometry, have advanced instrumentation and have livable hours (in 3 different offices with a couple of doctors under my employ).
The truth is that I have done everything I can to create a private practice inside of the Wal-Mart locations and they have been very supportive in every possible aspect. To me, it all comes down to responsible freedom. I think it’s important to recognize the nature of my relationship with WM. I’m not an independent contractor; I’m a leasing entity. This is an important distinction because it defines the separate nature of the businesses. That having been said, I recognize that I am part of a symbiotic relationship and that the decisions I make affect more than just my office. Fortunately, almost all of the decisions I have to make from a practice management perspective lead to achieving similar goals and I can’t imagine a scenario where one would be successful without the other.
The biggest and best business decision for my practice was to internalize as many aspects as possible (given the nature of Texas law, it was unavoidable but even the law allowed I would still maintain the same system). First and foremost, I hire my own staff. By directly employing my staff, I’m able to keep a better hold on how my patients are treated by making sure that the employees are following MY guidelines and procedures. This also allows me to handle my own bookkeeping and insurance filing which leads to better control of fees and accounts receivable. By controlling those aspects, I have made sure that there is adequate cash flow to allow for the purchase of advanced instrumentation (which leads to an even healthier bottom line) to allow us to further utilize the medical insurance on which we file.
I wanted to keep my office hours simple so that patients would have no problems, so I have them open 5 days per week from 9-5 (one Mon-Fri, two are open Tues-Sat). Our staff members are always available to assist patients and make appointments and the doctors have after-hour contacts for emergencies. I tried opening different hours and found this to be the most conducive to patient flow. We tested staying open a little later a couple of days per week and found this to be wasted time since there were almost never patients after 5:00. Basically whenever I changed my hours, I simply called my DM to let them know what the change was going to be.
In short, every decision I’ve made has been with the sole purpose of increasing my business in a professional manner with the goal of growing both businesses. In my patient interactions, I try to conduct myself in a way that is a credit to my profession and to Wal-Mart as well since our respective successes are tied together. I think my experience with WM has been positive because I recognize that a suggestion is just a suggestion and I’m not led by my ego meaning I’ll listen to what other people have to say and judge it on it’s merit and not dismiss it because of the source. Thus far, my offices have grown exponentially and referrals are becoming more the norm than the exception despite our higher than average fees (which I think is fair given that our level of patient care is considerably higher than average for optometric care at large). It’s not hard to be independent; you just have to show the respect you want in return.
Independent Contracting Rules
There seems to be a lot of buzz about the differences between those direct employees and independent contractors (or those incorrectly classified as such). This is an important distinction for both the people contracted and those doing the contracting. There are state laws that come into play as well as tax implications that in some cases can be devastating. In our profession, there are many situations where we are incorrectly classifying our by-definition employees as IC and put ourselves at risk. Many ODs express how little we understand those rules on a daily basis by doing it the wrong way, but there is no reason to guess as there are some good resources and the definitions are most of the time quite clear. I’ll try to give some good guidelines to follow when deciding how to classify those contracted for work. A lot of the following comes directly from the IRS, so I’ll apologize in advance because it’s a bit dry and wordy.
I generally go by the IRS rules for classification as this seems to be the litmus test with the most consequences. The IRS basically defines an independent contractor as someone that achieves some agreed upon end by their own means. In other words, we are “hired” to achieve some end result and the methodology is left to our discretion. It is a violation of this definition to attempt to control the contracted person. There are three levels of control that the IRS considers in making this decision.
Factor One: Behavioral Control
The first factor is behavioral control which addresses the level of allowed instruction, evaluation and training. This component addresses the question of whether or not the person maintains their freedom in what and how they do their job. Instruction is somewhat of a grey area, but basically the more detailed the instruction (how, where, when and with what to do the work), the less likely it is to be classified as contracting. It is allowed to place certain limits i.e. paying someone a certain amount for an agreed upon number of hours, but where it breaks down is that you can’t designate what’s done during those hours…only what the end point needs to be.
For example, you hire someone to perform 50 examinations for $2000 and they have 40 hours to do it (you can see how difficult it is make the IC definition model work for optometry). This person legally has the levity to do those fifty exams in 10 hours and play video games for 40 hours if they choose and they’ve still met the agreed upon terms. To ask someone to perform as many examinations as possible in a 40 hours period technically constitutes controlling how they spend their contracted time. It is possible to put an evaluation system in place, but only if it applies to the end result and not the process itself. As far as training, if the contracted entity needs to be trained by the contractor, it implies a method of control by detailing or outlining the process thereby making it more of an employment situation.
Factor Two: Nature of the Compensation
The second is whether there is the nature of the financial compensation. This addresses issues such as expensing, investment, equipment and method of compensation. An IC generally has a significant investment in the equipment (although this isn’t a requirement as such) and as such there is the possibility of loss for the IC in the compensation. Most ICs are paid a flat fee for their work, although it is common in a professional setting like medicine or law to pay a contractor an hourly fee. It is important to recognize the difference between paying someone by the hour and telling them how to spend those hours. The IC also generally has the ability to make themselves available for outside opportunities and have the possibility to advertise their services and maintain a visible independent business location.
Factor Three: Nature of Relationship
The third factor addresses the nature of the relationship. Although there may be a contract in place stating the worker is an independent contractor, it is not enough to satisfy the definition. It is how those parties work together that determines that status. Benefits are not generally extended to an independent contractor, but incorrectly withholding those benefits can put the employer at risk should the IRS decide that the worker was actually an employee rather than and IC. There should also be a specified time limitation to the work performed. If it’s implied that the worker will remain for perpetuity, it suggests more of an employer/employee relationship. There is also matter of whether the contracted services are a key aspect to the overall business. The more the services represent the core of the business, the more likely the owner is to “control” the method of delivery, therefore making it more of an employment arrangement.
You’re probably asking yourself why this is an important enough issue to warrant correspondence. In short, paying someone incorrectly can be very expensive for the employer and in some cases the employee…and we, as a profession, use independent contracting as the prevailing method of employment even though it almost never legally fits. This applies mainly to ODs that bring on associates for part-time or full-time employment. Be mindful that the longer it’s done incorrectly, the more expensive it is. If you are paying someone that fits the definition of an employee as an IC, you will be held liable for the employment taxes on that person for the duration of their employ.
Should your employee decide to test this, it is a simple matter of filling out a form with the IRS and they will audit to determine the nature of your professional relationship. Should they decide that it was actually an employment arrangement, the business owner will be responsible for paying those employment taxes plus any penalties. To the best of my knowledge, there is no statute of limitation on those types of claims and it doesn’t take long for those amounts to hit tens of thousands of dollars. This is also important if you are an IC that really fits the definition of employee as your employment taxes should be paid by the person contracting you. Many of these issues come down to the level of control exercised by the contracting entity. There has to be autonomy on the part of the contractor in performing the tasks for which they are hired. It is possible to contract someone to perform examinations, but you cannot detail how those exams will be done. For more information, feel free to contact the IRS or go to IRS.gov. You can also talk to your accountant or tax attorney to check your level of compliance.
Steven Nelson, OD is a a Wal-Mart lessee in Portland, TX. He is a frequent contributor to ODwire.org.
Independence. What does that term mean? I get asked occasionally how I’m able to maintain my level of “independence” within the Wal-Mart system given that I charge considerably higher than standard rates, practice full-scope optometry, have advanced instrumentation and have livable hours (in 3 different offices with a couple of doctors under my employ).
The truth is that I have done everything I can to create a private practice inside of the Wal-Mart locations and they have been very supportive in every possible aspect. To me, it all comes down to responsible freedom. I think it’s important to recognize the nature of my relationship with WM. I’m not an independent contractor; I’m a leasing entity. This is an important distinction because it defines the separate nature of the businesses. That having been said, I recognize that I am part of a symbiotic relationship and that the decisions I make affect more than just my office. Fortunately, almost all of the decisions I have to make from a practice management perspective lead to achieving similar goals and I can’t imagine a scenario where one would be successful without the other.
The biggest and best business decision for my practice was to internalize as many aspects as possible (given the nature of Texas law, it was unavoidable but even the law allowed I would still maintain the same system). First and foremost, I hire my own staff. By directly employing my staff, I’m able to keep a better hold on how my patients are treated by making sure that the employees are following MY guidelines and procedures. This also allows me to handle my own bookkeeping and insurance filing which leads to better control of fees and accounts receivable. By controlling those aspects, I have made sure that there is adequate cash flow to allow for the purchase of advanced instrumentation (which leads to an even healthier bottom line) to allow us to further utilize the medical insurance on which we file.
I wanted to keep my office hours simple so that patients would have no problems, so I have them open 5 days per week from 9-5 (one Mon-Fri, two are open Tues-Sat). Our staff members are always available to assist patients and make appointments and the doctors have after-hour contacts for emergencies. I tried opening different hours and found this to be the most conducive to patient flow. We tested staying open a little later a couple of days per week and found this to be wasted time since there were almost never patients after 5:00. Basically whenever I changed my hours, I simply called my DM to let them know what the change was going to be.
In short, every decision I’ve made has been with the sole purpose of increasing my business in a professional manner with the goal of growing both businesses. In my patient interactions, I try to conduct myself in a way that is a credit to my profession and to Wal-Mart as well since our respective successes are tied together. I think my experience with WM has been positive because I recognize that a suggestion is just a suggestion and I’m not led by my ego meaning I’ll listen to what other people have to say and judge it on it’s merit and not dismiss it because of the source. Thus far, my offices have grown exponentially and referrals are becoming more the norm than the exception despite our higher than average fees (which I think is fair given that our level of patient care is considerably higher than average for optometric care at large). It’s not hard to be independent; you just have to show the respect you want in return.
Independent Contracting Rules
There seems to be a lot of buzz about the differences between those direct employees and independent contractors (or those incorrectly classified as such). This is an important distinction for both the people contracted and those doing the contracting. There are state laws that come into play as well as tax implications that in some cases can be devastating. In our profession, there are many situations where we are incorrectly classifying our by-definition employees as IC and put ourselves at risk. Many ODs express how little we understand those rules on a daily basis by doing it the wrong way, but there is no reason to guess as there are some good resources and the definitions are most of the time quite clear. I’ll try to give some good guidelines to follow when deciding how to classify those contracted for work. A lot of the following comes directly from the IRS, so I’ll apologize in advance because it’s a bit dry and wordy.
I generally go by the IRS rules for classification as this seems to be the litmus test with the most consequences. The IRS basically defines an independent contractor as someone that achieves some agreed upon end by their own means. In other words, we are “hired” to achieve some end result and the methodology is left to our discretion. It is a violation of this definition to attempt to control the contracted person. There are three levels of control that the IRS considers in making this decision.
Factor One: Behavioral Control
The first factor is behavioral control which addresses the level of allowed instruction, evaluation and training. This component addresses the question of whether or not the person maintains their freedom in what and how they do their job. Instruction is somewhat of a grey area, but basically the more detailed the instruction (how, where, when and with what to do the work), the less likely it is to be classified as contracting. It is allowed to place certain limits i.e. paying someone a certain amount for an agreed upon number of hours, but where it breaks down is that you can’t designate what’s done during those hours…only what the end point needs to be.
For example, you hire someone to perform 50 examinations for $2000 and they have 40 hours to do it (you can see how difficult it is make the IC definition model work for optometry). This person legally has the levity to do those fifty exams in 10 hours and play video games for 40 hours if they choose and they’ve still met the agreed upon terms. To ask someone to perform as many examinations as possible in a 40 hours period technically constitutes controlling how they spend their contracted time. It is possible to put an evaluation system in place, but only if it applies to the end result and not the process itself. As far as training, if the contracted entity needs to be trained by the contractor, it implies a method of control by detailing or outlining the process thereby making it more of an employment situation.
Factor Two: Nature of the Compensation
The second is whether there is the nature of the financial compensation. This addresses issues such as expensing, investment, equipment and method of compensation. An IC generally has a significant investment in the equipment (although this isn’t a requirement as such) and as such there is the possibility of loss for the IC in the compensation. Most ICs are paid a flat fee for their work, although it is common in a professional setting like medicine or law to pay a contractor an hourly fee. It is important to recognize the difference between paying someone by the hour and telling them how to spend those hours. The IC also generally has the ability to make themselves available for outside opportunities and have the possibility to advertise their services and maintain a visible independent business location.
Factor Three: Nature of Relationship
The third factor addresses the nature of the relationship. Although there may be a contract in place stating the worker is an independent contractor, it is not enough to satisfy the definition. It is how those parties work together that determines that status. Benefits are not generally extended to an independent contractor, but incorrectly withholding those benefits can put the employer at risk should the IRS decide that the worker was actually an employee rather than and IC. There should also be a specified time limitation to the work performed. If it’s implied that the worker will remain for perpetuity, it suggests more of an employer/employee relationship. There is also matter of whether the contracted services are a key aspect to the overall business. The more the services represent the core of the business, the more likely the owner is to “control” the method of delivery, therefore making it more of an employment arrangement.
You’re probably asking yourself why this is an important enough issue to warrant correspondence. In short, paying someone incorrectly can be very expensive for the employer and in some cases the employee…and we, as a profession, use independent contracting as the prevailing method of employment even though it almost never legally fits. This applies mainly to ODs that bring on associates for part-time or full-time employment. Be mindful that the longer it’s done incorrectly, the more expensive it is. If you are paying someone that fits the definition of an employee as an IC, you will be held liable for the employment taxes on that person for the duration of their employ.
Should your employee decide to test this, it is a simple matter of filling out a form with the IRS and they will audit to determine the nature of your professional relationship. Should they decide that it was actually an employment arrangement, the business owner will be responsible for paying those employment taxes plus any penalties. To the best of my knowledge, there is no statute of limitation on those types of claims and it doesn’t take long for those amounts to hit tens of thousands of dollars. This is also important if you are an IC that really fits the definition of employee as your employment taxes should be paid by the person contracting you. Many of these issues come down to the level of control exercised by the contracting entity. There has to be autonomy on the part of the contractor in performing the tasks for which they are hired. It is possible to contract someone to perform examinations, but you cannot detail how those exams will be done. For more information, feel free to contact the IRS or go to IRS.gov. You can also talk to your accountant or tax attorney to check your level of compliance.
Steven Nelson, OD is a a Wal-Mart lessee in Portland, TX. He is a frequent contributor to ODwire.org.
), you should probably bring some specific examples to the table as the doctor above has. I will admit that it doesn't surprise me that it's at least 4 years old.
