Yes! They Can Audit Your Use of Employees vs. Contractors

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Careful classification of workers as employees vs. contractors can protect you from surprising impacts on your tax and workers’ compensation insurance burdens.

By Clay Watson, MPT

Sometimes it seems auditors can fall from the sky, looking to take another bite out of your apple. Audits do not just come from payers—they come from diverse places and at unexpected times. In the spring of 2014 we were audited by our state Division of Workforce Services on the employment status of people who work for us. Things got worse in June when I was audited by my workers’ compensation carrier about the coverage of my staff. Both of these audits highlight potential pitfalls in how we use contractors versus employees in private practice physical therapy.

Employee vs. Contractor Rules

While employment law is a perennial issue within our world and has been written about extensively in Impact magazine, I missed a few things. In case you did too, here is a quick primer on this subject in the human resources section of the Private Practice Section website.1

The common law definition of a contractor states:

A. The worker must be free from direction and control in the performance of the service, both under the contract of hire and in fact (essentially, this is the common law definition); and

B. The worker’s services must be performed either

  1. (1) Outside the usual course of the employer’s business, or
  2. (2) Outside all of the employer’s places of business; and

C. The worker must be customarily engaged in an independently established trade, occupation, profession, or business of the same nature as the service being provided.

I have a home health staffing service, providing physical therapy, occupational therapy, and speech and language pathology services across our region’s several counties. We supply labor to home health companies on a contract basis and use contractors for 80 percent of our work. These clinicians perform their labor in patients’ homes—far away from any “direction or control,” and mostly on a part-time basis. I felt like I was in the clear based on this definition alone.

When the audit began, I dug into the Impact archives and found an excellent 2009 article on this topic by Paul Welk, PT, JD.2 He goes much deeper into the rules, clarifying behavior that will place a clinician in one category or the other. In addition, he focuses on who pays which kind of tax, saying that, “Employers withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages that are paid to an employee.”2 Contractors pay their own versions of these taxes but have control over documenting their expenses as they formulate their tax burden. Still, I thought I was following the law.

Look up your state’s version of the rules

Both of these articles focus on the Internal Revenue Service (IRS) guidance on the matter. You would think IRS rules could be respected by all parties. I overlooked the fact that each state has to take their bite. In my case, this came from the Division of Workforce Services (DWS), whose auditors are charged with enforcing state employment law. In other words, collect more unemployment tax. Our auditors took issue with factors that were different from the IRS guidelines:3

  • Separate place of business: The worker has a place of business separate from that of the employer. To our auditor, this meant the worker must have their own clinic or another place where they work.
  • Other Clients. The worker regularly performs services of the same nature for other customers or clients and is not required to work exclusively for one employer. All of our clinicians worked for other companies, whether as employees or contractors. However, none of them had a separate “place of business” because we see our patients in their home and not in a clinic.
  • Licenses. The worker has obtained any required and customary business, trade, or professional licenses. This includes all of us, even the physical therapy assistants and COTAs (Certified Occupational Therapist Assistants).

In the end, we passed almost every issue they raised. This took careful interpretation and patient negotiation. The only workers our auditors would not concede were our physical therapist assistants (PTAs). They felt that since PTAs and COTAs must work under the supervision and direction of a physical therapist, they had to be employees. I had heard this interpretation in the past and preemptively hired any PTAs as part-time employees. Two hundred dollars later we were done.

Workers’ compensation

We thought we were out of the woods and done with audits in May. It turns out though, that DWS and workers’ compensation coordinate their audits. (This audit is different from the annual review with our insurance broker as we evaluate our yearly coverage needs.) And, unfortunately, our local college had a graduating class of accountants in June and our workers’ compensation carrier hired some fresh talent to audit their clients. We were the first audit for our inspector who rigidly set up audit dates that coincided with my family vacation.

In his efforts of severe diligence, the auditor aggressively examined the assigned period as well as the previous year’s data, issuing fines for both years. The findings were again based on our contractor classifications. In our state of Utah, self-employed individuals are not required to carry a workers’ compensation policy. However, if you hire a worker who is self-employed as a contractor, either you must provide workers’ compensation coverage or provide evidence that the worker opted out of coverage. This protects you from getting sued by your workers in either case.

Two days later we had 40 waivers from our contractors for the current year and a plan to require our contractors to pay the state $50 a year going forward to opt out. Unfortunately we only had three or four waivers from the previous year and were fined for the coverage of their payroll.

Who knew the carrier to whom we paid thousands in premiums could go back and fine us for past years’ data? As you can imagine, we had several long, serious conversations with our insurance broker, who was keen on appealing the decision.

Several weeks later we were informed that our carrier forgave the fines with the warning to be more diligent in the future. Diligent enough to not miss the family vacation at the beachside condo in La Jolla, California.

In closing, be sure to follow employment law in your state and with your workers’ compensation carrier—or you may have to face much more than a missed vacation. 

References:

1. Independent Contractor or Employee? Resources for Physical Therapist Employers. www.ppsapta.org/c/hr.cfmx. Accessed May 2015.

2. Welk, Paul J, PT, JD, “Bringing on New Staff? Remember the Contractor versus Employee Analysis,” Impact, Feb, 2009, pg. 32, 38.

3. www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-Self-Employed-or-Employee (behavioral, financial and type of relationship of a contractor). Accessed April 2015.

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Clay Watson, MPT, is a PPS member and owner of Western Summit Rehab, LLC, in Salt Lake City, Utah. He is also on the PPS Membership Committee. He can be reached at clay@wsrehab.com.

The Growing Mountain

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By Terry C. Brown, PT, DPT

A concerted effort has been made in our profession to produce evidence that physical therapists are effective in the treatment of musculoskeletal (MSK) dysfunction. Fascinating studies clearly define the physical therapist as the best provider of choice in a number of these disorders. Data on acute low back pain clearly defines physical therapy as the low cost best first choice treatment. New data from research funded by the Private Practice Section (PPS) clearly shows evidence of decreased re-admission to hospitals when an individual has outpatient physical therapy following discharge.

The mountain of evidence continues to grow. However, the facts supporting physical therapy as a less costly and effective alternative to medicine, imagery, surgery, and other invasive procedures has not yet translated into improved payment and access. We are stuck with the question of how to get this information to our clients, legislators, payers, employers, and referral sources.

Aligning evidence to best practice takes time and effort. Educating primary care providers to make the “right choice” in referring patients is indeed necessary but not easily achieved. Educating the consumer that a physical therapist is their best choice requires changing their mind set so they accept the “less is more” philosophy and do not expect an MRI just because their deductible is paid. They need to know that they will feel better with physical therapy as their first choice. Employers and payers need to be educated on the evidence so they understand the cost-effective choice. Incentives affecting the consumer’s and provider’s pocket books will align us with those who pay the bills. We must reach out to the insurance industry, state and federal regulatory agencies, and employers—as well as consumers—to get the message out: Physical therapists are the best choice for cost-effective results in MSK disorders.

PPS is looking at all options to compile this mountain of data into a concise and marketable tool and exploring ways to reach out across the industry to affect change. Ideas and plans are emerging as we develop the Section’s strategic plan. I welcome your thoughts and ideas in helping drive this critical initiative. 

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The Coach’s Eye

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Discovering many opportunities through an app for athletes.

Deb Gulbrandson, PT, DPT

Coach’s Eye by TechSmith is a $4.99 app that runs on Apple, Android, and Windows 8.1; it was created for coaches to analyze and give video feedback to their athletes, making it a perfect match in the physical therapy world. It offers the following features:

  • Record HD videos with instant review
  • Slow Motion
  • Zoom feature
  • Split screen videos for comparison analysis
  • Draw lines, arrows, circles right on the screen
  • Frame-by-frame analysis
  • Create videos with audio commentary and annotation
  • Share videos through email, text, Facebook, Twitter

They say that one picture is worth a thousand words. Then one video must be worth a lot more than that. Imagine videotaping your patient’s gait on the initial visit and then again on the 5th or 6th? Imagine displaying those videos side-by-side on a split screen to show the patient how far he or she has come.

Slowing down movement is like putting a specimen under the microscope. We catch things that we would never see with the naked eye. Patients have an improved ability to make corrections when they can see what we are talking about.

How often has your patient gone for a follow-up appointment and the doctor never asks to see them move? Now you have the capability to email the video to your patient’s doctor complete with your commentary. What a great marketing (and physician education) opportunity.

While videotaping patients is nothing new, Coach’s Eye makes it unbelievably simple. The added ability to freeze frame, slow down, compare split screens, draw angles, and share the videos with others, makes this a real powerhouse.

On their website, Coach’s Eye says, “Vision is the art of seeing things invisible to others.” Sounds like what we do as therapists every day! Check it out at www.Coach’sEye.com.

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Deb Gulbrandson, PT, DPT, Impact Editorial Board member, and owner of Cary Physical Therapy in Cary, Illinois. She can be reached at deb@caryphysicaltherapy.com.

1+1=3

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By Stacy M. Menz, PT, DPT, PCS

May is an exciting month for Impact as the editorial board will be collaborating for the first time at an onsite planning meeting with the objective of mapping out the 2016 editorial year. Impact strives to be the collective effort of many: the editorial board, multiple authors from inside and outside the physical therapy profession, and our entire private practice community. This diversity allows multiple topics, perspectives, and experiences to be brought to the surface for consideration and thought in relation to private practice physical therapy.

Our goal is to make this a magazine to serve the members of the private practice section. As your magazine, we are always striving to incorporate feedback and member perspective. Your feedback is integral to continue to move the magazine forward and ensure its relevance to today’s physical therapy practice owner. Thank you very much to those of you who took the time to complete our member survey, as this year’s response rate was our best yet. I would also like to invite you to provide feedback throughout the year as ideas surface or you have reactions to topics presented in the magazine. Please reach out to me directly.

While we talk about thanking individuals for their contributions, we would be remiss to not take a moment to acknowledge and thank Laurie Kendall-Ellis for the time and energy she invested in this section over the past seven years during her tenure as executive director. Her work is particularly poignant to Impact as she held the role of editor for some time and during her service the magazine grew and expanded significantly. We wish her well in her new endeavor and thank her for all she has contributed over the years.

As we ponder and plan for the future of Impact, we want to stay in step with what is on your mind for you and your practice. Our hope is that Impact will supplement the plans and innovation you are engaged in daily and be one of many places you look to for ideas and collaboration but also that the reciprocal will occur. In this exciting and challenging time in health care, engagement in each of our practices and communities is imperative. If we can each engage in our home practice, this will spill over into more productive dialogue in Impact and other platforms for collaboration. So, I ask … how are you engaged in creating the future you envision for yourself, your practice, and your community? Are you waiting for someone else to do it for you or are you truly engaged and part of the solution? 

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Voter Turnout 2014

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How we can all make a difference.

By Marc Rubenstein, PT, DPT, OCS

It was interesting how I came to attend my first Private Practice Section (PPS) annual conference in Vancouver in 2002 just before I was to open my first practice in central New Jersey. I wrote to the section and asked if they provided any opportunities for new owners to go on “scholarship.” The section responded “yes,” if in exchange for my registration fee being waived, I would work the PPS booth and help in the educational sessions. This experience paved the way for me to become a loyal, active, and involved PPS member. The connections I have made through PPS have been invaluable both personally and professionally.

Currently, I am the owner of three outpatient clinics with a home care division and a satellite in a low-income senior housing community. We have been in business for 12 years and have 30 employees. I love being a physical therapist, and I love being an owner/entrepreneur and want it to continue for years to come. Like many colleagues, each year in practice has provided its own successes and challenges. Unfortunately, payment has declined steadily, physician-owned practices are on the rise, and managed care has become more burdensome. It is of the utmost importance that we as a section identify tomorrow’s future leaders today, and assist in their leadership development. We must also continue to have a strong board of directors that are visionary and can lead us, so we not only survive but also thrive. Our leadership must be strong, especially through these transitional times. My point here is to emphasize the importance of voting, and the impact it has on our section leadership and profession.

This past year kudos have to go out to the past Nominating Committee chair, Ed Ramsey, as well as Nominating Committee executive director, Laurie Kendall-Ellis, and the past board of directors for the amazing job they did in terms of our voter turnout, which was above 70 percent! There was a large amount of absentee ballots, paper ballots, and electronic ballots, which all contributed to this amazing percentage (a huge increase from prior years). This tells me our members are actively engaged on multiple levels and that we indeed have a healthy section.

We cannot be complacent and satisfied with the 70 percent. (Just as an aside, in the United States about 60 percent of the population vote during presidential elections.) Our goal is 100 percent member participation in voting. We want our section members to select our future leaders. These are important choices that will impact our section and our profession.

We are currently taking nominations for the positions of treasurer, secretary, two members of the board of directors, and one position on the Nominating Committee. Once the slate is announced to the membership in early June, absentee ballots will be available through October. Finally, registration is now open for our Annual Conference 2015, which will be held at Rosen Shingle Creek Resort in Orlando, Florida, from November 11 to November 14, 2015. Please attend the Annual Conference, speak to our outstanding candidates, and vote for whom you feel will best serve our section and profession for years to come.

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Marc Rubenstein, PT, DPT, OCS, is the president and co-founder of Jersey Physical Therapy. He can be reached at marcruby@gmail.com.

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