The short answer is a lawyerly one–it depends. Under federal tax law (this is excluding how your state might see things), the classification of a worker as an employee or an independent contractor has significant implications for both the worker and the employer. Generally, an independent contractor is considered self-employed and is responsible for their own taxes and benefits, while an employee is subject to tax withholding and entitled to certain employer-provided benefits. While the determination of worker classification is a complex area of law, it is possible for a dentist to be classified as an independent contractor under federal tax law.
To establish whether a dentist can be classified as an independent contractor, several factors must be considered. The Internal Revenue Service (“IRS”) provides guidelines to determine the degree of control exercised by the employer over the worker. These factors include the (i) type of relationship, (ii) financial control, and (ii) behavioral control.
One factor to consider is the type of relationship between the dentist and the practice or clinic they work for. If the dentist has a written contract that stipulates an independent contractor relationship, this demonstrates the intent of both parties to establish an independent contractor arrangement. Moreover, if the dentist is free to work for multiple practices or clinics and has the freedom to choose when and where to provide services, it further supports the independent contractor classification.
Financial control is another critical factor. Independent contractors typically have a significant level of control over their finances. In the case of a dentist, if they provide their own equipment, materials, and supplies, and are responsible for any expenses incurred in the provision of their services, it strengthens the argument for independent contractor status. Conversely, if the dentist uses the facilities and equipment provided by the practice, and the practice bears the majority of the expenses, it may indicate an employee relationship. And this is the part that concerns most CPAs and legal advisors when classification issues are raised. The reality is the dentist is working for the practice on the practice’s dime. But this is not an insurmountable reality. Still, you must always be aware that the final decision on classification would come from the IRS somewhere down the road–there are no guarantees.
Behavioral control is the third factor to consider. An independent contractor typically works autonomously, without direct supervision or control from the employer. If the dentist has the freedom to set their own work schedule, determine their treatment methods, and exercise professional judgment without interference from the practice, it points towards independent contractor status. However, if the practice closely supervises the dentist’s activities, specifies the patients to be seen, and provides detailed instructions on how to perform the work, it may suggest an employee classification.
It is essential to note that no single factor is determinative, and the IRS will consider the entire working relationship, if and when the issue is raised in an audit or other proceeding. Each case is evaluated on its own merits, weighing the totality of the circumstances to determine the appropriate classification. Therefore, dentists, like any other professionals, must carefully assess their relationship with the practice or clinic they work for to ensure compliance with federal tax law.