Each practitioner looking to contract directly must understand how W2 and 1099 will affect negotiations. This article briefly describes how some items should be negotiated for depending if it is a W2 or 1099 agreement.
When contracting directly to provide clinical services with facilities can choose to hire the physician as a W2 employee or 1099 independent contractor. Within the Professional Services Agreement (PSA), the two parties’ relationship will be more explicit. Will the physician be contracted as an employee, paid as a W2, or as an independent contractor, paid as a 1099?
W2 and 1099 are both tax forms received from the hiring party. Their meaning is significant for anyone looking to contract directly for clinical work. These forms tell the states and federal authorities how the relationship between the two parties and how taxes must be dealt with. When contracting directly, you must recognize that W2 income is “post-tax” and 1099 income is “pre-tax.” As a W2 employee, taxes will be removed before the cash hits your bank account. The facility and you split the employment tax of 15.3% before the money is yours to spend. When you are paid as 1099, the money that hits your bank account is pre-tax dollars, and you are responsible for paying taxes quarterly or at the end of the year.
Knowing these differences is essential for any physician negotiating a contract for clinical work . How facilities plan to pay you should dictate how you will negotiate items related to providing services.
This article briefly discusses the main negotiating points for physicians contracting with a facility as either a W2 employee or 1099 independent contractor.
In most instances, 1099 independent contractors should be paid better as the facility is not having to pay self-employment taxes or for benefits such as health insurance, workers compensation, disability insurance, or retirement funds.
As a W2 employee, you will want to negotiate for the facility to provide malpractice insurance or include you on the facility policy. The facility may also offer to pay for your individual policy directly or a stipend. If the facility does not offer malpractice insurance, then as a W2 physician, you would be responsible for paying for malpractice insurance with pos-tax dollars. As a 1099 independent contractor, the facility will usually not include you on its facility policy. Instead, you will want to negotiate for the facility to pay or reimburse for an individual malpractice policy. You could also negotiate for a malpractice stipend. Sometimes, physicians may not get malpractice insurance paid for or reimbursed as a 1099 independent contractor.
As a W2 employee, you will want to negotiate for the facility to pay for all travel expenses upfront. This would include the facility paying upfront for lodging, rental car, and flights. The facility would not be able to reimburse you for mileage if you contract as a W2 employee. You could negotiate for the facility to provide a travel stipend. If the facility chooses not to pay for travel expenses, the W2 physician must pay for these items with post-tax dollars. As a 1099 independent contractor, you must negotiate for the facility to pay for or reimburse travel expenses. You may also negotiate for a travel stipend. If all else fails, the 1099 physician can pay for travel expenses with pre-tax dollars.
Whether you are contracted as a W2 employee or 1099 independent contractor, you should negotiate for the facility to pay for or reimburse for state medical licensing fees and DEA license. If the facility does not pay for these items, the W2 practitioner will have to pay for them with post-tax dollars, whereas the 1099 practitioner can pay for them with pre-tax dollars.
As a W2 employee, you might be able to negotiate for health insurance and a 401k matching program. Ensure that you define the number of hours or shifts per month required to obtain employee benefits such as these. 1099 independent contractors will not have access to these benefits and will be required to pay for health insurance and fund their own 401k with their pre-tax dollars.
Facilities will contract with practitioners as W2 employees or 1099 independent contractors, which will have tax implications. All practitioners should understand the difference between W2 and 1099, so they can weigh the pros and cons of signing an agreement with a facility as an employee or independent contractor. This will help when it comes to negotiating with facilities.
This table summarizes how items should be dealt with in a W2 vs. 1099 contract.
|Income||Post-tax||Pre-tax. Should be paid better than W2.|
|Malpractice Inusrance||The facility should provide or reimburse.||Practitioner should have their own policy. Facility could reimburse.|
|Travel Expenses||Facility may pay for it. If not, practitioner pays with post-tax $.||Facility could reimburse. If not, practitioner pays with pre-tax $.|
|Licensing Fees||Facility may pay for it. If not, practitioner pays with post-tax $.||Facility could reimburse. If not, practitioner pays with pre-tax $..|
|Health Insurance||Facility may provide if part-time or full-time status. Otherwise its paid for with post-tax $.||Practitioner pays for with pre-tax $.|
|401K Matching||Maybe offered if part-time or full-time status||Facility will not provide a 401k|
|Meals||Facility may provide. Otherwise, its paid for with post-tax $.||Facility may reimburse or pay stipend. If not, practitioner pay with pre-tax $.|
|CME||Facility may provide if part-time or full-time status.||Facility will usually not pay for.|
|Parking||Facility should pay for.||Facility may or may not pay for.|