There are basically two types of associateships: employee and independent contractor. Both have legal and tax consequences. The type of associateship is usually determined by the employer as a condition of employment and is normally written in a contract signed by both parties. Some offices hire associates without a contract. It is highly advisable to have a contract to eliminate any misunderstanding between the associate and employer. The employer and the associate may delay drafting a contract for a few months to evaluate the future relationship. However, it is advisable to wait no longer than 3–6 months to decide on a contractual relationship. It is preferable at the time of initial employment.
New dentists usually have three main concerns regarding their new associateship:
1. The Internal Revenue Service (IRS) view of their employment status
2. The understanding of noncompete clauses/restrictive covenants
3. The manner in which they will be compensated.
Although there are many facets to an employment agreement, only a few major concerns are addressed here. As always, legal advice should be taken prior to signing any legal document, including employment agreements.
For many years there was a 20-item checklist that indicated the associate’s status as an employee or independent contractor . This checklist was very restrictive in allowing the independent contractor status and was left to the subjective opinion of an IRS agent. This has been replaced by an 11-part assessment that is divided into three categories: behavioral control, financial control, and type of contractual relationship . The associate’s status is very important, especially to the employer, because of the tax consequences. If the associate is an independent contractor, the employer does not have to withhold nor pay various payroll withholding taxes. The burden falls on the independent contractor to properly pay such taxes on a quarterly basis. The employer must, on the other hand, pay the taxes associated with an employee.
Behavioral control can be evaluated by the instructions given to an associate as to when, where, and how to perform his or her job duties. Many of the behavioral controls are intrinsic to doing dentistry. The new dentist usually does not have any control over the equipment or supplies he or she uses, or the dental assistant or dental hygienist assignments. These are under the employer’s control. However, the associate dentist should have control over what work is performed and the order or sequence of that work. In other words, the associate should have some control over the patients’ treatment plans, the sequence of the dental care proposed, and possibly the materials used. The more control the employer has over the associate, the less likely the associate is an independent contractor.
Financial control can be evaluated by the associate’s possible realization of a profit or loss. This is balanced by the associate’s having an investment with non-reimbursable expenses. In other words, does the associate have some control over his or her overhead? At first look, most associateships will not fulfill this category. However, on closer evaluation, this category may be fulfilled by having the associate pay portions of lab fees, implant supplies, and/or certain office costs. Financial control is also evaluated by the manner in which the associate is paid. Being paid based on collection or production also shows that the associate has some control over his or her profit or loss. Collection or production compensation allows the associate more financial control than a per diem or hourly wage.
The type of relationship is normally stated in the contract, such as employer–employee or employer–independent contractor. The contract should also clearly state, among other things, any benefits provided, how long the intended relationship is to last, and the responsibilities of each party. This should include the associate’s access to patient records after employment if the need arises per a lawsuit. The more benefits provided, the more likely the associate is to be acting as an employee. The length of employment is usually clearly stated in the contract of employment. The influence of the associate normally affects the noncompete/restrictive covenants, by the number of days working in the practice: the more the associate is working in the practice, the more the associate has influence within and on the practice.
Noncompete/restrictive covenants limit the time and distance an associate may practice while at the practice, and possibly after he or she leaves a practice, whether one is an employee or an independent contractor. These types of agreements protect the employer dentist from an associate quitting the practice, opening a practice nearby or becoming employed by a nearby dental office, or promoting him- or herself in the attempt to take patients away from the previous employer. An employer who has spent 20 or more years building a practice runs the risk of losing it without such a contract; hence the need for a restrictive noncompete agreement. Often the time is set in years during which one may not practice within a set distance from the employing practice. There is no set amount of time that is common in such an agreement. Nevertheless, the time clause must be legally reasonable. For example, if the associate works only half a day per week in a practice and the restrictive agreement time clause refers to a time period of 5 years after leaving employment, it will most likely be found to be unreasonable depending on your jurisdiction. The distance may be set in miles or specified by names of nearby towns based on the practice’s range of influence or from where the practice draws patients. To be reasonable, the demographics surrounding the practice must be taken into account. A distance of 10 miles may be found to be too small in a very rural a/>