As part of its industry leading, all inclusive pricing model, NHS Solutions only offers interim candidates to hospitals that are W2 employees of NHS Solutions. While there are competitors who continue to offer interim candidates with the employment status of 1099 Independent Contractor (IC), the risks of employee misclassification are significant for all involved, especially the hospital.

IRS common law test

IRS law created Common Law Rules to provide guidelines to help determine if someone should be classified as an employee. The rules are broken into three main categories: behavioral, financial, and type of relationship. Businesses and individuals must evaluate all three categories carefully before determining the classification. Simply having a contract that defines someone as an IC or relying on past practice does not negate the need to review all aspects of the Common Law Rules. Given the number of variables, reviews will not likely yield conclusive test result. Instead, when making a determination the IRS evaluates the overall relationship and where the weight of the test results fall. The default position is to treat someone as an employee unless it is conclusive that they qualify for the narrow definition of an IC.

Misclassification warning signs for hospitals

– Hospital controls when, where, and how an IC performs his/her services

– IC is compensated based on time verses performance, outcomes, or fixed results

– Hospital reimburses the IC for expenses such as travel, housing, and transpotation

– IC is working with an unknown assignment end date or automatic contract extensions

– Hospital requires IC to work for them full time (exclusively) during the assignment

– IC is provided the tools necessary for the assignment such as an office and/or equipment

For additional resources on this subject, please see the Wall Street Journal article: Payroll Audits Put Small Employers on Edge.

IRS Targeting employee misclassification

In 2010 the IRS began a project to audit 6,000 companies to correct misclassified workers given the growing trend by companies to improperly use the Independent Contract (IC) classification. The overall project is expected to generate over $7 billion in unpaid taxes and penalties. In 2011 the IRS announced a Voluntary Classification Settlement Program (VCSP) providing damage releif to employees who voluntarily reclassify (1099) employees in an effort to encourage those who have made “honest mistakes.” The IRS recently announced a whistleblower program that pays 15-30% of the taxes to the person reporting potential violators. Enforcement of correct employee classification and penalties for abuse have never been higher.

For more information, please contact us.