Make your own hours. Choose your own patients. Keep records the way you want to. The advantage of being an independent contractor is maintaining control over the work you do.
That’s why the California Psychological Association declared victory when psychologists in that state were exempted from a new law making it more difficult for employers to classify workers as independent contractors instead of traditional employees who receive Internal Revenue Service W2 statements from their employers.
Physicians, podiatrists, and dentists are also exempt from the law set to take effect January 1, 2020, while all other health care providers — including all other mental health providers — are subject to its provisions.
The legislation that made its way through the California Legislature in 2019 as Assembly Bill 5 was designed to regulate companies — including Uber and Lyft — that hire large numbers of gig workers who cannot set or negotiate their own rates and generally earn lower wages than other professions.
The law codified a California Supreme Court decision in a class action lawsuit against a package and document delivery service that had classified its delivery drivers as independent contractors.
The court set a three-pronged or ABC test establishing that an independent contractor is A) free from the control and direction of the employer, B) performs work outside the employer’s core business and C) engages in an independently established occupation or trade.
About half of U.S. states use the ABC test to distinguish independent contractors from W2 employees, said attorney Ken Gogel of The Law Office of Gogel & Gogel in South Egremont, Lee and Springfield, Massachusetts. He provides legal counsel for the Massachusetts Psychological Association (MPA).
Massachusetts, Vermont, New Hampshire, and Connecticut use the ABC test to determine if a worker is an independent contractor or employee. Maine requires that five criteria must be met along with three out of a possible seven other criteria in order to be classified as an independent contractor.
In Massachusetts, there is no exemption to allow psychologists to work as independent contractors for other psychologists. So, the B prong involving whether the work is part of the employer’s core business applies, Gogel said. He recently weighed in for MPA when a list-serve discussion generated questions about the topic.
“If you’re running a painting company and you hire some people to paint for you, those ladies and gentlemen are not independent contractors. They’re employees,” Gogel said.
“It’s a question of what services are being provided, so if the business is providing therapy and seeks to hire somebody to provide therapy, that’s the same as the painting example. So, without an exemption like they have in California, you’re not going to pass that test.”
In Rhode Island, however, psychological practices are allowed to have associates who are independent contractors. The state doesn’t explicitly use the ABC test but relies on common law factors similar to what the IRS uses. The IRS requires evidence of a worker’s control or independence and looks at the behavioral, financial, and type of relationship between worker and employer to determine the worker’s classification.
“In my practice we reviewed the IRS rules about when someone is considered an employee, and we organized our business practices accordingly,” Peter Oppenheimer, a founding partner of Feil & Oppenheimer Psychological Service in Barrington, Rhode Island, wrote in an email to New England Psychologist. “I know what we do would not be allowed under Massachusetts law.”
Wage statutes are set by state legislatures and that can lead to confusion, Gogel said. But employers must be careful to avoid misclassifying employees as independent contractors because there are clear penalties for not paying appropriate taxes — including fines of up to $10,000 in Maine or $25,000 in Massachusetts for a first offense.
About half of all doctoral-level licensed psychologists are self-employed, according to the American Psychological Association’s (APA) Center for Workforce Studies. But while independent contractors are self-employed, not all self-employed individuals are independent contractors.
APA does not have data to determine the percentage of psychologists who are independent contractors, said Karen Stamm, Ph.D., Center for Workforce Studies director.
Stamm was the lead author of “Special Analysis of the 2015 APA Survey of Psychology Health Service Providers,” which found that private practice is the most common work setting for all career stages of psychologists, although those in earlier career stages are more likely to work in hospitals and organized settings.
Employers that hire workers as independent contractors instead of employers save on taxes and insurance. Having employees also means spending more time on administrative tasks and bearing the cost of providing benefits such as sick leave and vacation.
But hiring employees gives employers the advantage of controlling workflow and procedures, setting uniform policies and hours worked, and controlling referrals by clinicians.
They can also protect their office brand, which includes determining the kinds of clients who will be seen in their waiting rooms, said Pauline Wallin, Ph.D., a psychologist with a private practice in Camp Hill, Pennsylvania.
She is past president of APA Division 42 and co-founder of The Practice Institute in Harrisburg, Pennsylvania, a business consulting firm that helps licensed mental health professionals build their own practices.
Wallin added that employees may also feel a stronger relationship with their employer.
“I think there’s a better chance that people will be committed for the long term as being hired by the practice versus being rented by the practice,” Wallin said.