William P. Prescott, JD, EMBA
WORKER CLASSIFICATION continues to be an ongoing problem for
associating dentists, as well as for retired dentists and specialists who
continue to render professional services (hereafter collectively
referred to as associates). The Internal Revenue Service (IRS), the
Department of Labor (DOL), and the states believe they are incurring a
huge loss in revenue, and workers are being denied benefits from
misclassification. 1 Three agencies are auditing, and three different
tests determine worker classification.
A dental practice cannot afford to pay an associate well
and also pay direct business expenses, insurances (includ-
ing health insurance), and benefits (including retirement
plan benefits) (hereafter collectively referred to as benefits).
Consequently, the dental practice prefers to classify the
associate as an independent contractor to eliminate payroll
taxes and benefits. The associate prefers to be classified
as an independent contractor because the associate can
fully offset benefits against income and receive a higher
rate of compensation than as an employee. This is because
the practice has eliminated payroll taxes and benefit costs.
As a result, the practice owner and associate think that as
long as the associate agrees to pay all applicable taxes, the
associate can be treated as an independent contractor.
Not so! I am often asked, “If the associate, as an inde-
pendent contractor, and the practice pay all applicable
taxes, there’s no harm, no foul, right?” No. The IRS has
stated that the penalty for worker misclassification is steep.
The practice would be assessed all unpaid federal taxes,
Federal Insurance Contributions Act (FICA) taxes, Federal
Unemployment Tax Act (FU TA) taxes, fines, and interest. 2