1099 Vs W-2 For Telehealth Providers: What's The Difference?

As telehealth companies continue to grow, many physicians and clinicians are classified as 1099 independent contractors—but under federal and state law, they may qualify as W-2 employees. Understanding the difference between these classifications is critical, as it impacts everything from overtime pay and benefits to tax obligations and legal protections.

DOL's Six Economic Reality Factors

Many factors can distinguish the status of 1099 and W-2 telehealth providers. Under federal law, treating a W-2 employee as an independent contractor is considered "misclassification" and may be actionable under the Fair Labor Standards Act ("FLSA"). The Wage and Hour Division of the Department of Labor ("DOL") established a holistic approach to assess whether the worker is economically dependent on the place of work.

Some factors include:

• Nature and degree of control, meaning the extent that the worker exercised substantial control over key aspects of the performance of the work. Typically, independent contractors set their own schedule, select their own projects, and can work for others.
• Worker's opportunity for profit or loss; which considers whether the worker can determine the charge or pay for the work provided. W-2 employees are typically unable to determine their pay, besides working more hours or faster.
• Degree of permanence of the work relationship; which considers whether the work relationship is indefinite in duration and excludes the worker from seeking work from other employers.
• The extent to which the work is performed is an integral part of the employer's business. Independent contractors are typically a less integral part of the business than W-2 employees.
• The amount of investment in capital by a worker. An independent contractor may invest in their own facilities and equipment, whereas an employee typically is given equipment and other capital for use.
• The skill and initiative of the worker. If the worker is dependent on specific training from the employer, the classification tends to lean more toward the employee.

Simply classifying a telehealth provider as a 1099 independent contractor does not mean that he or she meets the legal requirement for telemedicine independent contractors. In general, if a business controls the "when," "how," and "where" of an individual's work, then the individual is likely an employee by law, regardless of how she or he is defined in their contract.

Rights and Benefits of W-2 Employees vs 1099 Independent Contractors in a Telehealth Setting

Misclassification as a telehealth independent contractor can result in losing out on essential W-2 employee benefits. Employees who are misclassified as independent contractors may lose out on overtime pay guaranteed by the FLSA and state law, as well as other benefits under Social Security, Medicare, health insurance, and retirement plans. Misclassified employees may also be denied certain labor rights such as protected leave under the Family and Medical Leave Act ("FMLA") and legal protections under anti-discrimination and whistleblower laws. In many cases, W-2 and 1099 workers face identical conditions, but workers misclassified as 1099 independent contractors do not have access to a variety of telehealth employment rights and benefits.

It is common for employers to incorrectly classify workers as independent contractors to evade employment taxes, overtime pay, benefits, and other legal responsibilities. At the same time, employers may control the employee's daily schedule, place restrictions on vacation time, and create mandatory shifts that would count for overtime pay. This makes it especially important to rely on the job actuality, not just the label in your contract.

Misclassification can Impose Risks for Telehealth Employers

Misclassification under federal law is governed by the FLSA, but an employer could be in violation of numerous other telehealth labor laws. These laws include the FMLA, which provides eligible employees with protected leave for mandated reasons; anti-discrimination and whistleblower legislation which protects workers against workplace retaliation and discrimination; and other state regulations that could provide for further rights to workers. Misclassification can put healthcare companies at risk of tax compliance and labor law violations, so it is essential to not only appropriately classify your workers in their contract but to ensure that their day-to-day work reflects their status as either a 1099 independent contractor and W-2 employee.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.