More than ever hygienists who are still in the profession are working temporarily, either as freelancers or through an agency. This allows them to control their schedule and desired rate of pay. Dental practices rely on them to cover regular staff who are sick or on vacation, ensuring continuous production and uninterrupted patient care.

Depending on the practice, temporary hygienists may be classified as either independent contractors (ICs) or employees. Those classified as ICs will receive direct payments with no taxes withheld, while those treated as employees will have their earnings processed through payroll with taxes withheld.

Consequently, by the end of the year, temporary hygienists may receive a combination of 1099s for any earnings over $600 and W-2s, causing them to question which practices have classified them correctly.

Let’s begin by defining the difference between an independent contractor and an employee. If you have a regular job, then you are an employee. If you are an independent contractor, you are self-employed.1 Some states permit hygienists to operate their own practice with an expanded practice permit, which would classify them as independent contractors. However, for most dental hygienists, this scenario does not apply. 2

I think we can all agree that this is very straightforward. Que the plot twist.

Confusion often arises when hygienists take on temporary positions. In this case, they typically fall under the category of common-law employees.

According to common law rules, anyone providing a service for you is considered an employee if you have control over both the tasks being performed and how they are conducted. This holds true even if the person has some autonomy in how they perform their work. The crucial factor is your ability to control the details of the service. Most dental hygienists fall into this category, as they work under a dentist’s supervision, treat the dentist’s patients, and use the dentist’s equipment.3 As a result, dental hygienists who are freelancing or working through a temp agency are classified as employees.

I agree it doesn’t make sense. Most accountants disagree with this ruling. From our perspective, they aren’t employees because they provide services on an as-needed basis for specific periods. Unfortunately, the IRS doesn’t see it that way.

The National Employment Law Project estimates that 10% to 30% of US employers are misclassifying their workers as independent contractors, which includes temporary hygienists. In California, businesses pay anywhere from $5,000 and $15,000 per violation and an additional $10,000 to $25,000 for repeated willful misclassification. In most states, this is considered a misdemeanor, but some states are pushing for this to be a felony offense. 4

Simply put, independent contractor misclassification can be dangerous for practices, especially those that heavily rely on temporary workers to maintain production and provide patient care.

If the IRS finds you guilty of misclassification 5, the employer can be required to pay:  

• A $50 fine for every W-2 Form the company failed to file for a misclassified worker.
• A penalty of 1.5% of the wages paid.
• 40% of the FICA taxes the employee didn’t pay and 100% of the matching FICA taxes the employer failed to pay.
• 100% of the FICA and income taxes not previously withheld from the employee in case of deliberate misclassification.
• Compensation for Social Security and Medicare tax a misclassified employee has been paying out-of-pocket as a self-employed professional.

Let’s assume that some of you reading this article have realized that you may have been misclassifying your temporary hygienists. Does this put us at risk of getting caught? Yes. There are a couple of ways this can occur:

•  A random audit.
• A disgruntled employee can make a formal complaint concerning improper payment of wages to an attorney or the Department of Labor. The complaint prompts an audit, which includes pay practices. During the audit, they often find independent contractor errors and will act accordingly.
•  The recipient of a 1099 questioning misclassification fills out tax form SS-8, Determination of Worker Status for Purpose of Federal Employment Taxes, and Income Withholding. The IRS will perform a limited audit of the office and review the circumstances to determine the worker’s correct status. If they have been misclassified, the business can be held liable for employment taxes. 6
• Your misclassified employee gets audited because they are itemizing expenses. The IRS will quickly determine that their itemizations are a result of misclassification. They will then look to the employers who misclassified them to pay all the back taxes.

It’s important to know that if you classify a temporary hygienist as an independent contractor and they are injured while on assignment, workers’ compensation usually won’t cover the injury. State laws add complexity to workers’ compensation benefits for independent contractors. For instance, in North Carolina, businesses with three or more employees must have coverage, but they’re not required to cover independent contractors. While it might seem like independent contractors have no protection after a workplace injury, that’s not always the case. Even if your workers’ comp policy doesn’t cover the temporary hygienist, you are still liable for their medical expenses related to the injury. 7

Employers face a host of other violations. If an employer misclassified an employee as an independent contractor, they may violate I-9 requirements because they won’t have the required Form I-9 on file. Form I-9 is a key part of new hire paperwork that documents immigration status. They can face stiff penalties for this error in judgment. 8  

When an employer fails to process these temporary employees through payroll, it can impact their eligibility for unemployment benefits in several ways:   

• Unemployment taxes: Independent contractors are not eligible for unemployment benefits because no unemployment taxes are paid on their wages. Only employees who have had federal and state unemployment taxes withheld are eligible for these benefits.
• Eligibility: Eligibility for unemployment benefits depends on factors such as length of employment, earnings, and the reason for separation from the job.
• Fraud: Failing to report income accurately is considered unemployment insurance fraud, which can lead to consequences like repayment of benefits, penalty fees, and loss of eligibility for future benefits.

Misclassification became a significant issue during the pandemic when determining eligibility for benefits.

Federal regulations require that new hires receive both HIPAA and OSHA training. Misclassifying employees as independent contractors can result in them missing this mandatory training, putting the practice in violation of these regulations.  

Dental practices should be aware that Dental Hygiene Boards and Schools are making significant efforts to inform dental hygienists that they should not be classified as independent contractors. They are even emphasizing that knowingly working as an independent contractor could jeopardize their license.

I want to think that dentists who issue 1099s are misinformed about the proper classification of a temporary hygienist. However, misclassification isn’t limited to temporary dental hygienists. Dental assistants, front office staff filling in temporarily, and prospective hires on working interviews must also be processed through payroll. Unsurprisingly, the IRS and individual states are increasingly cracking down on this issue since it can result in significant financial gain for them. For dental practices, the financial cost of misclassification can be substantial, and practice owners can also be held personally liable for intentional misclassification. Dental practice owners should consult with an experienced employment lawyer if they have any questions or concerns on this subject.

Citations:

1. https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-defined#:~:text=If%20you%20are%20an%20independent,Self%2DEmployed%20Individuals%20Tax%20Center.
2. https://www.dentalemploymenthelp.com/single-post/should-dental-hygienists-be-independent-contractors-or-employees
3. https://www.law.cornell.edu/cfr/text/20/404.1007#:~:text=In%20general%2C%20you%20are%20a,employee%20is%20not%20always%20clear
4. https://www.wingspan.app/articles/lessons-from-uber-lime-meta-on-misclassifying-your-independent-contractors
5. https://www.wingspan.app/articles/lessons-from-uber-lime-meta-on-misclassifying-your-independent-contractors
6. https://www.irs.gov/forms-pubs/about-form-ss-8#:~:text=Filing%20a%20Form%20SS%2D8,employee%20or%20an%20independent%20contractor
7. https://raleigh.legalexaminer.com/workplace/are-north-carolina-workers-comp-benefits-available-for-independent-contractors/#:~:text=North%20Carolina%20requires%20any%20business,required%20to%20cover%20independent%20contractors.
8. https://www.employeelawgroup.com/6-essential-insights-into-i-9-forms-and-employment-verification#:~:text=Employee%20misclassification%20and%20failure%20to,Discrimination