Dentist employment and independent contractor agreements
By Matt Dickstein
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In this article, I talk about dentist employment and independent contractor agreements. I first discuss when a dentist is a contractor as opposed to an employee. Second, I look at the essential terms of a dentist employment contract and a dentist independent contractor agreement.
Is you is, or is you ain’t, a contractor?
This is an important question because, from time to time, to generate revenue, the IRS and CA EDD will audit dental practices on the issue of whether a dentist is an employee or independent contractor. These governmental agencies hope that the practice has misclassified the dentist as a contractor (not an employee) so that they can collect on the plethora of taxes and premiums for employees, e.g. trust fund taxes, interest and penalties.
A dental practice should always be clear and confident in how it classifies employees and contractors. The cost of misclassification is very high, and it’s never worth it. Please read my article Classifying a dentist as an employee or contractor to learn more, including the factors for classifying dentist employees and contractors.
Essential terms of a dentist employment contract and an independent contractor agreement
The essential terms are about the same as between a dentist employment contract and a dentist independent contractor agreement. Once beyond the boilerplate, both contracts deal with the same basic issues, such as the description of services, compensation, reimbursement of expenses, and term and termination (all discussed below). One significant difference is that employment agreements sometimes have clauses that address the dentist’s purchase of ownership in the practice, whereas independent contractor agreements rarely have such terms.
Job Description. Whether or not the agreement is for a contractor or an employee, it must clearly delineate the job responsibilities. Dentists particularly care about their hours, be it full-time or part-time, night and weekend coverage, on-call hours and the like. Be sure to clarify the dentist’s administrative duties.
Compensation. You probably don’t need a lawyer to explain dentist compensation, so I’ll keep it short. I frequently see dentists receive a fixed base salary + an incentive based on the net income that the dentist personally generates. For example, the dentist might receive an incentive of X% of the gross revenue he or she generates in excess of $Y (Y being the expenses associated with the income including an allocation of general overhead, that is, the break-even point in income). For more on this topic, see my article – Compensation structures for group dental practices.
Expenses. The practice’s payment of a dentist’s “personal” expenses is an everlasting and wondrous source of conflict. Everyone wants to run their expenses through the corporation. The employment contract or independent contractor agreement must clearly delineate the expenses that the practice will pay for the dentist. A practice usually will pay more expenses for an employee than for a contractor.
Here is a list of expenses for which practices frequently pay: (1) Professional society dues (within reasonable limits), (2) Malpractice insurance, (3) Continuing education and related travel costs (again, within reasonable limits), (4) Board certification.
Term and Termination. I prefer that a dentist’s employment contract or independent contractor agreement be at-will with a notice period, meaning that either the dentist or the practice can terminate the relationship at any time (after the notice period) for any reason. I prefer a free relationship, as opposed to contractually locking the two sides into a relationship that isn’t working – this only leads to unhappy endings and litigation.
If you want a contract for a term of years, be sure to include termination for cause. Common examples of cause are: (1) Loss of license to practice dentistry, (2) Violation of a material provision of that agreement, (3) Felony conviction or abuse of controlled substances.
Dentist employment agreements sometimes have clauses on the dentist’s purchase of ownership in the practice. Usually the clauses are vague and non-binding, and only express the parties’ expectations on the subject. If the dentist’s buy-in is a material part of the deal, however, specify these deal terms:
*** The ownership percentage that the dentist will obtain
*** The purchase price
*** The period over which the dentist will pay the purchase price
*** The extent of the dentist’s participation in control decisions for the practice, e.g. is the dentist on the board of directors?
To learn about another crucial contract for dental practices, read Shareholder buy-sell agreements for dental corporations.
To learn about non-competition clauses for dentists, see May a dentist compete against his or her former practice? and see, Stealing employees.
This article only gives a short roadmap of dentist employment contracts and independent contractor agreements. There is a lot more to this topic than introduced here. Please get competent legal counsel before you hire a dentist.