Veterinarian employment and independent contractor agreements
By Matt Dickstein
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In this article, I first discuss when a veterinarian is a contractor as opposed to an employee. Second, I look at the essential terms of a veterinarian employment contract and a veterinarian 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 vet practices on the issue of whether a veterinarian is an employee or independent contractor. These governmental agencies hope that the practice has misclassified the vet 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 veterinary 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 veterinarian as an employee or contractor to learn more, including the factors for classifying vet employees and contractors.
Essential terms of a veterinarian employment contract and an independent contractor agreement
The essential terms are about the same as between a veterinarian employment contract and a veterinarian 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 veterinarian’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. Veterinarians 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 veterinarian’s administrative duties.
Compensation. You probably don’t need a lawyer to explain veterinarian compensation, so I’ll keep it short. I frequently see veterinarians receive a fixed base salary + an incentive based on the net income that the veterinarian personally generates. For example, the veterinarian 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).
Expenses. The practice’s payment of a veterinarian’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 veterinarian. A practice usually will pay more expenses for an employee than for a contractor. Here is a list of expenses that practices frequently pay:
*** Professional society dues (within reasonable limits)
*** Malpractice insurance
*** Continuing education and related travel costs (again, within reasonable limits)
*** Board certification
Term and Termination. I prefer that a veterinarian’s employment contract or independent contractor agreement be at-will with a notice period, meaning that either the veterinarian 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:
*** Loss of license to practice
*** Violation of a material provision of that agreement
*** Felony conviction or abuse of controlled substances
Veterinarian Buy-In. Veterinarian employment agreements sometimes have clauses on the veterinarian’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 veterinarian’s buy-in is a material part of the deal, however, specify these deal terms:
*** The ownership percentage that the veterinarian will obtain
*** The purchase price
*** The period over which the veterinarian will pay the purchase price
*** The extent of the veterinarian’s participation in control decisions for the practice, e.g. is the veterinarian on the board of directors?
For more information on this subject, see How to bring a new partner into a veterinary practice. See also Buy-in and buy-out of a veterinarian to a veterinary practice.
To learn about another crucial contract for veterinary practices, see my next article, Shareholder buy-sell agreements for veterinary corporations.
To learn about non-competition clauses for vets, see May a veterinarian compete against his or her former practice? and also, Stealing employees.
This article only gives a short roadmap of veterinarian 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 veterinarian.