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Lessons from Leadership: Is It Risky to Hire 1099 Employees?


June 2, 2023

Observing the evolution of the workforce and the gig economy, we’ve become quite aware of how challenging and important it is to fulfill staffing needs strategically. What are hiring best practices? Should your facility use a staffing solution that treats its clinical professionals as independent contractors or W2 employees? These are common questions healthcare leaders ask.  

This discussion with Matchwell Founder Rob Crowe addresses some of the differences between a 1099 independent contractor and a W2 employee. It gives us an interesting insight into these Department of Labor (DOL) classifications while explaining the potential risks of using clinicians hired as 1099 independent contractors yet who likely don’t qualify for this status under the law.

Crowe has spent almost 20 years working in the staffing industry before leaving in 2017 to start Matchwell, which provides a tech-enhanced model to give healthcare systems direct access to healthcare professionals seeking flexible work within their local communities.

Q: What is a 1099 Independent Contractor?

A: 1099 independent contractor is a legal status defined by the existence or non-existence of certain key characteristics between an individual and the client or business to whom they provide services.  For example, independent contractors have significant control over their work (for example, they aren’t subject to a supervisor’s direction or control).

They typically decide their hours and specific tasks, and typically bring their own equipment and technology to perform the work. In industries outside of healthcare, you’ll hear this type of employee referred to as a freelancer or self-employed professional.

Independent contractors manage their own taxes, benefits, and liability insurance. The rise of technology empowers people to work where and when they want, encouraging professionals to pursue self-employment in our current gig economy.

Within healthcare, we’ve seen an increase in online “platform” agencies that treat their nurses, CNAs, and other clinical staff, as independent contractors. As a result, these platform agencies typically do not pay overtime, provide retirement benefits, or provide workers’ compensation insurance, malpractice insurance, or any general or professional liability insurance to their clinical professionals.

Q: Are there risks involved in hiring 1099 contractors?

A: I will start this answer by saying I am not providing legal advice. There is a gray area in what circumstances someone qualifies as an independent contractor versus when they must be classified as a W2 employee. These risks can affect the staffing agency and the healthcare facility when the DOL asserts that the healthcare facility is either the employer or a joint employer of the clinician, especially when the staffing agency is just a platform and not the employer-in-fact of the clinician.

The Department of Labor has announced partnerships with the IRS and the National Labor Relations Board to further its efforts to investigate and prosecute employers who treat employees as independent contractors. They refer to this as “worker misclassification.

  • These misclassified clinicians don’t have insurance that would cover them in case of a malpractice or negligence claim.
  • Clinicians may take legal action if they believe they should be paid overtime for working 50+ hours a week.
  • Incorrectly claiming that clinicians are independent contractors means the platform agency, and you (e.g., the hospital), are not paying for overtime or supplying workers’ compensation or unemployment benefits. Nor are you likely to ensure that proper recordkeeping is taking place.

When you, as a healthcare leader, work through a staffing agency, you don’t have to worry about unintentional misclassification because your agency treats all its clinical professionals as W2 employees. This means you have significantly more protection from all risks that come with the misclassification of an employee as an independent contractor (wage and hour, tax, malpractice, worker injury, and more).

Just because a contract says that the parties consider the temporary clinicians as independent contractors does not make it so. And we’re seeing more and more litigation over this issue.

Q: My healthcare organization wants to go ahead and pursue hiring an independent contractor. What else should we consider?

A: To ensure they truly feel comfortable using a contractor rather than a W2 employee, I suggest that any healthcare organization sit down with their legal counsel and carefully review applicable state and federal laws related to worker classification. The DOL recently won a worker misclassification case in federal court in Virginia, and we know there are other cases out there with agencies and healthcare providers in the crosshairs.

Suppose your healthcare organization has a W2 nurse doing a job on the floor essentially doing the same work as an independent contractor on the same floor. In this case, the worker classified as an independent contractor should likely be considered your “employee” (subject to your supervision and scheduling and utilizing your equipment, etc.) who has been, and is, entitled to all the benefits of being an employee. This could open your organization up to investigation and even litigation.

Besides federal worker misclassification, the other risk for employers is potentially violating your state’s rules on independent contractors. State laws can be more “employer-friendly,” or they may be more “employee-friendly.” This can get complicated and have legal and financial implications for your organization as well.

Lastly, clinicians don’t always know the right questions to ask to ensure they’re both legally and ethically protected. They also often don’t know that by the end of the year, the higher pay they enjoyed turns into a massive tax bill they weren’t prepared for. Being classified as a W2 employee protects them against financial emergencies should they be injured on the job or experience a period of unemployment.

Q: Are all Matchwell clinicians W2 employees?

A: Yes, if a client wants to have Matchwell provide payroll services for clinicians, we only support W2.  Although the Matchwell business model is quite unique, we stuck with the W2 model that provides the greatest protection for both clinicians and our clients.

I started Matchwell with the belief that it’s time for healthcare organizations to directly and transparently access clinicians looking for a little work-life harmony – and they should do so without going through an agency. Setting up internal staffing programs can be a great way to attract and retain employees!

Matchwell, now part of the Medical Solutions healthcare talent ecosystem, is an agency alternative that matches clinicians with top healthcare facilities looking for local and per diem talent. Start a conversation today!

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