Would Your Practice Survive An Employment Tax Audit? (1099 vs. W-2 part 2)

Does the state tax commission really take the time to audit small private practices? I didn't think so, until my practice was selected for an audit.

A few years ago my clinic was selected for an employment tax audit. Lucky me, right? When the auditor walked into my office suite and saw many offices with different names on the doors, he looked at me pleadingly and said, "Please, please don't tell me that these therapists are all classified as 1099 contractors."

I replied, "I won't. We're all W-2's."

There was a look of relief on his face.He then proceeded to tell me that health and mental health private practitioners are notorious for incorrectly classifying 1099 employees. In his experience many groups are set up as contract workers when they are acting like employees (I'll go over into detail about the the IRS criteria for how to classify  an employee as a 1099 vs. W2 employees in a forthcoming post).

The auditor requested access to all of my financial documents including bank accounts, accounting,  payroll information and tax documents. He asked us questions about any large checks written directly to employees to make sure we were paying our employment taxes. After a brief review of my payroll and tax documents the auditor thanked me for making his job easier and left with a smile. I breathed a huge sigh of relief.

Had I hired the therapists working with me as 1099 I may have been penalized with a hefty fine and required to pay back employment taxes on all of the therapists' income. I was not in a position to shell out thousands and thousands of dollars. Had I been incorrectly classifying employees it may have put my practice in jeopardy.

Do you know the IRS criteria for classifying 1099 contract workers vs. W-2 employees? It isn't based on whether or not you want to pay your therapist's taxes or want to have them pay self-employment taxes. It isn't based on whether they are full-time or part-time workers. It isn't based on whether or not you provide benefits.

There are many misconceptions about classifying employees in private practice. I'll address theses criteria for how to distinguish between hiring 1099 vs. W-2 therapists in upcoming posts.

Watch for the next Therapist Blog Challenge coming next week, too!

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The Difference Between Hiring Therapists As 1099 vs. W-2 (part 1)

Should you hire additional therapists for your practice as 1099 or W-2 employees? I'll walk you through the decision process in this blog series so you can make an informed decision.

If your private practice is thriving and you are considering hiring additional therapists, one of the major questions is how to structure the employment relationship. Should you hire additional therapists as a 1099 contractor or W-2 employee?

In my private practice consulting experience and based on recent discussions in my Private Practice Toolbox Group it seems that most private practice therapists favor hiring therapists as 1099 contractors. When I ask why I often hear something like, "I hire 1099's because then I'm not responsible to pay the therapists employment taxes and it provides some cushion against legal responsibility for the acts of therapists providing contract services." While these statements are true, there is a lot more to consider when structuring the employment relationship and misclassification can be a costly mistake.

So what what's the difference between hiring a 1099 and W-2?

An 1099 independent contractor is a tax-related and legal term referring to an individual who contracts his or her services out to other businesses. An independent contractor is considered self-employed and is not considered an "employee" of the practice. The 1099 workers pays all of their own income tax in addition to self-employment taxes.

"Independent contractors do the work where, when and how they choose. Nobody tells them what order to do the job in, what hours to work, or when they can take off, " says Employment Attorney, Donna Ballman, author of How To Stand Up For Yourself Without Getting Fired.

A W-2 employee is an official employee of a company, or a private practice, whose taxes are withheld from and whose earnings are reported to the IRS at the year-end via a W-4.  The practice owner participates in paying the employees state and Federal taxes and has the ability to control how, where, and when the work is performed by the employee.

Michigan attorney Donald A DeLong says that control is the key issue. "If you control when the therapist works, where he/she works, how and when he/she gets paid, you require that he/she use your equipment, etc., then that worker is a (W-2) employee."

As I've researched this topic it is clear that there are no easy answers and a lot of grey areas. I hope to share some helpful information and resources over the next several posts to help you make the best choice when it comes to hiring.

The costs of inaccurately classifying employees

Inaccurately classifying workers can be very costly to an employer warns Vincent Porter, CPA of Porter & Company CPAs in Arlington Tx. Porter shares these words of caution with employers.

The IRS can conduct an audit of a business that is paying employees on a 1099 and hit them with back payroll taxes that can be very costly to a business not in compliance. This is a big issue we face almost daily with clients. They should understand that if they were to be audited by their State Unemployment agency or IRS they could face severe penalties for improperly classifying employees as contractors. Not only could they face unpaid employment taxes they could face heavy penalties.

In my next post in this series I'll tell you about my employment tax audit experience a few years ago!

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How To Find Top Student Interns To Grow Your Practice

There is an "it" factor when looking for interns to train in your private practice.

Here's how I've found amazing interns that stay at my clinic even after graduation.

Over the past several years I have trained and mentored many graduate students and new graduates working toward clinical licensure. Working with interns has been a great way to build my practice, leverage my time, and satisfy the part of me that loves mentoring.

Most graduate students who train at my clinic during school are offered a therapist position after graduation which creates a win-win situation -- the student gets a job they're already trained for and I get to add talented and enthusiastic therapists to my team! After interviewing several therapists, I've learned to be very selective about who I bring on at Wasatch Family Therapy.

I recently consulted with a private practice therapist who has a waiting list for new clients. As we started exploring the option of hiring a graduate student to train she expressed some concerns. Her biggest questions were:

• How do you find talented graduates students?
• When interviewing potential student interns, what qualities do you look for?
• How do you know if they're going to be a good therapist and work well with your private practice clientele?

So, here's what I've learned after several years of interviewing and hiring student interns...

How do you find gifted graduate students?

• Contact local graduate programs in your discipline and see if they are  looking for internship/practicum placements for their students.
• Fill out the necessary paperwork to be an approved placement at local schools, even if you're not quite ready to bring on a student. When you're ready to train an intern you'll already be approved.
• Reach out to traditional and for-profit schools. I've found that the for-profit programs (Argosy University and University of Phoenix in UT) are more flexible in terms of internship start times and the number of clinical hours per week required. I have been very pleased with the caliber of students from private, for-profit universities.

When interviewing potential student interns, what qualities do you look for?

• After interviewing grad students for several years now, the biggest "it" factor I look for is likeability. I know that sounds simple, but it's true. If I enjoy talking to them and I trust them during the interview process, then it's likely they will quickly put clients at ease, too.
• I look for people were "born" therapists and just need the formal credentials and trainig in order to actually to all themselves a therapist.
• I look for people who have long-term goals that include working in a private practice setting, like mine, beyond the internship.
• I always ask about their style of handling conflict, feedback, or direction in work settings and discuss several scenarios that might arise in private practice.

How do you know if they're going to be a good therapist and work well with your private practice clientele?

• You don't. There's no guarantee that someone will be an effective clinician. I suggest that you make sure that there is a clause in your contract that you can stop training a grad student that isn't working well with your clientele.
• I often require that interested graduate students volunteer at my clinic for several months before securing a clinical internship. There is such a high demand for interns in my area that we can be extremely selective. This volunteer time gives us both a chance to make sure it's a good fit.
• A 3-step interview process helps screen potential interns before bringing on.  I do an initial interview, a second interview, and a "mock" case presentation at team meeting. While I ultimately decide which intern we will "hire," I trust my team's input as to whether the student would be a good fit.

While it's always a risk bringing on a new student to my team, I find comfort in the fact that the number one predictor of client outcome is the strength of the therapeutic alliance. Generally, if it's easy for me and my team to connect with a grad student in the interview process, it's safe to say that clients will feel the same way about them. Ultimately, it's your practice and your reputation on the line as the owner of your practice.

Have you trained interns in your private practice? I'd love to hear about where you find them, how you screen them, and if it's worked to build your practice!

Download the free Private Practice Toolbox App here

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2 Good Reasons To Hire Office Support

Hiring an office employee, especially if it's the first time you've done so, can feel scary, overwhelming and stressful. Where do you find trustworthy employees? How do I know they're doing the billing correctly? Isn't it less personal if clients have to talk to someone other than the therapist?

Many therapists in private practice are reluctant to hire office support for a variety of reasons. The two most common reasons that I hear in my consulting practice are: 1) cost - "I don't want to pay out more money" and 2) control - "I don't want to give up control."

I had to overcome these two common barriers before I hired my first office manager.

It's Cheaper Than Doing It Yourself

When it comes to hiring office support staff, I find that it helps to think more like a business person and less like a therapist. Before I hired my first office employee I was concerned about increasing my overhead. Why should I pay someone to do something that I can do for free? Then, I realized that my time is money.

When I first started considering hiring an office manager I was billing $100 per clinical hour and seeing approximately 15-20 clients per week. If I spent those 10 administrative hours a week doing therapy instead of office administration, I could bring in an additional $1000/week to my practice. The cost of paying an office employee 10 hours per week, even at the high-end of the pay scale for my location, would only be $200 per week.

Hello? If you think like a business person, that's a no-brainer. I hired an office manager.

They'll Do A Better Job Than You

I struggled with the issue of control before hiring an office manager. I knew everything about every client account: what their co-pay was, how they prefer to pay, what their diagnosis is, how often they come to therapy, their balance and more. I had developed my personal style of answering new client phone calls and had finessed my techniques over a few years.

I knew how to describe my therapy style better than anyone else could. How could I trust them to answer the phone, handle the billing, or other office tasks the way I would?

Once I really looked at that issue, I realized that I could be OK if someone didn't do things exactly like I did. There are people who were trained in office administration, billing and office management, and they might know how to do things better than I was doing them. After all, I had no office management experience other than running my practice.

While there was a learning curve for me and for my first office employee, it turned out to be the beginning of significant growth in my practice. Having office support has allowed me to let go of the day-to-day tasks and focus on the bigger picture: my practice mission statement, community outreach, web marketing, training other therapists, business planning, and of course, providing therapy.

photo credit: Jerry Bunkers

Got Links? Who's Linking To Your Website?

Incoming links to your site can help boost search engine rankings and act as a "vote of confidence" which increases traffic and brings in new clients to your therapy practice. Here's quick way to find out which sites are linking to your website:

1. Go to Alexa.com
2. Type in your private practice website domain
3. Look at the number next to "sites linking in"
4. Click on the actual number to find out which sites link to your website

How to get more sites linking to your site:

1) Create great content on your site

One of the simplest ways to increase links is to incorporate a blog on your website and writing weekly. If you're providing valuable information and resources, others will share your information and link to your site.

2) Create great content on other sites

Write guest blogs or articles for other sites and include links to your website in the article or your author information. You'll notice at the end of each of my blog posts on this site is a paragraph about me with links to my website. That's what I'm talking about.

3) Ask for links

Whenever you do any kind of media interview that has an online article ask that a link to your site be included in the story. The writers or producers may not automatically include links in the story. They aren't thinking about how to boost your SEO. That's your job. I did two interviews this week on different sites that included links to my websites: Taking Mental Health Therapy Online (WCG Common Sense blog) and The Virtual Therapist Can See You Now (Sharecare blog).

4) Exchange links

If you have colleagues who refer to you, or other professional partners, ask them to put a link to your site on their website and offer to link to their site too. I have a page on my practice website called "partners" that links to professionals that we trust (<--did you notice that I just linked to my practice website). photo credit: Ravages

Check Alexa.com and see how many sites are linking to your practice website. Post the number in the comments below.