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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The Shrink's Guide To Self-Publishing (part 1)

I'm thrilled to introduce to you Stephanie Adams, LPC - my very first guest blogger on Private Practice Toolbox. Stephanie's passion for counseling and develop multiple streams of income, like offering online counseling and webinars, and self-publishing her first book are impressive. For all of you shrinks who've been thinking about writing a book, I hope Stephanie's guest posts will encourage you to take action!

photo credit: Mark J P

Among therapists, "multiple streams of income" is a phrase with buzz. For good reason: though we all love our one-on-one work with clients, it gets nerve-wracking to rely solely on "dollars for hours" income. Those times when a client gets sick - or we do - can mean a major hit to our paycheck.

That's why more and more, smart therapists are looking to diversify their methods of earning income. Self-publishing a book for your main client group is one excellent means of doing just that.

There are two reasons why you should seriously consider the self-publishing route. First, because it brings in an additional stream of revenue from the book itself, and who doesn't want that? The second reason to pursue self-publishing is because writing a book significantly impacts your perceived status as an expert.

Why does it matter if people see you as an expert? The fact is, publishing a book is a symbolic as well as a literal gesture. It tells others that you've put in a lot of work into researching and writing about a subject you care a lot about. People naturally view those who are willing to do that amount of labor to better understand a subject as experts in their own particular field. The increased knowledge, or expertise, you demonstrate about your subject translates into an increased client flow to your main business - your private practice.

Why Self-Publish?

Of course, the reasons above only explain why to publish a book, not why to forgo traditional publishing for self-publishing. That is because the reason is a new one. It's rooted in the current difficulties of the business of book publishing. Fact is, it's getting harder and harder for publishers to break even, let alone make a profit, doing business the way they were before. As a result of the advent of e-books and the success of secondhand bookstores in a poor economy, publishing houses cannot count on the same financial return from book sales as they did previously.  Borders has already gone under, other big bookstore chains are now in danger too.

With fewer and fewer people buying physical books at full retail price, traditional publishing companies just can't afford to take the risk on an untried author very often, no matter how great the message you have to share. And those authors that the big guns do take on have a very short window to prove themselves a marketable commodity.  But if you're not at that level yet, you will likely be better off in self-publishing.  When you self-publish, your income is based on a higher margin of profit per book, not volume of books like at the big houses. Since you cannot (yet) expect to sell a crazy amount of books, self-publishing gives your book a long shelf life to quietly earn a decent amount per book sold.

This is an important distinction that many people miss when thinking about publishing a book for themselves: that with a traditional publisher, you have a limited amount of time in most cases to sell books, or your book will be pulled from bookstore shelves and relegated to last priority with the house. Let me make it clear that book publishers aren't being cruel when they do this. They simply cannot afford to invest energy in a book that isn't selling "enough" according to their needs. If you self-publish with print-on-demand (which I will explain to you how to do very shortly) you do not have to meet some arbitrary deadline. Your book can be available on the Internet as long as you choose to make it so, giving it time to grow an audience and maybe, eventually attract the attention of a publisher who could give you larger circulation, when you're ready for that. It allows you to grow into an author that can request high standards of care from traditional publishing companies, because you will be an author who has shown you can bring in the readers.

To sum up, with a traditional publisher (unless you're a big name) you should expect as a rule less attention, tiny royalties, and a short window of time in which to prove yourself. If you are the publisher, however, you can give yourself the attention and time you need to develop, and earn steady royalties twenty-five to forty times higher than royalties issued by traditional publishing houses.

Publishing Your Book With CreateSpace

While your business decisions are your own, I advocate CreateSpace for self-publishing because I researched over 25 self-publishing services for my book, The Beginning Counselor's Survival Guide: The New Counselor's Guide To Success From Practicum to Licensure before settling on this service. I found that INCLUDING the book contract I was offered from a traditional academic publishing company, CreateSpace was the best deal financially and creatively.

For those of you who don't know what I'm talking about, CreateSpace is the self-publishing wing of the book giant Amazon.com. Though they offer paid self-publishing services, unlike most similar service providers, they don't require writers purchase an entire package, which, frankly, is a usually a tactic to get authors to spend more than they need to spend. CreateSpace also easily gets your book for sale on Amazon.com, which, outside of perhaps your local bookstore, is the first place most of your potential readers will look for your book. With other services, you often have to purchase a package to get your book on Amazon.

CreateSpace offers book publishing print-on-demand, which means no required books for you to buy and no risking your hard-earned savings with a hefty investment. When you need books to hand-sell, you purchase as many books as you like at some of the lowest rates in the industry, and the production fees for books customers order are factored in when CreateSpace quotes a royalty for you. No unhappy surprises.

CreateSpace makes it easy to accomplish the tasks independent author-publishers must take on in order to release their book, such as purchasing an ISBN and formatting the book to industry standards. In addition to the intuitive layout of the program itself and extensive community forums, customer service responds quickly and pleasantly, even if you're not a big-ticket account.

Are there disadvantages? Of course, but they are mostly disadvantages common to all independent publishing ventures. For example, no self-publisher, including CreateSpace, is going to do the work for you to get bookstores to order your books. But their consistently lower prices on services, friendly staff, and general ease of use ranks them pretty high in my book. (No pun intended!)

photo credit: Jano Fistialli

An Even Cheaper Option: Self-Publishing Your E-Book!

Maybe you've been reading this and liking the idea of increasing your expert status and earning a second income, but aren't sure if you want to invest in writing and selling a paperback book. You don't necessarily have to. Another great option to add to your publishing plan or to try in place of publishing a physical book is to publish an e-book!

Again, there are multiple options to help you along this path. Amazon offers Kindle Direct Publishing, which you can do on your own or pay under $100 to have them do for you. The CreateSpace or KDP staff will help you link the Kindle edition of your book to the listing for your physical book upon request so that those who go to Amazon.com to find your book can find buying options for the Kindle as well. The e-book publisher Smashwords also allows you to upload a book for free and pay only a small portion of your earnings for each book sold. Though it doesn't seem to draw a great deal of traffic on its own, Smashwords can be a great tool for file conversion (often the hardest part of preparing an e-book for publication) and setting up affiliate sales of your e-book. (A sub-stream of income, if there is such a word!)

Royalties from e-books are even larger than royalties from print books, as e-books require no printing or shipping costs. (Self-published print book royalties on CreateSpace depend on the way the book is sold, but range from 20-60% of your total list price, while royalties can be 70-80% of the list price for e-books.) As a bonus, when you are the only publisher, you have all claim over the rights. That means you can also sell your e-book as a pdf download directly from your website and keep all the profit to yourself!

If you're already publishing in a physical format, there's no real reason not to add an e-book option as well, as they are often free to put out and increasingly more attractive to readers. As you consider your audience, you may find out also that producing an e-book by itself is the best choice for you. If there's no real demand for a print copy, by all means, stick to just an e-book. This is the theme I want to impress upon you: self-publishing is about YOU taking charge of your business destiny and meeting your clients' needs in a new and creative way. If your plan accomplishes those goals, then you have succeeded at self-publishing.

I hope I'm beginning to interest you in the exciting world of self-publishing for counselors. It's an untapped opportunity for therapists with incredible potential. Of course, before you self-publish, you have to write a book, and that can sound like a scary concept to some of you. Not to worry. Next week, in A Shrink's Guide To Self-Publishing, Part II, I will explain to you how your role as a counselor has already prepared you for authorship, and share some simple tips to get you started on writing your book and sharing it with others.

Stephanie Ann Adams, MA, LPC is the co-author of "The Beginning Counselor's Survival Guide: The New Counselor's Plan for Success from Practicum to Licensure" (available now in paperback and e-book) and the owner of Beginnings Counseling & Consulting, where she provides counselor innovation consulting and life counseling for emerging adults.

What I Wish I'd Known Before Starting A Private Practice

If you're considering going into private practice, it's always smart to talk to other clinicians who have been there. When I opened my practice years ago, I had very little business experience. Luckily, I did a few things right that allowed me to be profitable (and it didn't hurt to be married to a CPA). Over time, I learned that I have a knack for marketing and networking that has allowed my practice to continue to grow, even during a recession. Few private practitioners are armed with small business skills when they venture into private practice. According the U.S. Small Business Administration, around 50% of new businesses will close their doors within 5 years.  The realities of making a profit and running a successful private practice can be discouraging and exhausting. If you're considering opening a practice, I think you'll enjoy several seasoned practitioners answer the question,"What do you wish you'd know before starting your private practice?

Private practice is a business

Like most of therapists, Emma K. Viglucci, CFT, LMFT, CIT  of New York City didn't really understand what it takes to run a business when she opened her practice. "I had some ideas about running a business as both of my parents owned businesses, and about running a practice from assisting run my graduate program's clinic. But, I didn't know the nuts and bolts of being in business."

It's easy to overestimate profit and underestimate the amount of work it takes to start and build a private practice. Psychologist and professor Karen Sherman, Ph.D. says she wished she'd know that working for herself  "wasn't going to be as lucrative" as she thought.

Save for self-employment taxes

When you go into private practice you'll be paying self-employment taxes. If you're used to working for an agency where your taxes are automatically withdrawn each paycheck that catches new practitioners by surprise. Just to give you an idea of how much to save, self-employment taxes for 2011 in the U.S. are around 13% (SBA.gov).  Psychologist Roberta Temes, Ph.D learned about taxes the hard way. "My first year I did not diligently deposit half my fees into a bank account earmarked for taxes. That was a learning experience."

Understand managed care

Texas counselor Shannon Purtell MA, LPC, LPC-S, NCC wishes she'd better understood the world of behavioral health insurance before she opened her doors.

Before entering private practice, I wish that I had truly understood behavioral health insurance and Employee Assistance Programs. Trying to learn the ins and outs of insurance while building a private practice was not only frustrating and time consuming, it was costly. Without completely understanding the industry, I failed to negotiate better rates, was unable to qualify for certain panels, and did not always understand the reimbursement structure. Each company had a different way of handling referrals, authorizations, and reimbursement. Unfortunately, I started in private practice prior to electronic billing and online benefit verification/authorization which has dramatically streamlined the process.

Importance of marketing skills

New York City therapist Diane Spear, LCSW-R wished she'd been better armed with marketing know-how when she opened her doors. Spears says, "You can be a terrific therapist and have a tiny practice if you're not good at marketing. And if you're not naturally good at marketing and networking? Practice! A lot."

Developing a niche and area of expertise is what Clinical Psychologist and author Dr. John Duffy wished he'd known before opening his practice.

I wish I had known the importance of establishing a niche when I started, developing a particular expertise. I found that I work well with families, in particular teens, tweens and their parents. Specializing in this area, I've found that I have a strong knowledge base in this area, and I am more and more confident in my work. As a result, I have a full practice, a waiting list of clients, a popular book, speaking engagements. I am also now considered an expert in a number of media outlets.

Stay on top of billing and record keeping

When you're your own boss it's easy to set some of the less enjoyable and often tedious business details on the back burner. Arizona therapist Lisa Gomez MA, LPC wishes she'd known the importance of staying on top of those tedious administrative tasks. Gomez wishes she had understood the importance of staying "on top of your billing and having good records in regards to accounting."

Practice ebbs and flows

Many private practitioners are surprised by the fluidity of referrals and fluctuating direct care hours. My own practice always dips to the lowest number of referrals and fewest client hours every December. I learned through not getting a paycheck one December to save 10% each month throughout the year to cover the holiday lull.

Portland individual and couples counselor Julie Jeske M.S. has also learned by experience to trust the ebb and flow of her private practice. "I wish I had known more about the way things can fluctuate. Some weeks (or times of year) are really busy and others are slower. The first time things slowed down for me I got really nervous, but it always picks up again," Jeske says.

Solo practice can be isolating

When you practice in a clinic or agency it's easy to take social interaction and peer relationships for granted. There's always someone to grab lunch with or to consult with on difficult cases. For many therapists, the transition to private practice often means a loss of built in professional support system, and the need to actively seek social interaction and professional consultation.

When therapist Amy Luster, M.A., LMFT of Santa Monica, CA opened her practice she found solo practice to be isolating. Luster says, "It would have behooved me to learn about the benefits of participating in a group practice while I was in my graduate program."

Importance of setting boundaries

Maryland therapist Dr. Mary Sidhwani wished she'd know the importance of setting boundaries with clients.

Before I began my practice, I wish I would have created healthier boundaries. I wanted to be available for all my new clients and so returned phone calls and emails 24/7. As time went by, it became increasingly difficult to maintain that with the growing practice. I was able to put healthy boundaries in place, however, it would have been much easier if I had done that initially.

Now it's your turn. What do you wish you'd known before starting a private practice? Please post your comments below.