We hired a contract hygienist to work in our practice for the past year.  Now that the contract is up, the hygienist is filing for unemployment benefits.  What are the hygienist’s chances for collecting?

When first read, the answer seems simple, “No chance in h-e-double-hockey-sticks!” A contract is a contract, and the hygienist was well aware that a year commitment was the deal.  Now force the point with the Internal Revenue Service.

The IRS recognizes two types of workers; the independent contractor and the employee.  In the dental field, most independent contractors are sole proprietorships.  Any working individual with a Social Security number has the default tax status as sole proprietor.  Sole proprietors can use his/her Social Security number as the federal tax identification number, but there are significant differences regarding taxation between employees and sole proprietors.   As a sole proprietor, one must pay both the employer’s and employee’s share of federal payroll taxes.  The Self Employment Tax requires that the individual pay both since the independent contractor is both employer and employee.  In a usual worker/employer situation, the employer pays half of the FICA tax and the employee is responsible for the other half.  Despite having to be accountable for both shares, the sole proprietor reaps the benefit of tax advantages, such as deducting legitimate business expenses, special retirement plans that offer tax-deferred retirement contributions, and having more tax breaks than regular employees are able to spend more of their wages tax-free.

Employers are responsible to the employees for enforcing HIPAA regulations, OSHA rules, etc. within the workplace, because the employees are under the dentist’s control.   Since contract employees are considered sole proprietors, and therefore their own employees, they are responsible for enforcing these stipulations themselves.  This is where it gets tricky in a dental office; the dentist is responsible for the care the staff provides to patients.  The dentist must be sure that all the employees are compliant in all aspects of the dental experience.  Can a hygienist or any other dental staff member be a true independent contract employee since the dentist oversees/is responsible for the work/care the worker provides?  This excludes, of course, another dentist working in the practice as a sole proprietor.

Employers control the work of the employees, not the work of the independent contractors.  The IRS manual includes “Following the common law standard, the employment tax regulations provide that an employer-employee relationship exists when the business for which the services are performed has the right to direct and control the worker who performs the services.  This control refers not only to the result to be accomplished by the work, but also the means and details by which that result is accomplished.”  In other words, the dental office must treat independent contractors like an outside vendor, and avoid the appearance that the contractor is an employee.  However, if a dentist must oversee all care within the office, and be accountable for the outcome of care, can a contract worker truly be classified as independent?

This is where the seemingly simple year-end contract question becomes difficult.  If the hygienist decides to file a claim for unemployment benefits, the burden of proof to show the employment status of the contract employee to the IRS or state governing boards, is shouldered by the employer.  This same scenario can be applied to workman’s compensation due to an injury while on the job or if the dentist decides to employ this person as a full or part-time employee. An IRS audit can be initiated when an out-of-work contractor files for unemployment, files for workman’s compensation/disability claim or decides to change his/her employment status.  Once a claim has been filed, the State Department of Employment must determine if the contract worker was actually an employee.  Sometimes the determining factor is if the contract worker carried independent unemployment insurance, which because of the expense, few contract workers do.  If the State Department of Employment determines that a contract employee was actually an employee, the IRS will be given the heads up that back taxes need to be collected for federal unemployment insurance, and this will lead to an audit of federal and State withholding taxes as well.  To prove that a hygienist, dental assistant, office manager, or any other dental employee besides a fellow dentist were contract employees is extremely difficult since the care provided by them was overseen by the dentist.

To sum up, despite having a written or verbal agreement, the dental hygienist can very well collect unemployment benefits, all the while the dentist is suffering through an IRS audit.