If you’re considering opening a private therapy practice, or you’ve already done so and are looking for extra sets of hands, one of the biggest questions to consider is whether to hire your employees as 1099 or w-2.
The words 1099 and w-2 may not seem like distinct definitions, but they make quite the difference when it comes to the IRS.
In this article, I’ll walk you through the differences between hiring a therapist as a 1099 employee, versus hiring a therapist as a w-2 employee so you can make the best informed decision for your private practice.
Hiring A Therapist As a 1099 Employee:
We’ve all heard of the term “W-2” repeated over and over during tax season. But, what’s a 1099? What’s the difference between a W-2 and a 1099 employee?
Let’s start with the 1099 employee.
A 1099 employee is an employee that independently contracts their services out to a business. Other terms for a 1099 employee are: freelancer, self-employed individuals, or gig workers.
1099 employees essentially work for themselves and are not technically on your payroll as an employee. However, as long as you paid them at least $600 for any services they provide over the year, you’ll have to report their payout on a 1099-MISC form at tax time.
It’s important to understand the difference between hiring a therapist as a 1099 employee. If you don’t fully understand the rules and regulations set by the IRS around this matter, you could be hiring a therapist as a 1099, but treating them as a W-2. It doesn’t matter how many hurting people this therapist is helping, the IRS doesn’t give second chances and will likely issue you a fine.
How Much Control Do You Have Over a 1099 Employee?
Although it is YOUR private therapy practice, this is a large drawback to hiring a therapist on as a 1099.
They are free to practice in whichever way they like, as long as the result is to your standard.
So, in simpler terms, as a business owner, you aren’t allowed to control how the therapy is conducted, what therapy practices are used, or how long therapy will take, so long as it meets the end requirements.
1099 Employees Will:
- Have their own therapy equipment
- Have their own personalized business cards
- Have their own personal website
- Have their own work email
- Set their own work hours
- Pick and choose which clients they want to work with
- Be paid by the project, NOT by an hourly wage
- Take time off or vacations as they wish
- Have their own set policies and procedures for how they wish to practice
- Have their own clients they bring in
Hiring A Therapist As a W-2 Employee:
When it comes to a W-2 employee, it’s quite different.
Instead of being self-employed, a W-2 therapist is directly hired by your company and works underneath you as your employee. This means you can oversee their work, and influence it as you wish.
A therapist working as a W-2 employee is legally on your private practice’s payroll, has taxes withheld from their income, and has earnings that are required to be submitted to the IRS through a W-4 form at the end of the year.
How Much Control Do You Have Over a W-2 Employee?
One of the main reasons many private practices choose to hire a therapist on as a W-2 employee is the amount of oversight ability they will have.
Since your W-2 therapist is an employee of your company, as a business owner you’re able to control when they work, what they work on, and how the work is done.
This means, that if you want your therapist to stick to certain counseling techniques your practice specializes in, this is within your rights as their boss.
While 1099 employees are given a task and ultimately have the freedom to complete it as they wish, W-2 employees are given specific instructions on how, and when the task should be done.
W-2 Employees Will:
- Use equipment provided by your private practice
- Go through proper employment orientation and training
- Have their name on your private practices business cards
- Be a part of your private practice’s website
- Use a company email domain
- Have a set of work hours determined by your practice
- Work with clients assigned to them
- Are paid by the hour (unless otherwise agreed upon)
- Abide by business policies
- Submit time off or vacation time pending approval
Should My New Therapist Be Hired As a 1099 or W-2 Employee?
When it comes down to it, no matter which route you choose when hiring a new employee, you must play by the IRS’s rules.
Ignoring the tedious research it takes to make an informed decision, and instead crossing your fingers that the IRS doesn’t catch you, is a business plan prone to fail.
The keys when hiring a new therapist are to look at what type of relationship you aim to have with them, how much oversight you want to have into their work, and consider how they wish to be paid.
By doing your due diligence to ensure you’re hiring and paying your employees within legal, accurate standards will help you avoid any unexpected visits (and fines) from the government.