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Employee vs. Contractor Status

Published May 15, 2013 4:56 PM by Renee Dahring
Since there are quite a few jobs out there and it's likely that many of you are contemplating offers this spring, I thought it might be time to revisit employee vs. contractor status. 

Here is the short notes version of what you should know!

What is the difference between being an employee and a contractor? 

If you are an employee, your employer issues you a check and pays your withholding taxes. Depending on your FTE you may qualify for vacation, sick time and other miscellaneous benefits. At the end of the year you will receive a W2 form. 

If you are a contractor, you are essentially being treated as if you were a business. You still get a check from the employer, but you are responsible for all payroll taxes and you do not qualify for any benefits.  At the end of the year you will be issued a 1099 form. 

What is the same? 

  • Both require a contract and the contracts should cover pretty much the same things.
  • You are subject to the policies and procedures of the organization.
  • Both agreements may include non-competes.

What are the pros and cons? 

Pros:

  • Employees can be eligible for employer benefits such as healthcare.
  • Employees may participate in the employer's retirement programs (401K).
  • Contractors can deduct many expenses that employees are not allowed to deduct, such as home office, car, mileage, cell phone, etc.

Cons:

  • Contractors cannot draw unemployment.
  • Contractors must pay their own payroll taxes, which may necessitate hiring an accountant.
  • Contractors must buy and pay the full cost of their health insurance.
  • Contractors do not get sick time or vacation from the employer.

What is the bottom line if I choose to work as a contractor?

  • Add at least 25% to your hourly rate to cover your payroll taxes. For example, if you want to net $50 per hour then you need to charge at least $62.50 per hour.
  • Clarify who will be paying your malpractice. Sometimes staffing companies will cover your malpractice if you are on an assignment, but it's not always the case. If you are responsible for your own malpractice, be sure that you budget the cost into your hourly rate.
  • Find out what health insurance will cost you before you set your hourly rate so that you can build the expense into your rate.
  • Consider using the services of an accountant to ensure you pay the proper taxes and maximize your deductions. Factor this cost into your rate, too.

Visit our job board to see the latest employment opportunities in your area!

1 comments

Renee Dahring, THANK you for the helpful information, this seems to be the trend at least for mental health providers. I posted your note (gave credit and sent folks here) on the APNA website blog. I wish I had this information before I started my current job. I added a few things (can't write off home office since I work at their office, holidays I don't get paid to count on short checks). Also, if they offer benefits then the IRS might not like them calling you a contractor??? Just some thoughts and thank you very, very much for helping me and lot of others.

Kelly, psyc/neuro - PhD (abd) PMHNP May 20, 2013 9:20 AM
detroit MI

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    Occupation: Nurse Practitioners and NP Recruiters
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