You’ve come to your last year of residency and there is finally a light at the end of the tunnel. Everywhere you go there are job opportunities as head-hunters seek you out at conferences, by email and phone. You compare job A and B with the details below. Job A is an Independent Contractor position and Job B is an Employee position. Which is the better choice?
|Benefits||Only malpractice coverage||Health, dental, life insurance, disability and retirement|
|Flexibility||Very flexible hours||Limited flexibility|
At the end of Residency, you will be faced with a lot of job opportunities. There are many options and your decision can become complicated quickly. One of the important factors of your post-residency employment is whether you want to become an Independent Contractor (IC) or be Employed by a hospital, group or company. We’ll go over some of the basics to help you decide which is the right choice for you.
Becoming an employee for a company, hospital or group can make things a lot easier. Generally speaking, if you don’t want to deal with the financial side or have to worry about finding your own insurance, employment makes more sense. Typically, as an employee, you will receive a w-4 with money withheld by your company for income tax, state/federal unemployment tax etc. Similar to being a resident physician, you will receive a w-4 at the end of the year for income tax return. Your employer is also held to certain standards with expectation to supply health insurance, paid time off, payment for half your medicare and social security taxes, CME and travel related costs, board certification, and malpractice. If you are the sole provider of a family, especially with significant health problems, you should seriously consider the employee route since pursuing those benefits on your own would be a lot more costly.
Typically an independent contractor (IC) is a position which has looser ties with the company, hospital or organization that pays them. The IC is given payment without any money withheld and the expectation that the IC is responsible for their own taxes. So why be an IC when it sounds like a lot more work? Simply put, you can get paid significantly more money. As an IC your pay is usually much higher and you can deduct a lot of expenses from your taxes that you would not be eligible for as an employee. In addition, you can save a significantly higher amount of money in your retirement account every year (when you consider how late most of us start saving for retirement, this is huge!). If you are married to someone who is an employee and can be part of their medical insurance then becoming an IC becomes a much easier option.
There has been much scrutiny by the IRS in cases where people file taxes as an IC but act more like employees. For example as an independent contractor you are expected to bring your own equipment for your work, have multiple contracts with different organizations, provide own benefits, etc. If you get audited down the line and in practice you are more like an employee than an independent contractor then you and the company are responsible for significant back taxes and fees.
The following are items that help make the case for an independent contractor:
- Have contracts with multiple companies
- Autonomy in executing your job
- Set your own hours
- Can terminate your relationship with a company
- Method of payment: Hourly (rather than salaried)
Job A or B
|IRS Tax Form||1099||W-2|
|Wages||Usually significantly higher||Usually significantly lower|
|Benefits||Minimal||Health, disability, retirement, CME usually included|
|Retirement Account||SEP IRA $53,000 max||401k 18,000 max|
Back to job A or B from above. Which do you choose? Look at the table above to help you decide. There is no right answer. Your choice depends on if you want more of a say on how your money is distributed or you prefer not to deal with the extra administrative work.
If job A sounds more attractive, check back for a future post on how to handle important decisions such as disability insurance, retirement accounts that come with being an independent contractor.