Medical staffing firms need to get employee classifications right for several reasons, including when it comes to payroll taxes, overtime, and Workers’ Compensation insurance. According to a recent white paper by the American Staffing Association (ASA), many online health care job and medical staffing platforms classify their nurses and nurse aides as independent contractors (issuing 1099s in lieu of W2 forms) as a way of lowering costs, as they don’t have to pay payroll taxes or employee benefits. However, the health care facility (end user) using the staffing firm’s services typically cannot claim staffing workers as independent contractors. It is because health care facilities “exercise supervision and control over the work” performed by the staffing workers at their worksite.
As a result, according to the ASA, health care facilities could face claims that they are employers of the staffing workers and must pay payroll taxes, overtime wages, and other employment-related costs and benefits. As “joint-employers,” the medical staffing firm and the health care facility can be fined for misclassifying the workers.
Virginia Case Illustrates Financial Perils of Staffing Misclassification
The ASA white paper cites a Virginia case where a medical staffing agency was fined $7.2 million in back overtime wages and damages for misclassifying 1,105 certified nurse aides, registered nurses, and licensed practical nurses as independent contractors. The Department of Labor (DOL), which sued the staffing agency, said the ruling sends “an unequivocal message to health care industry employers” — that the department “will not hesitate to bring legal action, pursuing all available remedies, when it finds that an employer has willfully violated the law.”
How to Determine If a Staffing Worker Is an Employee
First and foremost, if the worker is an employee, the employer must pay federal and state payroll taxes and withhold federal and state income taxes. Employers may also have obligations to offer employee benefits such as health insurance, vacation, and sick pay. In addition, employers must provide Workers’ Compensation insurance to all employees.
According to the ASA, in most cases, workers assigned to health care facilities by online platforms will be considered employees of the facilities because they work under the facilities’ supervision and control. Therefore, it is very rare for a nurse or nurse aide to be lawfully classified as an independent contractor.
There are 20 different factors (the common-law test), according to the Internal Revenue Service (IRS), to determine whether an individual should be classified as an employee or an independent contractor. The IRS also looks at any other information that helps determine the degree of control and the degree of independence. The IRS generally groups evidence regarding a right to control into three primary categories:
- Behavioral control — how a worker performs the work (e.g., instructions, training)
- Financial control — the business aspects of the worker’s activities (e.g., unreimbursed expenses, profit or loss opportunity, payment method, significant investment, services available to the relevant market)
- Relationship of the parties — how the business and worker perceive their relationship (e.g., employee benefits, written contracts/intent of parties, confidentiality)
Legislation has been proposed to modify the classification criteria but has not passed to date.
In addition to the IRS common-law test for determining employer status for federal employment tax purposes, the federal Fair Labor Standards Act and the DOL have weighed in on the issue, which the ASA reviews in its white paper.
Suppose clients use the services of nurses, nurse aides, and other health care workers through an online platform and the workers are classified and paid as independent contractors. In that case, the ASA recommends that health care staffing agencies send them a letter alerting them to their potential liability. The white paper includes a sample letter medical staffing can use.
Manchester Specialty Programs specializes in providing agents and brokers with totally integrated business insurance solutions, including Workers’ Compensation, to meet the needs of Home Care, Allied Health, Medical Staffing and Human/Social Services organizations. For more information about how our products and services can help protect your insureds and how we recognize accredited firms, please contact us at 855.972.9399.