Are You Misclassified as an Independent Contractor for Occupational Therapy?

Introduction

This article is tailored to occupational therapy clinicians who are providing a service as independent contractors (and who may not technically be), but this is also applicable to entrepreneurs and business owners who may hire independent contractors and wondering if they are classifying them properly.

Making the correct classification is important as the fines can be very hefty. Some entities in the healthcare space, including therapy have been penalized in the past for this exact misclassification (whether intentional or not).

Not W-2 OT?

Some occupational therapy practitioners may work as ‘independent contractors’. So instead of being an employee of a company and receiving a W2, benefits, and labor law protections, they receive 1099, which has the major benefit of tax deductions among some other benefits.

What is Misclassification?

Misclassification occurs when an employer improperly classifies their employees as independent contractors to avoid paying minimum wage, overtime or payroll taxes. A misclassified worker is denied the legal right to workers’ compensation coverage if injured on the job, the right to family leave, the right to unemployment insurance, the right to organize or join a union, and protection against employer retaliation. Misclassification also undermines businesses that play by the rules.((https://www.dir.ca.gov/Fraud_Prevention/Misclassification.htm#:~:text=Misclassification))

Criteria for Independent Contractor

The criteria for determining whether a worker is considered an independent contractor can vary depending on the jurisdiction and specific laws in place. There are multiple levels of jurisdiction as well, each with its own different levels of strictness: federal, state, county, and city.

In general, the entity (payor, client) that pays for the therapy work of its independent OT contractors needs to abide by the strictest of those laws. Examples of cities in CA that have the strictest laws include San Jose, San Francisco, and Santa Monica.

What Meets Criteria for Independent Contractors

  1. No control over work: An occupational therapist working as an independent contractor might have the freedom to determine their own schedule and decide which clients to work with. They may have the autonomy to choose treatment methods and develop personalized therapy plans based on their professional judgment.
  2. High level of independence: An occupational therapist working as an independent contractor could operate as their own business entity, such as “Occupational Therapy Company.” They might have their own liability insurance, advertise their services, and take on clients from multiple sources. Note that depending on the state, most OTs do not have direct access (so a referral IS needed from a MD).
  3. Use of specialized skills: Occupational therapists possess specialized skills in assisting individuals with improving their daily activities and functions. As an independent contractor, the occupational therapist could bring their own tools and equipment to sessions, such as adaptive devices or therapeutic equipment, to facilitate treatment.
  4. No financial arrangement: As an independent contractor, an occupational therapist might negotiate a rate per session or project with the home health agency. They would then bill the agency for their services rendered. The therapist would be responsible for paying their own taxes and may have to cover their own expenses, such as travel or professional development courses.
  5. Assumes risk and liability: As an independent contractor, the occupational therapist would likely assume the risk and liability associated with their practice. If any injuries or accidents occur during therapy sessions, they would be responsible for addressing any resulting claims or legal matters.

What Doesn’t Meet Criteria for Independent Contractors

  1. High control over work: In a misclassification scenario, the home health agency exerts significant control over the occupational therapist’s work. They dictate the therapist’s schedule, determine which clients they should see, and closely supervise the therapy sessions. For example, the agency might provide specific instructions on treatment methods, limiting the therapist’s autonomy.
  2. Low level of independence: Instead of operating as a separate business entity, the occupational therapist is solely affiliated with the home health agency. They do not have the freedom to offer their services to other clients or establish their own business identity. They may be required to exclusively work for the agency and may not have the ability to take on clients independently outside of this agency, e.g., ‘side OT gigs’.
  3. Less specialized skills: In a misclassification scenario, the occupational therapist may not possess highly specialized skills that differentiate them from regular employees. Their tasks and responsibilities might align closely with those of employees within the agency, without requiring unique expertise or professional judgment.
  4. Predetermined financial arrangement: Rather than being paid on a project or contract basis, the occupational therapist receives a regular salary or hourly wage from the home health agency. They do not invoice for their services independently, nor handle their own taxes. Instead, the agency treats them as an employee in terms of financial compensation.
  5. Risk and liability: In a misclassification situation, the home health agency assumes the risk and liability associated with the therapy sessions. They would be responsible for addressing any claims or legal matters arising from injuries or accidents during therapy, rather than the occupational therapist – this is probably rare.

Other Possible Red Flags

  1. Integration: If the therapist’s services are an essential part of the agency’s core business operations, directly contributing to the provision of home healthcare services.
  2. Exclusivity: If the therapist is required to work exclusively for the agency and is prohibited from providing services to other competing agencies or clients.
  3. Financial control: If the agency determines the therapist’s pay structure, sets billing rates, and controls financial aspects such as insurance reimbursements and client billing.
  4. Duration of the relationship: If the therapist’s engagement with the agency is ongoing and long-term rather than project-based or temporary in nature.
Depending on your circumstance, it is possible that you legally instead should be a per diem, or part-time, or full time instead of an independent contractor.

Exempt vs Non-Exempt

So far we have talked about the independent contractor vs. employee. You may have heard or seen the terms exempt and non-exempt. It’s important to know what these mean and imply. Independent contractor and employee classification refers to the nature of the working relationship, while exempt and nonexempt classification pertains to employment status and eligibility for certain labor protections under the Fair Labor Standards Act (FLSA) in the United States.

Exempt Employees Nonexempt Employees Independent Contractors
Overtime Eligibility Not eligible for overtime pay Eligible for overtime pay at a rate of 1.5 times regular pay Not eligible for overtime pay
Salary Basis Generally paid on a salary basis Typically paid on an hourly basis Paid based on agreed-upon contract terms and deliverables
Job Duties Specific job duties must meet criteria outlined by the FLSA No specific job duty requirements for nonexempt status Independent control over work and methods
Salary Threshold Subject to minimum salary requirements set by the FLSA Not subject to a specific salary threshold No specific salary threshold
Labor Protections May be entitled to additional benefits and protections Eligible for minimum wage, overtime pay, and other labor rights Not entitled to employee benefits and labor protections
Examples Executives, management, professionals (e.g., physicians), administrators Hourly employees (majority of OT practitioners fall under this designation) Freelancers, consultants, self-employed individuals, contractors (who may be OTs)

Conclusion

Overall, this article provides some general information about meeting the classification for being an independent contractor as an occupational therapy clinician. However, this is not legal advice and as laws vary by jurisdiction and can change over time, it’s essential to consult with legal professionals or labor authorities to ensure compliance with specific laws and regulations governing worker classification. Each case is different and it also depends on if you are an employer (e.g., ABC Home Health Agency), client, independent contractor (e.g., John Doe OT Company), or occupational therapy practitioner (e.g.., John Doe, MSOT, OTR/L) who should be designated as an employee but incorrectly as an independent contractor.