Finance32: Dental School’s Missing Curriculum
Finance32: Dental School’s Missing Curriculum
Great clinical skills simply are not enough for dentists to achieve financial success. Let Focus Partners Wealth's Practice Integration Advisors share what else you need to know to realize your lifetime goals and obtain financial peace of mind.
Focus Partners Wealth

Employee vs. Contractor: Choosing the Right Model When Hiring an Associate Dentist

Employee vs. Contractor: Choosing the Right Model When Hiring an Associate Dentist

4/1/2025 6:20:00 PM   |   Comments: 0   |   Views: 87

By Practice Integration Advisor Brian Roemke 

 

Are you in the market to add an associate dentist to your teamWhile there are many factors to consider when making this important choicewe believe categorizing this new colleague as a W-2 employee or 1099 contractor once they are brought into the practice is a critical step in the process. The decision could depend on several factors, including tax implications, control over work, benefits, and legal considerations. Below, I will break down the potential advantages and drawbacks of each model plus key points to consider during your decision. 

  

What to know before hiring an associate as a W-2 employee. 

Why might a practice owner prefer to employ an associate as a W-2 employee? There are four main reasons: 

        
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    • You may be able to exert more control over their schedule, clinical process, and work performance.
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    •  W-2 employees offer stability and are generally more committed to the practice they join. Employees who are hired as practice staff and not a contractor are more likely to be integrated into your team and help build a positive office culture. Often contract employees are seen as short term and may not mentally buy into the team or practice environment
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    •  The IRS and state labor departments closely scrutinize the misclassification of employees as independent contractors. By choosing to classify an associate as a W-2 employee, you can mitigate your legal risks.
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    • Finally, W-2 employees may become eligible for any benefits offered by the practice. In today’s work environment, this incentive can separate your practice from others and can attract higher-quality candidates. 
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Now let’s discuss the potential downside of bringing on an associate as a W-2 employeeThis classification will require the practice to pay the employer’s share of payroll taxes, workers’ compensation, and potentially offer benefits to the employee. There is also an additional element of administrative responsibility with the W-2 associate, such as payroll processing, employee reviews, etc.  

 

Pros and cons of the 1099 independent contractor option. 

There may be  instances where an incoming associate dentist should be hired as a 1099 independent contractor and not as a W-2 employee. To begin, the practice will not be required to pay the employer’s share of payroll taxes, workers’ compensation, or offer any benefits. This will likely reduce the practice’s overall administrative work for this individual . Also, an independent contractor job status can give  the owner more flexibility to hire or fire.   

 

As an independent contractor, the associate would be responsible for their own taxes. However, they would have the flexibility to float to multiple offices to ensure they can work the desired number of days per week, deduct work expenses on their tax returnset up their own benefitsand implement a retirement plan, such as a SEP IRA or Solo 401(k). 

 

Now let’s discuss the potential negatives. First, the practice may have less control over the associate. As a contractor, they will be able to oversee their schedule, clinical methods, and may even work in multiple offices, some of which might be in direct competition with your practice. Next, and perhaps most importantly, if the IRS determines the associate should be classified as an employee, you could face penalties, back taxes, and legal issues. This determination is part of what is known as the control test. In the simplest of definitions, this means as their employer, will you control when, where, and how the associate performs their work? If you answer yes to this question, then the associate should likely be classified as a W-2 employee.  

 

Next steps. 

As you make your decision, here are few key points to consider before classifying your associate hire:  

 

        
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    • IRS classification rulesIf you exert significant control over an associate’s work (hours, equipment used, patient scheduling, clinical methods, etc.), they should likely be classified as a W-2 employee.
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    •  State lawsSome states, like California (AB5 law), have strict guidelines that make it difficult to classify dentists as independent contractors. Consult your attorney to determine if this is appropriate for your situation. 
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    • Practice goalsIf you’re looking for a long-term team member invested in your practice, a W-2 arrangement will likely increase the possibility for retention. 
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In most cases, we believe hiring an associate dentist as a W-2 employee is the more common, safer, and more legally compliant option, especially if they work under your direct supervision, use your equipment, and follow your practice guidelines. A 1099 contractor setup may be acceptable for short-term or part-time work where the associate dentist has more autonomy.  

 

 

The views in this article are the opinions of the author.  

 

All tax laws and regulations discussed in this article are subject to changeThe information provided is educational and general in nature and is not intended to be, nor should it be construed as, specific investment, tax, or legal advice. Individuals should seek advice from their attorney, tax and wealth advisor or other advisors before undertaking actions in response to the matters discussed. No client or prospective should assume the above information serves as the receipt of, or substitute for, personalized individual advice.  

 

This reflects the opinions of Focus Partners or its representatives, may contain forward-looking statements, and presents information that may change. Nothing contained in this communication may be relied upon as a guarantee, promise, assurance, or representation as to the future. 

 

This is prepared using third party sources considered to be reliable; however, accuracy or completeness cannot be guaranteed. The information provided will not be updated any time after the date of publication. Please be advised that Focus Partners only shares video and content through our website or other official sources. Services and investment advice are only provided pursuant to an advisory agreement with the client. 

 

About the author 

Brian provides comprehensive financial planning services to help Focus Partners Wealth clients understand and achieve their financial goals. He is enthusiastic about his role in striving to deliver an exceptional client experience. Brian appreciates the importance of a well-rounded team working collaboratively to develop, implement, and monitor a plan that helps clients achieve their distinct goals. 

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