Physician Contracts: Independent Contractor or Employee?

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A physician looking over an employment agreement.Pros and Cons of Being an Independent Contractor as a Physician

As you evaluate different physician contracts, you may come across opportunities to work as an independent contractor rather than an employee.

Generally, independent contractors are allowed more freedom while employees receive more protections and tax advantages.

Learn more here about employment designations and some potential issues physicians should consider with each option.

Independent Contractor

Sometimes physicians are offered the option of becoming a contractor, rather than an employee or partner.

That means you sell your services to the practice, but you have no legal connection to the practice other than as a provider of services. Independent contractors are also referred to as freelancers or 1099 employees in some industries.

There are definitely pros and cons to this kind of arrangement.

An independent contracting physician has the freedom to decide things such as:

  • When to take a vacation
  • How often to work
  • Which health insurance and life insurance policy to choose
  • If they should work a second job

However, working as an independent contractor is not for everyone.

Independent contractors do not have insurance and other benefits provided (regardless of if they work part-time or full-time). That makes it cheaper for the practice, but it’s not good for you. You have to find and provide your own benefits. Health insurance provided through an employer is generally more affordable, while coverage like life insurance and disability insurance is often more extensive if purchased privately.

You also might not have a say in how the medical practice is run. You are not allowed to be a shareholder or partner. You might be left out of important decisions that affect your work and you might make less money.

Nonetheless, physicians who prefer independence and flexibility might prefer to remain self-employed as a contractor.

Possible Issues for Independent Contractors


Adopting an independent contractor relationship reduces the ability of the employer to control the actions and activities of the physician. An employer might attempt to blur the distinction between an employee and an independent contractor relationship. This is done by retaining control over the hiring, retention, and termination of a physician, yet allowing the physician to exercise independent professional judgment in carrying out his or her duties.

Outside Practice

The adoption of an independent contractor relationship could allow the physician to practice medicine for entities other than the employer. The employer might attempt to limit the independent contractor’s right to practice outside of the employer/physician independent contractor agreement through non-compete clauses contained in the contract.

Labor and Employment Laws

The state where the physician intends to practice might have labor and employment laws intended to govern the relationship and liabilities between “employer” and “employee.” For example, anti-discrimination laws can apply to an employer/employee relationship, but the same protections might not apply to an independent contractor relationship.

Tax Issues

The employer is not obligated to withhold federal and state income taxes or make payments for Social Security tax, Unemployment Compensation or Workers Compensation for independent contractors. An independent contractor is responsible for his or her own taxes and should pay quarterly estimates.

This can come as a major surprise to many independent contractors when they see that they owe large amounts of money on their annual tax return. If you choose to work as an independent contractor, it is essential to save money for state and federal taxes, a general rule of thumb is to set aside about one-third of your gross income. This may seem like a lot, but it aligns with regular payroll taxes. Also, remember that you can deduct business expenses, which reduces your taxable income.

Employee Benefits

An independent contractor usually cannot participate in the employer’s retirement plans (like a 401k or 403b) or employee sick plans. The independent contractor also likely does not receive vacation pay, disability insurance, malpractice insurance (some exceptions apply) or other fringe benefit plans available to employees.

If you work as a sole proprietor, you can still contribute to individual retirement accounts, but the tax advantages won’t be as lucrative as employer-sponsored plans.


An employee is an individual who is subject to the supervision, direction, and control of the “employer.”

If the employer retains the right to control the services of the physician, the physician will be considered an employee. If the physician is an employee, the payment of wages will be for a period of time rather than on a project-by-project basis. The employer also will provide tools and equipment for the physician’s use in practicing medicine.

Key Components for Employees


An employer might seek an employment arrangement specifically identifying you as an employee to retain control over your practice. Under this relationship, the employer is entitled to enforce all employer’s policies as they relate to the physician.

Also, as an employee, you also have less say about what work you take on and what work you decline. This, instead, is up to the discretion of the employer. Keep in mind, the employer can give you the power to turn down work.

Outside Practice

Under an employee-employer arrangement, an employer has a greater opportunity to limit an employee’s right to practice outside the realm of the employer’s services, compared to an independent contractor arrangement.

This means that you may not be allowed to work a second job. If this is important to you, make sure to bring it up during contract negotiation.

Labor and Employment Laws

The status of “employee” allows you the protections of the labor and employment laws. This is generally seen as a positive in most situations, freelancers are not provided such protections.

Tax Issues

An employer is responsible for withholding taxes from the salary of its employees. Being an employee generally comes with tax advantages, but this is something to be aware of.

Understanding Employment Designations in a Contract

The terms of the employment agreement should state clearly whether the physician will be considered an employee or an independent contractor. For tax purposes, the status of the physician will be determined by the actual circumstances surrounding the relationship and not necessarily by how the parties identify the physician under the employment agreement.

Our team of physician contract attorneys and physician compensation advisors would be glad to help you evaluate your contract options.

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One thought on “Physician Contracts: Independent Contractor or Employee?

  1. I am starting a post-acute/long-term care medical practice where the clinicians work onsite in assisted living, long-term care and skilled nursing facilities.

    Under what circumstances can I pay the clinicians (physicians, nurse practitioners and physician assistants) as a 1099 contractor?

    The practice is located in the Commonwealth of Virginia.

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