Not legal advice. Classification rules are state-specific and enforcement is
active. When in doubt, W-2.
The rule of thumb
If you control how, when, and where someone works, set their schedule,
provide the equipment and the patients, they are a W-2 employee, whatever the
contract says. The IRS and states look at behavioral control, financial
control, and relationship, not the label.
California and states with ABC tests are stricter still: 1099 clinicians
inside your core business rarely survive scrutiny.
Why it matters
Misclassification costs back payroll taxes plus penalties and interest,
retroactive benefits and overtime claims, and unemployment or workers’ comp
assessments, typically surfacing when a “contractor” files for unemployment.
The 1099 savings are an illusion: you save ~7.65% employer payroll tax and
carry all of that risk.
Doing W-2 right
Payroll from the first hire (payroll setup),
workers’ comp active, I-9 and state new-hire reporting, exempt/non-exempt
classification for overtime, and an offer letter plus handbook basics. For
associates, put comp formula, malpractice tail, and restrictive covenants in
the agreement (comp models).