Adding 1099 Contractors to Your Practice

1099 contractor counseling private practice advice

1099 contractor counseling private practice advice

I received three emails today, it must be 1099 Friday:

Re: 1099 discussion on LinkedIn

“I saw the posting and am interested as well. I would love to talk to you about this and discuss the fee of your copy (of the 1099 contract)…”

“Joe – I want to run something by you – I am sure you have information on it 🙂  What constitutes a “full-time” private practice in regard to numbers of clients? I have heard everything from 23/week to 30/week? I am looking for the information to see how soon I can advertise and bring on another therapist.” From Pamela Waitkus | Waitkus Counseling Group (used with permission)

“I read your post on Linkedin and I need some help. I have an employee…working towards her clinical license  She now wants to go contract and wants a______ split with her getting the ___. What are the pros and cons and what are your thoughts? Can I get a copy of your contract? What are my liabilities? What are the IRS rules? Thanks for your input. Be happy to pay for your contract…” edited to remove sensitive information.

Here are some guiding principles:

When I was a 1099 in Kalamazoo, I had a 65/35 split with me getting 65%. It was an office of 20+ clinicians where the office did billing, rent, had staff 8:00-5:00 answering the phone, and there was a group room.

I now live in Traverse City, which is a tourist town in northern Michigan, so the costs are much higher than Kalamazoo and I own my practice. I have a 50/50 split with my 1099s, where I provide rent, office supplies, website, email (______@mentalwellnesscounseling.com) and I’m the face of the practice through writing for our local paper.
Buy the Paperwork Packet  

Benefits of a 1099

There are many benefits to the 1099 approach, and I prefer it for these reasons:

        • You can be hands off. The clinician schedules their own sessions, takes payment and turns it in (I have a clear process for this), and uses their own network.

 

 

      • The clinician has an incentive to build their caseload and you don’t feel like you’re wasting your money when there are slow weeks.

 

 

      • If the clinician is out of town, they have the benefit of not worrying about rent and you don’t have to pay them.

 

 

      • You can sometimes have more income depending on the way it is structured.

 

 

Doing the math


Here is the math I see:

W-2 Employee

Say they are paid $42,000
They sees 20 sessions per week at $100 (average) per session x 48 weeks = $96,000
Your amount: $54,000, I usually budget 20-30% of the total brought in ($19,200 (20%) for rent and expenses). that would mean $54,000-$19,200 =
$34,800 + upset unmotivated clinician that doesn’t want to take on new clients

1099 Contractor

50/50 split
Same $96,000
1099 gets $48,000
You get $48,000-$19,200 (20% for expenses) = $28,800
But, your expenses will not go up much, renting her/him space will be the same, so post $28,800 you may only have 10% in expenses. So to make up the $6,800 ($34,800-$28,800) you would for her to bring in $6,800 x 2 (because of her 50%) + 10% $,1360 = $14,960. Divide that by 48 weeks and that would $311.44 more per week.

So if s/he averages 23 clients per week, you could make more on a 50/50 split, does that make sense?

I would actually start with something more in your favor, like 50/50 you can always move it up to her/his favor, but you lose all bargaining chips.

Supervision

I think the issue of supervision is a very important one. For a 1099 contractor, they must meet these criteria according to http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-(Self-Employed)-or-Employee%3F, according to the site:

Common Law Rules

Facts that provide evidence of the degree of control and independence fall into three categories:

Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?

Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)

Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

By having supervision be something s/he has to pay for, it pulls the relationship apart so that it does not appear to the IRS that you tell her how to be a 1099 contractor. I have a supervision group where I charge $100 (discounted from my session rate of $150) for individual supervision, $70 per person for groups of 2-3, and $55 for a group of 4.

Contracts

I do sell both the Supervision Contract and the 1099 contract: Buy the Paperwork Packet. I have had my own lawyer review it and give me the go ahead. As well, I ran this model past my HPSO representative and they said that it limited my liability compared to a W-2, where I should have business insurance, not just my individual practitioner + consultant/supervision. So, you could reduce your insurance costs.

What is “full time”?

I think what is full time varies. How much do you want to make? How much do you want to work? For example, I have a full time job (40 hours) at a community college with great retirement and health benefits. My wife stays home with our daughter, so we need that stability. I get around $50k/yr + benefits for that job and make around $15k per year through my private practice, consulting, and websites. See my most recent income statement as of the writing of this post, October 2012 Earnings Statement. To see all Monthly Income Reports click this.

If I were to go “full time” I would need to gross $65k + the cost of benefits so maybe $15k more so $80k. Thus, if I want to work 48 weeks and know my overhead is usually around 25% I actually need to bring in $100,000. I charge $150 per session, but sometimes reduce it. I probably average $125. So $100,000 divided by 48 weeks is $2,083 per week divided by $125 is 16.6 clients per week to keep my current standard of living. That is what I would have to average for a year, there are times where I have more referrals and less referrals, so I would factor that in too.

For me “full time” would be 25 clients, to be safe.

With that said, if I were regularly meeting around 20, I would start looking at expanding into bringing on another clinician. Does that make sense?

Please remember

Legal Stuff: This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the author and publisher are not engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the service of a competent professional person should be sought.

With that said, I hope it has been really helpful!

Thanks!

 

 

consultant headshot JoeJoseph R. Sanok, MA, LLP, LPC is the owner of Mental Wellness Counseling in Traverse City, MI. He is a supervisor for LLPCs and consults through his blog. He continues to explore ways to expand helping counseling in private practice to be more awesome.

As a private practice consultant, Joe helps other counselors to grow their practices.

3 Comments

  • Thanks for your article and resources. Do you have additional resources on the insurance issues, i.e. business insurance vs individual (1099 vs w2)? I am unclear on what is appropriate and there seems to me many varied opinions. Thanks in advance,

  • Thanks for this Joe. I’m considering bringing a part-time therapist into my practice later this year (with more to follow down the road). There’s not really much online related to 1099 counselors, other than this and Julie Hanks’ stuff. I would definitely prefer to do 1099 contractors for a multitude of reasons, but the possibility (and impact) of misclassification has me a little frightened. Basically, I would be providing the EHR, office space, furnishings, notepads, company picnic (cause I’m that kind of guy), etc. I would be expecting them to use the practice EHR and not keep separate charts, as well as do therapy from the office space (not that I expect anyone would want to do differently). So, I’m worried that might imply too much control. I’m also wondering about the supervision piece. I see how that works in terms of separating the control. However, I’m wondering if you expect all of your counselors to engage in this supervision, or is just an option? I would only be bringing on experienced clinicians who I don’t believe would need supervision, and I think pushing them into that arrangement would feel strange to me. Of course, the fact that I would be open to them providing therapy any way they see fit helps with the 1099 argument. I would also be fine with people setting their own hours, etc. Do you have any thoughts on this? Sorry for being so long-winded 🙂

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