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Welcome to the Faith in Practice podcast. I’m your host Whitney Owens recording live from Savannah, Georgia. I’m a licensed professional counselor, group practice owner, and private practice consultant. Each week through personal stories or amazing interviews, I will help you learn how to start, grow, and scale your practice from a faith-based perspective. I will show you how to have an awesome faith-based practice without being cheesy or fake and, you too, can have a successful practice, make lots of money and be true to yourself.
So, today on the Faith in Practice podcast, I’m going to be doing a solo episode, talking about the benefits of hiring W2 clinicians to your practice. This is a question that I get often in the community. So I wanted to create a show that you could refer back to and use as you’re making decisions about hiring in your practice. So, just to give you a little bit of a rundown here, you have two options when you’re looking at hiring clinicians to your practice. The first option I want to mention is contractors. Those are also referred to as 1099s. The reason we call it that it has to do with the tax forms that are completed. And then the other option would be to hire clinicians as W2 employees, which again, W2 as many of you know, refers to the paperwork that gets completed for tax purposes.
So the biggest difference here in the tax world has to do with the way that you define the kind of work they do and the pay rates and the taxes that you pay for each one. So I’m going to go through a comparison list for you to talk about the differences between a 1099 and a W2. I’m also going to share my personal story of the transition that I made in my practice and how it changed everything. And then I’m also going to talk to you about why having a W2 clinician based practice can actually create more profit for you. Who doesn’t want that? So let’s go ahead and get started. An independent contractor or 1099, I’m going to use those interchangeably, sometimes people call them RCs and employee W2. So I’ll use those interchangeably as well.
At 1099, typically gets paid a higher percentage for the billable time. So the time that they’re sitting with the actual client billing for that hour, usually they get a percentage there. So that could be a 60% for them, 40% for the practice, it could be a 70,30 split, it could be a 50,50 split. Sometimes people do set right but most of the time there’s some kind of split there for the billable hour. A W2 employee tends to actually get a flat rate for the billable hour, rather than a percentage.
An independent contractor does not get paid for other work outside of the billable hour. So that could be, they decide to attend a staff meeting or they attend a marketing event. Those things are not paid out by the boss or the company, but if you have a W2 employee, the boss is responsible for paying the employee for all work completed. And so that also includes things outside of that billable clinical hour. So that could be a staff meeting or a marketing event.
At 1099 Contractor pays at least 30% in taxes. So they have, in this can really vary from state to state, but typically 30% is a good amount to be looking at. So many of you probably started out as a private practice owner and so you understand this aspect of it. I mean, you have your own business, you’ve got to keep up with your taxes, you’ve got to pay those out at the end of the year, or hopefully you’re paying them quarterly and you’re paying a high percentage of the amount that you bring in. There’s a lot to keep up with that. I mean, you’re keeping up with your supplies, your liability insurance, all those things you have to ride off. You’re also taking care of maybe drive time or the wear and tear on your car with mileage. Like there’s a lot of details that you have to keep up with owning your own business, to be able to write that off.
And so when you have a 1099, in essence, that contractor should have their own LLC so they have their own business license and they come and offer a service to your company. And so they will be paying that 30% in or give or take some, depending on your state and taxes. A W2 will be paying a lot less in taxes. Actually as the employer, you’re the one keeping up with taxes for them. And hopefully you’ve delegated out to an accountant, but the pay is more about 15%. So they’re going to pay 15% in taxes and you’re paying about 15% in taxes.
And like I said, give or take depending on the state that you’re in, but honestly they’re paying half of what they would have paid in taxes and they’re not having to keep up with all their supplies. So that’s another difference between a contractor and employee. A contractor has to pay for their own supplies to do their job and the W2 employee does not have to pay for anything. The employer covers all the supplies that are required for their job. So for example, that might be, you give a stipend for their computer and their phone that they might be using for their job, or you’re providing the furniture for the office, all those things. So you definitely have to run your numbers in such a way to include all of that.
Also a 1099 contractor, they pay for their own CEU their own liability insurance. As the employer, you cover those things or you make it super clear to them that they keep up with their CEU’s. You don’t necessarily have to require that unless you’re requiring them to be licensed for the job. So anything that you’re requiring as an employer, you do have to cover, but if it’s not something required, you don’t. So for example, I allow unlicensed people to work at my practice and we do provide them supervision. Now I require the supervision, so I do pay for that for them. But it makes it clear in their arrangement that they cover their own continuing education and their licensure as well.
Other things is a 1099 contractor does not get benefits. And then as an employer, you can offer benefits. Now it’s important to say here that you don’t have to provide benefits, but a lot of times that is a perk of them working for you and they like to have that option. So you could start that out with a full set of benefits or move slowly. Like in my practice, I didn’t start out with health insurance and things like that. You have to figure out what works for your business. So we actually offer PTO, or you could offer sick time, you could offer health insurance, you could offer retirement ,so there’s a lot of things you can do, bonuses as well. Also, you do have to provide workman’s comp if you are having W2 clinicians in your state, depending on what the laws are. Some states, it’s three people, some states it’s five people. So you would definitely have to get that checked out. And that’s with all things. You will always have to go to an attorney. Like as a consultant, I can advise, I can give you and I can help you in making these decisions, but ultimately I can’t possibly know the laws in every state.
So you have to go directly to your accountant and your attorney to figure out what the laws are in your area. But those obviously that’s not an exhaustive list, but that is the big differences in the employment situation. Now, you know those differences. So when you’re trying to make your decision, what I don’t want you to do is get too caught up in the money part because we can always make the money work. We will make rates, that’ll allow what works for you and your practice. What’s really important here is that you hire based on what you think is right for your culture and your branding. Do not hire based on the people at your practice only. I see way too many group practice owners who have a certain type of culture they want to have, but then they hire based on what the clinicians want, which we do want to consider that, but you don’t want that to be the leading dictator in your decision-making. You want to make a decision that’s best for you and your practice, and then, that will naturally weed out people that are really aren’t a good fit for your practice.
So, as we kind of wind through a little bit, the big differences between contractors and employees, as clinicians has to do with control over the work that they’re doing. So for example, the 1099, they are contractors. They have their own LLC, their own business license. So in essence, you are hiring their business to come into your practice and offer you a service. A W2 employee, you’re saying, “Hey, come work for me and I need you to do this service and I’m going to direct you in how to do that.” The contractor does not get as much direction from the company. The contractor comes in to do a very specific thing and they do it the way that they want to and you can’t tell them how to do it.
Most of the time, contractors do have a license. So you will want to check your state to see if unlicensed practitioners can have an LLC or not. Some states allow it, some don’t. Most of the time, these people do have their full license and they oftentimes work for multiple companies, which is kind of the nature of a contractor. Oftentimes I like to think of contractors in the same way that I think of a painter. So someone who’s going to come and paint your house, you hire them out to do a specific service, which is, paint your house. Now you might provide a little bit of direction such as, “Hey, here is the color scheme I want,” but other than that, they show up when they show up. I can laugh, I’m laughing from experience because so often I’m just waiting on a contractor to show up, to do something and I’m sure you understand what I mean. You do it on their time schedule.
They can bring the supplies. Sometimes they charge you for those. If it’s a specific like pink color, but most of the time you’re not getting billed for their supplies. They provide their own paint, brushes, their own ladder and those type of needs. And they do the job the way they want to. And so it’s not like you’re out there instructing them on how to paint your house. They’re the experts. So they paint it the way that they know to paint it and then they bill you for the service at the end. And they might be painting multiple houses in the same week. So a lot of times contractors are coming in to provide that specific service at your practice and they work at multiple practices and they work very independently.
An employee clinician, sometimes they work at multiple practice, but in general, they usually only work at your practice. And most of the time employees get more clinical hours billed the contractors because they spend their time at one job instead of multiple jobs. And so when you have employees, you’re a lot more invested in the work they’re doing a lot more involved through requiring staff meetings on a regular basis with contractors, you can offer a staff meeting, but it’s their choice if they want to come or not. And so you’re really just hoping that they’re doing their job well, and you’re trusting that with employees, you’re monitoring their job a lot more closely looking at their notes, providing that supervision. And so it’s a very different type of culture that you want to provide. Also, the idea of the liability insurance is the liability on the company if you have employees and the liabilities on the contractor, if you have contractors. So it kind of changes that idea of how invested involved you are in that process.
So back several years ago, I started my private practice for my group practice, I should say, and 1099 honestly, was what everybody was doing and at the time I had a consultant, that’s what my consultant was doing. It seemed like an easier thing to do. I want to sleep. The idea of employees was scary to me and just hiring your first person is scary you know, Is this person going to make money? Is this going to work. So I wanted to go with the easiest route possible. So I went with the 1099 route. So I got my contract created.
I actually had a sample contract from my consultants. So by the way, if you end up doing consulting with me or with someone else, you usually they can provide tons of paperwork in the hiring process to give to you and you can use that with your accountant or your attorney. So you go to your attorney with the contract that’s already created and you just adjust it for your needs. You can save yourself a lot of time and money so there’s just a bonus there. So anyway, I took that 1099 contract and edited it for my practice. And yeah, so I hired my first LLC and she was seeing kids and adolescents and some adults, but mostly kids and adolescents. And then a couple of weeks later. A couple months later I hired another LLC. So I had two contractors hired in my first six months.
So I can tell you some of the mistakes that I made. First of all, I always wanted a practice that was really close knit, where I had a lot of say in the work that was being done. I’ve always just thought of my practice as being kind of like a family. And so having the contractor model really didn’t adhere to that mentality or that branding in my practice and I really didn’t think through all that at the very beginning. I just thought 1099 was the way to go. The other thing was I wanted to have regular staff meetings and trainings and to be able to provide bonuses and other things for the clinicians. Well, those are all things I really couldn’t offer to 1099s. And so I didn’t know any different and kept moving forward and the other really big mistake I made was pay. Like I let the percentages be too high for my contractors. And then there were times that I was writing them checks for more than I was making. And I found that frustrating.
Now, when you do have a small practice that does happen sometimes because it’s really, when you get to that four and five clinician phase, you start to really notice a difference in your own pay. But it wasn’t that the percentages I was offering was too high because a lot of times we have to offer high percentages to get the kind of clinicians we want, or at least that’s what we think. But to tell you the truth, it’s not true. You can still have a really good clinician, even though you’re not paying an outrageous amount and have a really close knit staff. And so that’s kind of the culture I created with the W2’s, but anyways, so it started out with these two contractors and within, I think it was five months, one of them quit.
She had actually applied for a job at a different organization and she was hired there. And when she left, she did say to me, she had applied for that job actually at the same time she was applying for my job. I just hired faster, but she did say to me, when she took the other job, there was just too many opportunities at the other job. Like they were offering retirement and benefits and time off and it was just a better fit for her and her needs. And she, she was an older person, not old, old, but just had kids and needed to be able to take care of herself and her family and consider retirement. And so she left the practice and then, I hired my assistant at about the seven month mark of my group practice, which by the way, I do not recommend. And at the time I was reviewing this with my attorney, letting them know I was going to do a contractor because that’s all I knew, he said, “You know, your assistant sounds more like a W2 employee. You’re going to provide her direction and the work that she’s doing. She’s only going to be working for you. And to tell you the truth, she probably doesn’t want to take care of her taxes and everything. You should just hire her as an employee.” And the more I thought about it, I realized, yeah, I really need someone who, as an assistant that does things the way I want them done, works directly for me. I like having control.
And so I hired her as an employee and believe it or not, it didn’t break the bank. It survived. like I was happier. I was so scared that it wasn’t going to work out, but it really went well. I started out hiring her for maybe three to five hours a week and she just tracked her time. I didn’t provide any extra benefits or anything like that. And now over time, she’s still with me, praise God. And it’ll be three years in July. So I’m excited about that. And she’s just fantastic. She’s now my office manager because we’ve grown so much since then. So that was my first employee, and I’ve just realized that it was a better fit for the practice at that point. And so it was finding my contractor that was working for me, just doing some things I wasn’t too happy about, not that anything was unethical. I just wanted my business to run differently, like I wanted us to be more timely with our clients.
I wanted to be able to check notes and make sure they were being done completely. And I just felt separation when I would talk to her almost as if she had her own business and I had my own business. And then I thought about it some more and that’s true. She had her own LLC. She was working for herself and not for me. And so I approached her with the W2 model and that I wanted her to be more of a partner with me in growing the business and explained all the reasons why I made the transition, which I’ve talked about in this episode. And ultimately she decided it was not what she wanted. And she ended up actually leaving and going to a different practice and now has her own successful practice.
It seems here in town and I’m really happy for her. And, and that honestly was more her mentality. And so actually making the transition to the W2 model, she was a great clinician, but it kind of weeded her out because really she wanted her in business the whole time. And she’s just more of an independent worker. Then what I kind of want, I want more of a community feel where we’re really helping one another and working together less so than independent. Like, and so then I love how God has this like crazy way of doing things. And we all know this the day that that contractor gave me her resignation letter, which of course I had a lot to deal with personally, on that level as a boss and feeling like I’d started this practice and I was losing people. And if any of you are group practice owners, you know what I’m talking about because oftentimes it takes a year or so to really kind of figure out who you’re hiring, who you are as a boss.
I mean, I’m always figuring that out, but especially that first year, a lot of pain and growth I’d left my office and just cried because I was like, what am I doing here? And I actually was also in the process of hiring another clinician because we were growing so much and I got on the phone with my assistant and she talked me through it. And it was that day that are also like two hours later, interviewed another clinician for the practice. And she has been a phenomenal fit. And I just love the way that kind of when one door closes another opens and the way that God worked that out. So that’s kind of the story of me and how I kind of moved to this model. And it has helped so much with my practice growth and with the family feel we have, I love my clinicians and I love this, this clinical family that I have.
So I moved to the W2 model. So that was at the end of 2018. And this is the beginning of 2021. So about 18 months later, I say, no, that’s not right. No little over two years later. Okay. So now it’s been, I don’t know, two years and four or five months, something like that and I have seven clinicians hired here at the practice. So you can see that the W2 model and knock on wood. I am literally, I’ve only lost one clinician since I transitioned to the W2 model. And that was a very unique situation. And it seems that people really enjoy working here. They enjoy the culture that we create and helping one another. And I’m also having a greater profit than I had with contractors. So real quickly, I want to run through five different reasons why I think it’s going to be just, five reasons for hiring W2 employees and how that helps instead of contractors.
Now I want to just say, disclaimer here, if you have contractors and it’s going well, and you like the culture of the independence and then moving on their own, don’t change that. Not everyone needs a W2 practice. So it’s most important like I said, that culture, but for me, these are the reasons why it’s helped me and has helped other people that I’ve consulted with. It helps in the hiring process, your recruitment, when people see that you offer steady income, consistent benefits, they will want to come work at your practice. We find that a lot of places don’t offer that to clinicians in and outpatient private practice kind of sense. So it really will elevate your practice over a lot of others that only offer the 1099 status. It also helps with retention when people are at your practice and they already have their LLC, like they’re already set up as a business. And so it’s a lot easier for them to leave and go do their own thing, because really what are you offering them outside of the marketing and giving them clients, you are giving them that referral stream.
Other than that, a lot of the systems they already have in place, they might have their own paperwork, their own phone line. So it becomes a lot easier. And you really can’t dictate if they choose to work at other practices. So sometimes that can get kind of wild too. So they might work at two or three different practices. So then you’re paying all this money on SEO and marketing these people, and then someone finds them at another practice or they found them at your practice and another practice. And maybe they go to the other practice because it’s closer or they take their insurance there and not at yours, whatever the case may be. So that can get complicated as well.
So you do have better retention with clinicians when they’re employees, because you are offering them a lot more than just clients. You’re offering them teaching and benefits and stability and relationships on staff, things like that. And so a lot of clinicians are looking for that. They’re looking for a place where they can just do the work they want to do and not have to mark it and work hard in that business sense in their practice. You know, we didn’t go to grad school for business who went to see clients. So it does improve that retention. I loved hearing the story of Alison pigeon. She’s one of the other consultants in practice of the practice and she took her practice as contractors. For many years, she had 12 of them and then she never could get past 12. It was like, every time she’d hit 12, someone was leaving and she’d be hiring again.
And so, a few years ago she made the transition to the W2 model and she doubled in size within a year or two. So now she has 24 clinicians because she offers so many other benefits and good pay to them that it made it worth it to stay. Also, another benefit of the W2 is that you have more control over the type of services that they offer. So like, for example, if you were to get a call and maybe it was substance abuse and it was mild kind of case, and you know, you felt like a lot of people could work with this type of client, but maybe somebody didn’t want to, for whatever reason, you actually can tell your employees to work with clients. When they call, you can say, “Hey, you know, you’re in play. You have to work for this. Or Hey, you have to work these hours because I’m your employer.” So you can really kind of tailor it to what’s best for the client, even though you still want to take care of your clinicians. But the clinician, as a contractor could say, “Hey, I’m going to leave at this time and that’s it. Or, Hey, I refuse to see this type of client.” And they have that right but when you employ them, you actually get to dictate those things.
Not that I would ever want to push a client onto a clinician that doesn’t have expertise or experience to work with that because that would be unethical, but in some situations it’s best to go ahead and get that client seen then to have them out in the community, unable to get the services they need. So I feel like I can provide a lot more variety and a lot more hours of services by having employees at the practice.
It does provide more financial stability. Now I know many of you are like how in the world does that happen because I hear this from a lot of people? First of all, I think the way that we run our numbers and the way taxes work, there’s something about that transition to W2 that you actually end up making greater profit at your practice because less money is getting spent on all these other things. Now, and as well as the tax percentages. I also see that for a lot of contractors actually pay for things for their clinicians when they really shouldn’t be paying for those, they might be paying for phone systems and they might be paying for a psychology today profile or they’re paying for their headshots, their marketing, when really contractors should be doing all done on their own. So sometimes the problem is practice owners treat clinicians like employees and so they really lose a lot of money that way.
They also paid way too high in their percentage. I feel like contractors tend to get higher percentages. Employees tend to get that flat, right? Which actually ends up being a lower number. And a lot of times you’d be surprised clinicians, even though it’s a lower number because of all the other things they don’t have to do, they’re totally fine with that. And then by making the supplies go across the board, you end up making more money in the long run. Almost all practices that I’ve seen make that transition, find that they have greater profit. If they’re a little bit larger of a group practice like four or five clinicians also because you have less turnover, you also have more money. It is very expensive to market, advertise and hire the onboarding process. The time of training, what we have to pay them in training, it is just so much easier to have your clinician stay and then they fill their caseload, I mean, every time a contractor leaves your practice, if you don’t do a non-compete, which I’m totally not in the non-competes I think clients should be able to decide where they want to go get services and if that’s the case, you’ve lost all these clients.
I mean, when my last contractor left, s soon as I filled her caseload like that six to eight month mark, she had a full caseload running, two groups and all those clients were gone and that’s a lot of money that was out of the practice that you’ve worked super hard to get. So that financial stability tends to be more improved, not only for the practicing company as a whole, but also for the clinicians. And then this last one that we kind of already talked about was providing benefits. They love having PTO sick time, you know, the idea of going on a vacation and still making money. That’s fantastic.
And so then you can sometimes offer health benefits, which a lot of times will make your clinicians see more clients, there’ll be more full-time as opposed to contractors might be a little bit more part-time because they’re doing multiple work or maybe they work different jobs during the day and they work with you in the evenings. So, and we know that the more clients that your clinicians can see, it makes better profit. Like you’re going to make more profit, even if you’re charging the same, paying the same, like it’s going to be better to have one clinician. I’m trying to think of, if I’m accurate here. It’s better to have one clinician see 30 clients a week, as opposed to two clinicians seeing 15, because you’ve got to take care of all of those expenses up front and the marketing and everything when really you would be making more money by having the one see 30 than the two see 15, because of the cost per clinician to have them on your team, if that makes sense.
So those are some of the benefits to making that transition, like I said, I’m sure there are others, but these are the big ones that I like to hit on. And I can just say that I am super happy with my staff and how things flow here and that community that we’ve been able to create by having the W2 private practice. So if you have questions, please reach out to me. We’d love to answer those and help you, I do host a course, if you are listening to the podcast and you’re thinking, Hey, I do want to make that transition. I can definitely tell you it’s a great one to make, but it’s a lot of work just to be real about it, a lot of steps in the process.
So Alison Pidgeon and I host a class. It’s a two day class of two hours each day and then you do some work in between where we walk you through that process. So if you’re interested in something like that or some consulting on this, please reach out. Don’t try to do it on your own without some kind of consulting, because there are a lot of details to the process. We want to make sure that you run your numbers right so that things turn out for your benefit and to the benefit of your community and your clinicians. Well, thank you as always for taking the time to listen to the show.
Once again, thank you so much to Therapy Notes for sponsoring this show. It makes notes, billing, scheduling, and telehealth a whole lot easier. And if you’re from another EHR, they make the transition really easy. Therapy Notes will import in your client’s demographic data free of charge during your trial so you can get going right away. Use the promo code [JOE] to get three free months to try out Therapy Notes for free.
Thank you for listening to the Faith in Practice podcast. If you love this podcast, please rate and review on iTunes or your favorite podcast player. If you liked this episode and want to know more, check out the Practice of the Practice website. Also there, you can learn more about me, options for working together, such as individual and in group consulting, or just shoot me an email, [email protected]. We’d love to hear from you.
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