The Difference Between A W2 Vs 1099 Employee

Fee splitting

Both of these models are percentage-based, it’s up to your accountant and you within your state to look at that but you can still have a base salary and then do percentage bonuses. A lot of people ask me is what about fee-splitting now the American Counseling Association and their ethics talks about fee-splitting and a lot of people don’t understand this legal term. I’m not an attorney so I’m only speaking from his own experience but fee-splitting is if there’s a chiropractor and I send one of my clients there and they give me a kickback, that is fee-splitting. I get a percentage for referring to somebody there.

The ACA Code of ethics talks about this because you don’t want to have people that are being sent over somewhere only because you’re getting a percentage kickback. The argument that I would disagree with is that if you have a 1099 contractor, where you get a percentage of that, you’re more likely to inappropriately refer to that person. If you have a W2 employee, you’re paying more taxes, you’re renting space floor and you actually have more liability than a contractor, then that wouldn’t be the same case. We are all ethical counselors and we want to do a good job and serve the clients well. Either way, your employer or 1099 contractor is additional liability and risk for you, therefore fee-splitting, the way it’s typically interpreted is not correct when you talk to almost any attorney.

What is allowed in your state?

There are states like California where it is near impossible to have a 1099 contractor. The employment law of your state is really important to know. We don’t even try to keep up with it because with 50 states and having 3-5 mental health licenses per state to even try to keep up with, we would fail miserably. We, therefore, recommend that you talk to an accountant and an attorney that are from your state that understands employment law because there are some states that are accepting of 1099’s.

You also need to find out how the IRS talks about 1099’s. Look up the most recent information from the IRS to find out how they define 1099. Make sure you understand what rules you have to follow so you don’t get in trouble.

How much control do you want?

How much control do you want over your environment and your culture? I had 1099 contractors before I sold my practice and I had a guy that showed up in flip-flops and shorts. For years it drove me crazy but I couldn’t say anything because he was a contractor. When I actually talked to him, he strategically did that with his clients because he thought that they would open up more when he seemed more laid back. I didn’t realize that for years I thought maybe I should have a W2 so that he won’t wear flip-flops and shorts to work, but it was actually part of his strategy.

I wanted a practice where people could show up, they could work, they could get paid. It was a good side gig for most people. And for people that wanted to go full-time, they didn’t have to worry about the clients.

What are your long-term goals in starting a private practice?

Is it to work less? Do you want to expand to be a mega practice? Is it to move more into consulting or podcasting? Or do you want to sell the practice? With all of those strategies, you’re going to need to take a different approach to decide what kind of practice you want to have.

If you want to take the direction where it’s really easy to sell, where things are automated you’ll probably want it to be insurance-based, with W2’s. Whereas if you want to start to back away, you want some people that are autonomous and don’t need a lot of oversight. So maybe you want a 1099 on board.

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