Are you starting a group practice? Should you hire 1099s or W2s? What is the difference?
In this podcast episode, Alison Pidgeon speaks to Whitney Owens about 1099’s and W2’s in group practice and why you may choose to work with one over the other.
Success comes with a new set of challenges. Seeing more clients means extra work, and you can no longer wear “all the hats” in your practice. A backlog of emails and voicemails needs your attention, and so does insurance claims and administrative work.
Move Forward Virtual Assistants can help you move your business forward by providing virtual assistant services specifically tailored for mental health practices. Their virtual assistants work with therapists, psychologists, and psychiatrists. They have virtual assistants trained in Simple Practice, Therapy Notes, and TheraNest. They take the pain out of finding a trained mental health virtual assistant.
Meet Whitney Owens
Whitney is a licensed professional counselor and owns a growing group practice in Savannah, Georgia. Along with a wealth of experience managing a practice, she also has an extensive history working in a variety of clinical and religious settings, allowing her to specialize in consulting for faith-based practices and those wanting to connect with religious organizations.
Knowing the pains and difficulties surrounding building a private practice, she started this podcast to help clinicians start, grow, and scale a faith-based practice. She has learned how to start and grow a successful practice that adheres to her own faith and values. And as a private practice consultant, she has helped many clinicians do the same.
In This Podcast
- Difference between a 1099 and W2
- The switch from 1099 to W2 in Whitney’s practice
- Some of the issues Whitney faced with her contractors
- Why W2s have worked for Whitney & Alison
- Things to think about when considering which way to go
- Being involved
- Other factors when debating 1099 versus W2
- Whitney’s experience with the cost of turning her people into employees
Difference between a 1099 and W2
- 1099 is a contractor
- W2 is an employee
The switch from 1099 to W2 in Whitney’s practice
Ultimately I decided to do contractors beacause it sounded like the safest and easiest bet.
Within four months, Whitney had two contractors working for her. Contractors work very independently and Whitney didn’t feel that this was the direction she wanted to go in. She then started looking at hiring her first assistant but as the assistant would only be working for Whitney’s business, her attorney highly recommended making her a W2. This was scary for Whitney but her attorney broke it down for her and walked her through the steps. Having that help bringing in her first employee opened the door to the possibility of bringing clinicians on as employees.
Some of the issues Whitney faced with her contractors
- Documentation – Whitney felt that they weren’t doing the documenting well, weren’t writing all the calls down, weren’t completely filling out their progress notes, etc. You can’t tell a contractor how to do their job, that is their responsibility, but at the same time this was Whitney’s practice on the line. She didn’t feel like the work ethic was where she wanted it to be. Whitney has a very high standard and that is why her practice does so well.
- Punctuality – they would show up 10 minutes late to see a client, which is not okay. One of Whitney’s rules now is to be early.
- Disagreements of what is whose – She wanted it all to be part of her practice, she wanted a team effort in how they grow the business so that is why she made the transition.
Why W2s have worked for Whitney & Alison
- Created more of a team approach
- Not as easy for staff to leave when they are an employee
- The benefits i.e. paid time off, health insurance, etc. attract the right people which provides stability for the business as people see it as more of a long-term place to be.
Things to think about when considering which way to go
- How involved do you want to be?
- Do you want to be a practice owner that runs the business but a little bit more hands-off as far as what the clinicians are actually doing and what they’re offering and mentoring them?
- Do you want to be a lot more involved in that, do you want to mentor them and be offering a lot of services, a lot of opportunities for them?
You don’t want to meet with your employees when there’s only a problem.
When switching to employees, Alison didn’t want to change the culture too much, she made a conscious effort to preserve the culture that they already had. She is starting to become a little more directive with the clinical stuff but hasn’t made a dramatic shift.
Whitney is in the office three days a week so she doesn’t talk to her employees that often. She makes a point of setting up a staff meeting every other week to give everyone some face time together, go over administrative things, and possibly do some education on therapy techniques, marketing, etc. She also meets with her employees one-on-one once a month, going on the valuable advice she received, It’s important to also have policies and procedures in place that keep you informed of urgent matters with clients that the boss needs to know about.
Other factors when debating 1099 versus W2
- Having processes and systems in place are probably more important with W2s than with contractors because you have a higher responsibility there.
- Look at your geographical area to see how many therapists there are. If the area is saturated with therapists, it will be common for private practices to be set up with the contractor model. But, if there aren’t many therapists in the area and you’re having to be competitive with other employers, then you might consider going the W2 route.
- Consider the size practice that you want. If you’re wanting to stay small with five or six people then contractors would be fine. But, if you’re wanting to grow to ten/twelve clinicians or more, then you’re probably going to want to switch over employees.
- What are the laws in your state? Some states are friendly towards contractors but others, like California and New York, are not. Contact a lawyer who is familiar with small business and get advice on which way to go. This might end up making your decision for you.
- Depending on how your state board views licensed/provisionally licensed people, you might not be able to hire them as a contractor. If they can’t, technically, work independently then they cannot be an independent contractor so you would have to make them an employee.
Whitney’s experience with the cost of turning her people into employees
It was a little easier for Whitney as she has a cash pay practice. When the money comes it goes straight into the business so she can pay her people out in real-time. Ironically, her first W2’s interview was the same day that her last contractor quit. Her process wasn’t that difficult, she just felt like she was starting over with a clean slate. After hiring her first employee, the only things she had to pay that were different was (A) the liability insurance, (B) supplies – not that much, and (C) paying for the time she was training – a day or two to get her ready to see clients. Overall, the overheads weren’t that high so it was a lot easier for her to make the transition to W2 than she thought it was going to be.
Don’t be scared in private practice. We let fear really hold us back from our dreams, things that we want to do. And, I let that hold me back from the idea of having employees for a long time. Honestly, I let it hold me back from lots of things. So, just don’t let fear be the reason why you choose to do something, do something because you want to do it and because you’re excited about it and you know it’s the best direction for your practice.
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Meet Alison Pidgeon
Alison is a serial entrepreneur with four businesses, one of which is a 15 clinician group practice. She’s also a mom to three boys, wife, coffee drinker, and loves to travel. She started her practice in 2015 and, four years later, has two locations. With a specialization in women’s issues, the practices have made a positive impact on the community by offering different types of specialties not being offered anywhere else in the area.
Alison has been working with Practice of the Practice since 2016 and has helped over 70 therapist entrepreneurs start and grow their businesses, through mastermind groups and individual consulting.
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You’re listening to the Grow A Group Practice podcast. I’m your host, Alison Pidgeon. I am a group practice owner, business consultant and virtual assistant company owner. Today I am joined by Whitney Owens, my fellow Practice of the Practice business consultant. Every time that Whitney and I record a podcast, we always have a good time. So, I’m glad that she was willing to come on and talk with us today about 10-99s versus W-2s in group practice. If you’re not familiar with those terms, a 10-99 means a contractor and a W-2 means an employee. We always get lots of questions about this from folks who are starting up group practices and Whitney and I have both had each in our practices at different stages. And so, what’s cool is that we can share with you what our experiences have been, which have been somewhat similar but also somewhat different. And also let you know all of the ins and outs that we typically help our consulting clients think about when they’re making the decision between 10-99s and W-2s. So, without further delay, I present to you my discussion with Whitney Owens on 10-99s versus W-2s in group practice.
On the podcast with me today I have Whitney Owens, my friend and fellow business consultant for Practice of the Practice. She is also a group practice owner. She owns Water’s Edge Counseling in Savannah, Georgia. And I am really excited to have her on the podcast today. We have been working together for the past several months, and we always have fun. So, I’m glad that you decided to join me today, Whitney.[WHITNEY]:
Yes, it’s good to be with you. We do always have a pretty good time, not only when we’re together, but when we’re recording podcasts. This will be fun. [ALISON]:
Yeah, yeah. So, do you wanna fill in the blanks a little bit for people that may not be familiar with you? Just give us a little bit more information about your practice and what you’re doing with consulting. [WHITNEY]:
Yes. So, as you can probably already tell by my voice, I’m a southerner through and through. I am in Savannah, I actually was raised in South Georgia, Valdosta, which we call Titletown, USA, which I think is very humorous. We were given this award about 15 years ago from ESPN. So that’s Valdosta, Georgia for you. And I’ve been in Savannah now for five years. And I started the practice right when I moved here; was having a hard time getting a job here, actually, because Savannah is one of those towns, you got to know somebody to get somewhere. And I didn’t really know anybody, so I was not really going anywhere. So, I started my own practice, and it’s just… it just blossomed, like did really well. It took a few months to kind of get my name out there. But once people started hearing that I was doing good work with somebody, then that would go to somebody else, go like wildfire. And then I had my second baby during that time, and then I started a group practice at the beginning of 2018. So, it was about three years into the private practice in this location. I started out with two contractors in my first six months, and then made a transition to employees a little bit after that. And currently now there are six clinicians in the practice, and we actually just acquired some extra space. So, we’re really happy. We were six people in two offices, believe it or not, it was madness. And so now, we have five offices and the six of us. So, everyone’s very happy about having their space. [ALISON]:
Oh, nice. That’s always exciting to get new office space. [WHITNEY]:
Yeah, definitely. And then as far as the consulting I’ve been following Practice of the Practice for years and Joe Sanok, and his work, and then we developed a friendship and I told him I was thinking about doing some consulting specifically surrounding people with faith-based practices, because I saw that there was a need for that; when people are wanting to integrate their faith and how do I do that, not only appropriately in my counseling sessions, but how do I do that in a business way? How do I market myself to churches, stuff like that? And so, he hired me on and that’s what I’m doing with Practice of the Practice. It’s kind of my superpower. And then also, just like with Allison, helping people build their groups and answer the questions about building a private practice. So, I’ve been with Practice of the Practice now just for a few months but enjoying the work I’m doing. [ALISON]:
And you have a new podcast. [WHITNEY]:
Yes, yes. And I do have a podcast. It’s called Faith in Practice podcast. So, I’m really enjoying doing the podcasting. That was something I’d always wanted to do. So, I’m having a lot of fun. And some of the best parts is just the people you get to meet and the cool conversations you get to have. It’s a lot of great networking, for the podcast, and even beyond that; developing friendships and other leads for different things. [ALISON]:
Yeah, I’ve been having fun with just the interesting conversations that I’ve gotten to have as well. So yeah, that’s the part of it I’m enjoying. [WHITNEY]:
Yeah, I actually just went to Podfest down in Orlando last weekend and had such a good time and met some really cool people. And now I’m gonna have some of them on my podcast. So, it is so important that we get outside ourselves and go to conferences and meet people, for sure. [ALISON]:
Yeah, yeah, definitely. So the reason I had invited Whitney to come on the podcast today is because I wanted to talk about a question that we get asked all the time, which is, I want to start a group practice – do I hire contractors or 10-99s, as we sometimes call them, or do we hire employees, or sometimes called W-2 employees? So, I thought it’d be good to have Whitney on because she’s done both, I’ve done both. There’s definitely pros and cons. There’s a lot to consider. So, I thought it’d be cool for you all to hear Whitney’s perspective and my perspective. We have different size practices in different parts of the country; I take mostly insurance; Whitney is all self-pay. So, there’s a lot that goes into it. So, I thought we could do a deep dive today in talking about the whole 10-99 versus W-2 debate. So maybe we should start with you, Whitney, talking about I know you started out with contractors and at some point, switch over to W-2 employees. So, what was that whole process like for you? And what happened that made you want to switch over to employees? [WHITNEY]:
Yes, I’m so glad that we’re doing this deep dive because I was in the same place at the very beginning, so nervous about what to do. And ultimately, I decided to do contractors because it sounded like the safest and easiest bet. I already had someone’s sample contract to use as a format and had gotten that looked at by an attorney. So, it just seemed like the easy option. And I didn’t want so much liability and so much control at the time because I was honestly insecure as a business owner at the very beginning, trying to figure out what I was doing. So, I started with the contractors. The other part about that was, I felt like financially it was the easier option as well, which now I don’t necessarily think that but at the time, I felt like that was easier. So, I did the first contractor and she started filling up pretty quickly. And then I added a second one. So that actually happened within about four months.
And it went okay. I mean, the contractor route is a lot more independent in what they’re doing, and I didn’t feel like it was the direction I wanted to go with my practice because we were kind of together but we weren’t; we all were independent at the same time. And I started to see that as we grew and so then I was looking to hire my first assistant. And I reviewed with my attorney what I was wanting in an assistant. So even though there’s some great companies out there that offer virtual assistants and people that you can hire as contract assistants, but because she was only going to be working for my business, my attorney highly recommended I make her a W-2. And I’m like, aah, what’s a W-2? I don’t understand, this is so scary. That was really scary. But he broke it down for me and was like, we can do this. It’s super easy. Here’s how you’ll do it, and just walked me through the steps. I had an attorney, I mean an accountant, as well, walking me through the steps, and my assistant actually was my first employee. So, I feel like having that helped me kind of open the door to the possibility of bringing clinicians on as employees.[ALISON]:
Okay, yeah. So, I know I… you’re, certainly like, whatever your comfort level is with sharing all of this, but what were some of the issues? Because you and I have talked in mastermind groups and stuff about you were having some issues with the contractors and then you didn’t really have… you didn’t really like what was happening, but you didn’t have control because they were contractors. And I know that was sort of one of the big reasons why you ended up making the switch. [WHITNEY]:
Yes. So, some of the things that I was not happy about, for example, would be the documentation they were doing. You know, I didn’t feel like they were documenting very well, or they weren’t maybe writing all the calls they were having, or they weren’t completely filling out their progress notes. We’re actually paper charting, so you can kind of get away with not filling in all the blanks at the time. So, they were doing that and, you can’t tell a contractor how to do their job. They’re responsible for doing their job. But at the same time, here’s my practice on the line, like people know that you’re at my practice, and they don’t know the difference between a contractor and employee. They just know Water’s Edge Counseling. So, I didn’t feel like the work ethic was to where I wanted it to be. I am kind of a control freak. And you’ll figure that out as we go. And I am working on not being a control freak. But I have a very… [ALISON]:
I had no idea, Whitney. I had no idea. [WHITNEY]:
Yeah, I have a very high standard and that’s why our practice does so well. But I make that clear to people when I hire em. But anyway, so they just weren’t hitting the standards that I was really wanting. There were times they would show up 10 minutes late to see a client; that is not okay in my book. You better be 10 minutes early to see your clients. So that is one of the rules for my employees is that you have to be early. So, some of those things were happening. And we had some just disagreements about office space and furniture and what’s yours, what’s mine. And I was like, I am tired of this. This is all going to be part of the practice. And we’re all going to have a team effort in how we grow the business. And so, I made that transition because of that. [ALISON]:
Okay, yeah, that’s helpful. So, I will share a little bit about how I started out. I was doing contractors from the beginning. And the reason I had chosen to do it that way was because again, I was listening to Joe on his podcast, and that’s how he had done it. And I just thought, well, this seems like the easiest, low barrier to entry, way to hire people because it doesn’t cost much money upfront to bring in a contractor. You just have to have a really solid contract in place. And you can hit the ground running. So, I started out that way and actually for the first four years of the business, everybody was a contractor. I did get to the point where my admin person was, you know, working so much that they really did need to become a W-2 employee. But because I own the virtual assistant company, I was sort of like, they were like an employee of the virtual assistant company but working for the practice. So, then the W-2 stuff was staying over in the other business if that makes sense. And then I was paying the virtual assistant company for my assistant.
So, the reason I ended up making this switch is because in my area, there’s a general sort of shortage of mental health providers. And I just noticed that as soon as I got to 12 therapists, something would happen where somebody would quit and usually go to start their own practice. I hired somebody else to fill that spot, then somebody else would quit. It’s like I never could… I kept hitting that ceiling of 12, but I could never grow beyond that. And then I started looking at my recruitment efforts too. A lot of the feedback that I was getting when I was interviewing or reaching out to potential candidates was like, oh, I would love to come work for you, but I really need health insurance. And so, then I realized that was really holding me back as well from recruiting really good people. So, I decided to make the switch. And I started the process in September of 2019. And then we made the switch officially, like at the start of the year of 2020. And I would say, even just in the short amount of time that we made this switch, it’s been really positive for my business. I’ve had really good candidates apply, many more than I used to have. And then I also feel like the people that I do have now are more invested. They’re really happy now they have health insurance.
So, it’s been really positive for me. Again, maybe not for everybody, but just to kind of give you an overview of my experiences and how that all went. So I didn’t have as many of the issues that you’re bringing up, Whitney, in terms of not being happy with the way that they were doing certain things like, you know, those things came up here and there, but for the most part, like I was pretty happy with them being contractors. That worked pretty well for me, because I like being hands off. So that was okay, that I didn’t have as much like management over them. And I also had really great people – do have great people working for me. So yeah, yeah, I was just gonna say if the recruitment retention issue hadn’t been a problem, I probably wouldn’t have made the switch.[WHITNEY]:
Yeah, it’s been really good as far as the culture of the practice. I feel like once the clinicians started becoming W-2s, we created more of a team approach. Now we’ve been W-2 since… for like a year and a half now, and the contractors actually have all left. And I’ve only lost, knock on wood, one employee since then. Of six people I’ve hired in a year and a half, only one of them has left. So, it’s been really great because there is a lot of turnover. And it’s so much easier for them to leave when they already are a contractor. They already have their LLC, they already are, in essence, running their own business under you. And so, it’s so easy for them to just walk away, and when you have the employee, it’s a lot harder. You do all the marketing; you provide so much for them. They buy in a lot more to what you’re offering. [ALISON]:
Right. Yeah and I think that’s what was happening to me, like a lot of people were never self-employed before or contractors before and then they came into the practice and they’re like, oh, this looks easy. I could just go do this myself and make more money. And then they… it was easy for them to walk out the door because of course, then the majority of their clients would follow them. So, then they went, started their own practice, and it was like they instantly have a caseload. So, yeah, it was just way too easy for them to make that transition then into their own private practice. [WHITNEY]:
Yeah. And I found in private practice, it’s so hard, all the admin part, right. And if that’s not something that you’re really into, the business, the marketing, then joining a practice is awesome. And I wanted to have this practice where people could just walk on and I offered everything, you know, I had all the furniture, I did the liability, you know, I have their workmen’s comp, and I just have it all organized, so that they can just walk in and do the very thing they want to do. And then they actually get some benefits like, they get paid time off, which is not something that you get when you’re a solo practitioner or when you’re a contractor. And so being able to offer these things to make their job easy to let them do the very thing they want to do and not do the things they don’t want to do was really important to me. And so, having that W-2 model provided that more so than when I’d had contracts [ALISON]:
Yeah, and I don’t know if you provide health insurance, Whitney, but I feel like offering health insurance has been a big game changer for me. That’s super important to people, obviously. And so, the fact that I do have that and… I also was pleasantly surprised at the quality of the plan that I was able to get. And that it wasn’t, you know, astronomically expensive. So, I think, yeah, that was also a pretty big deal for me in terms of attracting the right people. But then also, I think it’s gonna provide a lot of stability for the business, like people see it now as more of a long-term place to be. [WHITNEY]:
That is so great. Yeah, this is not something that we offer quite yet, but it’s definitely somewhere I want to get to, so I might have to hire you out to consult me on that. [ALISON]:
I’m happy to do that. Um, so you know, we get this question all the time from people who are just starting group practices. Obviously, we were already into the process of having a group practice and then made the switch, but if somebody has not yet started the group and they’re debating this W-2 versus 10-99, what are some things that they should think about when they’re considering what direction to go? [WHITNEY]:
Yeah, great question. I think one of the main things is how involved do you want to be? Do you want to be a practice owner that runs the business but a little bit more hands off as far as what the clinicians are actually doing and what they’re offering and mentoring them? Or do you want to be a lot more involved in that, do you want to mentor them and be offering a lot of services, a lot of opportunities for them? I think that’s the most important part of thinking about your business model in W-2s versus contractors. [ALISON]:
Yeah, I definitely think, too, there’s probably a spectrum of like, how involved you could be, even clinically, even if you do have employees. I know for me with making the switch, because we had four years of them being contractors, I didn’t want to all of a sudden radically change the culture on them. And I actually like that they’re so independent. And I sort of operate from this, like, I’ll be there for you, if you need me, I’m your safety net, but I’m not going to be breathing down your neck to be checking up on you all the time. So, there’s many days, I’m not even in the office, but they know they can get ahold of me. And I think they appreciate that. So, I made a conscious effort, when we made the switch to preserve the culture that we had already established. I am becoming a little bit more directive with clinical stuff, but there wasn’t this sort of dramatic shift. So all that being said, I think, you know, you can… there is a spectrum there with how involved you want to be and how you want to interact with them as the boss, and all of that kind of stuff. [WHITNEY]:
Yeah, I think you’re bringing up a really great point. I’m the same way, Alison. I’m in the office like three days a week; two full days and a half day. And so, I’m not talking to them all that often. But if they have something they will reach out. The way I kind of set it up is I do a staff meeting every other week. And it at least gives everybody some face time together. Because if we didn’t all meet, they may never see one another, right? In between clients and office space and everything. And that’s the time that I can bring up some administrative things that we can review together, so they know that I’ve got this space or do some education on therapy techniques, or marketing or something like that. And then I meet one on one with each of them once a month. And that’s just extra bonus time for them to talk to me. And one thing, I actually think Joe might have said this at some point, but I took this information I thought was really valuable. You don’t want to meet with your employees when there’s only a problem. You don’t want to be in a situation where I’m like, hey, let’s go get coffee. And they’re like, well, we haven’t had coffee in four months, so what is going on here? Yeah, I want them to know that I’m always available and I felt like by making that meeting every month, that shows the value and that I care about them. And it gives them opportunity to talk about some things with their clients that I might need to know that maybe they wouldn’t have told me, regardless.
And then another part of the clinical piece is I just tell them, hey, if you want to stab something real quick, and you know, get some problem solving done on clinical stuff with a client, would love to do it. But I also make sure that they tell me about high risk situations. So those are the times as a boss that are difficult when I find out about a defect report or a client that’s suicidal and I made that decision because they’re all my liability. And so, I want to know what’s going on if something is going on to make sure that they’re handling it well.[ALISON]:
Right. So, it’s important to put those like policy and procedure type things in place so that they’re aware, like what are these things that are urgent that I need to come to the boss about? [WHITNEY]:
Most definitely. [ALISON]:
Yeah. So, what are some other factors that you need to think through if you’re debating 10-99s versus W-2s? [WHITNEY]:
Yeah, I mean, I think I did just bring up the most important one is how involved that you want to be in what you’re doing. I think having processes and systems in place, if that’s something that you enjoy doing, I think you have to have more in place with W-2s than you do with contractors, just because you have a higher responsibility there. You’re going to be doing more marketing and so you want to have a system for that. So, if you enjoy being the face of the company, I think that’s even more so important when you have employees than when you have contractors, what do you think, Alison? [ALISON]:
Yeah, I think too you got to look at what… in your geographical area, how many therapists are there? You know, if it’s super saturated with therapists, and it’s very common that private practices are set up with the contractor model, I think you’re probably going to be fine. But I think if you’re someone who’s in my situation where there aren’t that many therapists and you’re really having to be competitive with other employers, you might, you know, consider doing the W-2 route for that reason. So, I think that’s another important consideration. I think too, the size, how big you ultimately want the practice to be… the size of it. I think if you just want to have five or six people, and that’s as big as you want to get, then I think you probably could have contractors and it would be fine. But I think if you want to grow and ultimately be, you know, 10, 12 clinicians or more, you’re probably gonna have to switch over to employees.
And the other thing too, I wanted to say is, all of this really comes down to what your laws are in your state, because some states are very friendly towards contractors and others aren’t. We know from working with consulting clients that in the state of California, there’s almost no way you can hire contractors. Every California consulting client I’ve ever had has been told by a lawyer, you absolutely have to hire employees. So that’s probably the first road I would go down if I was debating what to do, I would just contact a lawyer who’s familiar with small business and familiar with the laws in your state and just say, hey, do you advise that I hire employees? Or can I hire contractors? And so that might just make your decision for you. I know to New York is another state that tends to be really strict about hiring employees, like there’s really almost no way you can hire contractors. So, definitely something to look into because again, it could just… the state may have already decided for you, so then you don’t need to think about it. You just know, oh, I’m in New York. I need to hire employees.[WHITNEY]:
That’s right. Yeah. And when I first started, that was the first thing I did was the attorney, and he specializes in employee law. And so, we were looking up at the very beginning, can a contractor be an unlicensed clinician or not? Because the first person I was hiring was someone that was only a few years… I don’t think she had her license yet, so I was concerned about that. And so, it’s really nice to have an attorney that you can really count on to look up all that stuff to make sure you’re not messing yourself up. [ALISON]:
Yeah, I think that’s the other important piece that a lot of people don’t realize is, depending on how your state board views on licensed people or provisionally licensed people, you may not be able to hire them as a contractor, you may have to hire them as an employee. So, for example, we were looking at hiring a postdoc a couple of years ago. So, this is somebody who has finished their doctoral degree and has to work for a year in order to become licensed. And my lawyer basically said, well, if she, can’t technically, be independent, if she can’t work independently because she has to be under the supervision of somebody to get licensed, well, then she can’t be an independent contractor. And so, because we were an independent contractor model at the time, I didn’t end up hiring her because my lawyer was advising me against that. So when you’re looking at like bringing on interns or an unlicensed person who may be wanting to come work for you, because they want to get their hours towards their license, like you definitely need to check that out too at the state board level, but also with your lawyer to make sure like, that’s all okay, you’re not or maybe it’s not okay. Did yours mention that at all? [WHITNEY]:
No, I mean, he advised me as far as the first two contractors, but once I made this transition to employees it made the whole licensing everything a lot easier. I actually have someone on staff who’s a clinical supervisor, at least in the state of Georgia, you have to get a special certification now, to be a clinical supervisor. It used to not be that way. It’s pretty new transition. And so, she does all the supervision for the clinicians who don’t have their license yet. And then I’m their director, which is a term that we have to use through the state. So that works very well. And so, I actually find the whole licensing part way easier having employees and I don’t have to worry so much about all that other stuff. [ALISON]:
Right. Okay. Yeah. And it varies so much state by state that you really just need to check that out. [WHITNEY]:
Yeah, so when you made the switch over to employees, who were some of the professionals that you consulted about what you needed to know, and how to make sure you were doing everything correctly? [WHITNEY] Yeah. So, at the time, I was in a mastermind with Practice of the Practice, and we had a really great Facebook group going that year. And we would all just kind of throw out our questions. And so, at some point, there were three or four of us that were all kind of like, oh, should we make this transition? I’m not really sure what’s going on. And so actually, Casey Compton at the time was like, oh, well I’ll get on a Zoom call with you guys, and let’s just talk through it. And she has employees and contractors or at least she did at the time at her practice. And she was really helpful in kind of setting a stage, things to consider. And I think that conversation was what really kind of tipped me over to hiring employees. And I just took that information to my attorney, and we reviewed that, but really, it was just that one conversation that I was like, okay, I’m gonna do this, because it just seemed so perfect with the model that I wanted for the practice. [ALISON]:
Nice. So, you went to your lawyer, and then did you consult anybody else like a CPA or an HR company or anything like that? [WHITNEY]:
Yeah, yeah. I mean, I definitely talked to my accountant, the same accountant that I had at the time, you know, since I started the business and said, hey, I think I’m gonna make this transition. And she said, oh, well, we can help you with that. And they actually have a payroll system as part of their practice. And so, she’s doing the accounting stuff, and then she’s got another lady that does all my payroll. So, it was really nice to have it all in one location. But I did review that with her, reviewed some pay and numbers just to make sure I was going good with that. And then I think it was about five or six months after the W-2s were all in place. So, I had three at that time. And she reviewed all the numbers with me, showing me what everybody was making and how much money the company was making off of each employee and what that all looked like. And so that was really helpful in those first few months to say, oh, this is working. It actually made my numbers better in the long run than when I had the contractors. [ALISON]:
Nice. That’s awesome. She sounds like a great accountant. [WHITNEY]:
Yeah, she is really good. [ALISON]:
So, what do you think? Was she able to attribute that to anything, the fact that you were making more money? [WHITNEY] The first thing she said when I sat down to review with her, she said Whitney, you hardly spend any money on meals and entertainment. And I was like, I guess, I mean, I guess I don’t really do a lot of like taking people out to lunch. I mean I probably do once or twice a month, but I guess a lot of businesses… because she does accounting for other small and big businesses. And so, she sees that often, I think one of the huge contributors is you bring the rate down that you’re paying them, right, because they’re employees, and so that helped. And honestly, I brought it down as much as I thought I could, but still make them feel like they’re making an income, right? So just to kind of give you an example. So, because I’m a cash pay practice, if they were to see someone who’s not licensed, that rate is $100. And that’s when they first come on board, you know, they haven’t gotten any raises yet or anything like that. And so, I’m paying them somewhere between $20 and $35 an hour, and that all depends on if they’re getting supervision at the practice or not. And I have a tiered system in the way I pay my employees. So, you hear those numbers. Let’s say it’s at 30. You hear that number and you’re like, wow, you’re only paying 30%. That can sound really low, I think, especially if they’ve been a contractor before. But when you think about the fact that someone who’s unlicensed, or newly licensed, is walking in, this is actually my unlicensed rate, is walking in and making 30 bucks an hour, you know, to see a client. That’s not bad. I mean, when I worked at the psychiatric hospital, I was making, you know, somewhere around 20 bucks an hour. So, this is better than that. I consulted a friend of mine, that’s a doctor and we took her salary and broke it down, cos I was just kind of curious, what does a doctor make? And she makes about that an hour; it might have been a little bit more, but I was thinking, I’m not gonna pay my people more than what a doctor makes. They’re not doctors. But then at the same time, I felt like it was a rate that made them feel good. And every person I’ve hired, especially unlicensed people, I pay my licensed people more than that. But the unlicensed people all say this has been really kind. This is very great, and they feel good about it. So, I really encourage my consultants: make that rate as low as you possibly can, and still feel like you can pay them well enough. Because you have so many expenses when you bring on those W-2s, all that stuff. I mean, think about the liability I pay for six people or, you know, all the supplies even, oh my gosh, the ink. The ink is expensive. You know, there’s so many things that we’re providing for them that you want to be really careful about that. I don’t know how I got on that tangent, but people… people ask me about rates all the time, so I thought I’d provide that information. [ALISON]:
Yeah, no, I’m glad you brought that up, because… Yeah, so a good rule of thumb is you should be paying your W-2 employees no more than like 45 to 50% of the reimbursement rate. And then, I think there’s a probably a lot more variability with what you pay contractors, but I was paying mine 60; it was a 60/40 split, they were getting 60. I think if you are an insurance-based practice, you probably can’t be more generous than 60/40 with contractors. Maybe if you’re self-pay could be a little bit more generous, but that’s what I found. But so much of that goes into what are your expenses, what’s your rate that you’re getting for counseling; it’s definitely something that I advise people, go ask an accountant about, because that’s a humongous decision to make in terms of paying people. And if you make the wrong decision, it could go… it can just ruin your whole business. I mean, you could be making no money. And if you’re making no money your business can’t survive. [WHITNEY]:
That’s right. And it’s like 50% of businesses fail in the first five years. And so, by having their rates low enough that I feel like I can take care of them, like I can offer them PTO, or I can… I pay for continuing education once a year, you know, all these types of things that I can do for them. We actually went to a Cure benefit dinner; it’s a group here in Savannah that helps children with cancer that we have a partnership with and so that dinner ended up being at least $1,000. But they didn’t have to pay anything. And they could just come for the dinner and enjoy themselves. But by working out a rate, that I’m able to put money into the business, I’m able to put more and invest more into them in a sense, [ALISON]:
Right. Yeah, definitely. Well, I’ll just share a little bit about the different professionals that I had to consult with to make the switchover because this is a question that I get asked a lot. So I ended up hiring an HR company that specializes in small business because they just knew so much about what I could do with them as employees, what I can’t do; they helped me write an employee handbook, which was really helpful. They made sure I had all the paperwork that they needed to fill out, so I was in compliance with everything. I ended up hiring a payroll company, obviously to run payroll, they also keep track of the PTO time. I talked to a health insurance broker who helped me find a plan. And that was all free because I’m assuming the insurance companies ended up paying him. So that was really nice to be able to, you know, ask an expert all those questions and not have to pay anything for it. And then obviously, I consulted my lawyer and my accountant, trying to think if there was anybody else that I ended up talking to, but it was kind of funny because what ended up happening was I was sort of like the conduit who was talking to all of those entities, but none of them were talking to each other. So, when I would go to the HR person and ask this question, and he would say, I’m not sure about that, go ask the health insurance broker. So I go ask the health insurance broker, and then he brings up something else I hadn’t thought of, and I’d be like, oh, yeah, I gotta ask the lawyer that and then I had to go over here and talk to a lawyer and it was like, bouncing around between all these people like a ping pong ball, just because it was like peeling back the layers of an onion and the deeper you got in, the more questions came up and then everything is sort of tangled up together. And you know, you have to kind of sort everything out.
So, it definitely was quite the project. And like I said, I gave myself about four months to sort everything out. I think it was probably a much bigger undertaking than what you did, Whitney, because at the time, I had like 12 or 13 clinicians. So, we had been pretty established and had grown quite big at that point. So, it was definitely more costly to make the switch. What I ended up doing was, because we did it over the, you know, the turn of the new year, so when they were contractors, I didn’t pay them until the money came into the practice. But what I did was I sort of pre-paid them right at the end of the year for all the sessions they had done in 2019 just to make it clean for tax purposes. And then starting you know, January 1, or it was actually December 30, because it was a Monday, they became W-2 employees. And so I was paying them ahead for what they had done in 2019, but then I was also sort of paying them ahead for what they had done in the first, you know, several weeks of 2020 because there’s always a lag time with, you know, submitting claims to insurance and getting that money back. So, I have to pay them in that pay period, whether or not now the money has come in from insurance. And so, I had to save up quite a bit of money to be able to prepay them for 2019 but also sort of prepay them for 2020. So if you if you already have an established group practice and you’re looking at making that switch, keep that in mind that you’re definitely gonna have to have money saved up to be able to manage that whole transition. How did you find it, Whitney, with the cost of turning your people into employees?[WHITNEY]:
Yeah, so I think it was a little easier than me in the sense of a cash-pay practice. So, when the money comes in the money goes right into the business and I can pay people out in real time, which is really nice. Ironically, the day that my first W-2 that I hired came in for her interview was the exact same day my last contractor quit. It was this ironic thing. And I was like, alright, I guess this is the direction I’m going in. And so, it really was not all that difficult. It just felt like I started again. I hear a lot of people in their first year of their practice, make a lot of mistakes, you’re figuring out what you want. And so, it’s kind of like it was a clean slate going into year number two as a group practice, and I felt like we’ve gone on a really good trajectory since then. So, when I added my first employee, really the only things that I had to pay for that were different, the liability insurance was a big one. Something to look and ask an employee attorney about is workman’s comp; at least in the state of Georgia I didn’t have to purchase that yet, because she was my third. I think it was when I hit my fourth person that I had to start paying for workman’s comp. So it was paying for her liability, paying for supplies, which really isn’t all that much, you know, as a therapist, and then paying for the time that she was training, which really was a day or two of training to get ready to start seeing clients. So, the overhead really wasn’t all that high because I was using the space I already had, and that kind of thing. So, it was a lot easier to make that transition to W-2 than I thought it was going to be. [ALISON]:
Okay, nice. Yeah. So very different situations, because you were just like, starting with that one person, whereas I was switching over 12 people. [WHITNEY]:
Yeah, I can’t imagine. That sounded like craziness. But it sounds like you’ve been very happy though, in the end with the transition you made. So, all that work paid off. [ALISON]:
Yeah, it was definitely a lot of work. And I think if I rewind five years ago, when I started the practice, if I had known I was gonna get this big, I probably just would have started out with W-2s like, definitely once I got into it, I’m like, oh, this isn’t so bad. [WHITNEY]:
Yeah, when you’re starting out, you’re like, wow, is the first person actually going to work? Or are they actually going to get clients? Or can I actually do this? So, you have so many questions. And then you get to our phases and you’re like, alright, we’re growing, we’re going. [ALISON]:
Yeah, yeah, exactly. Yeah. So, I hope that was helpful for everyone to hear my experience and Whitney’s experience. I really appreciate, Whitney, you taking the time to join me today. I feel like we covered a lot of bases on the 10-99 versus W-2 debate. What do you think? [WHITNEY]:
Oh, definitely. I was just thinking, once this goes live, I will be saving that link because I get this question from so many consultants. And so, this way I can say hey, here’s the link. You just listen to that and come back. And if you have more questions, I’ll answer them. [ALISON]:
Yes, that’s a great idea. I need to do that too. I need to upload it into my e-course. [WHITNEY]:
That would be wonderful. Yeah, yeah. [ALISON]:
Yeah, that’s a great idea. Well, any parting words of wisdom, Whitney? [WHITNEY]:
Yeah, I think my biggest parting word would be just don’t be scared in private practice. We let fear really hold us back from our dreams, things that we want to do. And I let that hold me back from the idea of having employees for a long time. Honestly, I let it hold me back from lots of things. So, just don’t let fear be the reason why you choose to do something, do something because you want to do it and because you’re excited about it and you know it’s the best direction for your practice. [ALISON]:
Yes, that is excellent advice. Thank you. Well, hopefully we’ll do another podcast together soon, because it’s always fun to have you on and I appreciate your perspective today. And I hope it was helpful for everybody. [WHITNEY]:
Well, thanks, Alison. It’s always good to chat with you and I’ll have to have you on my podcast as well. [ALISON]:
Oh, that’d be great. All right. Thanks, Whitney. [WHITNEY]:
So, I know that’s such a big topic and we always get lots of questions about that from consulting clients. So, I hope that illuminated some of the different little ins and outs of making the decision between 10-99s and W-2s. And I have a free resource that I wanted to share with you. So I have a free Facebook group called Practice of the Practice Group Practice Owners, but the initials are used in the title, so it’s POP Group Practice Owners, and it’s for anyone who is thinking of starting in group practice or is already a group practice owner and wants to get support and ideas from the group as well as from myself. I do try to post content in there on a pretty regular basis. As I’m learning things through my own practice, I will post it up there. And there’s always a good discussion among the participants as well. So, if that’s something you’re interested in joining, we would love to have you. Again, you can just look up POP Group Practice Owners. If for some reason you can’t find it, and you need me to send you the link, you can find me on Facebook under Alison Pidgeon, and I hope you have a great day. Thanks so much for listening.
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This podcast is designed to provide accurate and authoritative information in regard to the subject matter covered. This is given with the understanding that neither the host, Practice of the Practice, or the guests are providing legal, mental health, or other professional information. If you need a professional, you should find one.