Jonath athan an R R. Marti tin, C CPA Pat Patrick D D. Craig, - - PowerPoint PPT Presentation

Jonath athan an R

• R. Marti

tin, C CPA Pat Patrick D

• D. Craig,

g, J JD

Webinar Outline

 Preliminary Considerations  The Agreement  Ending the Relationship

What Every Practice Needs to Know About Hiring an Associate

 GOOD Re a sons for a n Assoc ia te :

• Ra pid g ro wth in pra c tic e
• Re duc tio n o f time / sc o pe
• Ne w sa te llite o ffic e (s)
• T

ra nsitio n pla nning

 BAD Re a sons for a n Assoc ia te :

• “Build it a nd the y will c o me ” me nta lity
• De ma nd>Ca pa c ity

(no t e ve ryo ne wo rks we ll with o the rs!)

 Pote ntia l Downside to Ha ving a n Assoc ia te :

• L

ike ly pa y-c ut

• An a dditio na l e mplo ye e to ma na g e
• Me nto ring re spo nsib ilitie s

• We b Site s

 Na tio na l / Sta te / L

• c a l

 Pro prie ta ry

• He a d Hunte rs
• Ne two rking



Re la tio nship F a ilure s: Why Do T he y Ha ppe n?

(1) Pe rsonality

 Ac id T

e st

 Pro fe ssio na l Asse ssme nt



Re la tio nship F a ilure s (c o ntinue d)

(2) Unfore se e n (3) Unfulfille d E xpe c tations

 F

ina nc ia l Outc o me s

 L

e g a l Arra ng e me nts

 Pro c e ss

E xpe c ting so me o ne to b uy the c o w whe n the y c a n g e t the milk fo r fre e !

SIT UAT ION: Buy-in F

• llo wing a n Asso c ia te ship
• 1 Ye a r a sso c ia te ship le a ding to b uy-in
• Se lle r ma de a n o ffe r tha t the b uye r c o uldn’ t re fuse :
• Dra stic a lly re duc e d purc ha se pric e
• Ab o ve ma rke t a sso c ia te c o mpe nsa tio n

PROBL E M:

• Why wo uld a b uye r ta ke o n the risk a nd re spo nsib ilitie s o f
• wne rship whe n the y’ re a lre a dy e a rning so muc h?

Ste pping o ve r do lla rs to pic k up pe nnie s!

SIT UAT ION: De la ye d Buy-Out b y E

xisting Asso c ia te

• 1 Ye a r a sso c ia te ship le a ding to sa le
• Bo th pa rtie s a g re e d to te rms a nd c o nditio ns in a dva nc e
• Asso c ia te ne ve r sig ne d a n e mplo yme nt a g re e me nt o r

c o ve na nt no t to c o mpe te

• Se lle r wa s in the ir mid 70s
• T

he pra c tic e wa s lo c a te d in a n unde rse rve d a re a

PROBL E M:

• Asso c ia te re a lize d the y c o uld o pe n up a lo c a tio n ne xt do o r

a t a sub sta ntia lly lo we r c o st

Ste pping o ve r do lla rs to pic k up pe nnie s!

(SCE NARIO 2)

SIT UAT ION: Pe rpe tua l Asso c ia te

• Asso c ia te ne ve r sig ne d a n e mplo yme nt a g re e me nt o r

c o ve na nt no t to c o mpe te

• Asso c ia te wo rke d in the pra c tic e fo r the ne xt 25 ye a rs a nd

b e c a me a sub sta ntia l pro duc e r

• Asso c ia te ha d no inte re st in o wne rship a nd wa s uninte re ste d

in o wne rship

PROBL E M:

• No o ne wo uld purc ha se the pra c tic e unle ss the a sso c ia te

sig ne d a c o ve na nt

What Every Practice Needs to Know About Hiring an Associate

 Should I have a written employment

agreement?

• Sets out type of relationship (employee vs.

independent contractor)

• Restrictive covenants are unenforceable unless they

are in writing

• Sets parties’ expectations regarding

 Compensation  Leave time  Benefits  etc.

 Having a written agreement (cont’d.)

• What if the associate is going to be:

 Part-time?  Short-term?

Rhonda da R Reception tionist t (Employee yee)

 Paid W-2 Wages  Provides services individually  Works only for practice/open-

ended basis

 Trained by practice  Supplies provided by practice  Paid by hour/salary  Practice controls method of

work and manner in which it is carried out

 Work schedule set by practice

Patti P ti Plumbe mber (Inde depe pende dent C t Contr tractor) tor)

 Issued 1099-MISC (if payments

exceed certain threshold)

 Provides services through

separate entity

 Has many clients/works on

“as-needed” basis

 Not trained by practice  Brings her own tools/supplies  Paid by the job  Practice pays for result  Appointment set by mutual

agreement

 Where does an associate fall between these

two?

• Depends on the situation

 Independent Contractor Relationship-

benefits to the practice

• No Payroll Taxes
• No Benefits
• Avoids other costs incidental to employment
• Vicarious Liability (respondeat superior)

 Independent Contractor Relationship- risk of

worker misclassification

• Worker Misclassification

 IRS Revenue Ruling 87-41(1987)

 20 factors

 Has evolved into evaluation of three aspects:

 Behavioral Control  Financial Control  Relationship of the Parties

• Potential Penalties

 Back payroll taxes, interest, penalties  Benefits (e.g. retirement plan contributions)

Independent Contractor Dos and Don'ts

 Do:

• Have a written agreement
• Have the associate use a separate legal entity
• Specify tools, equipment, supplies, etc. each party

will be responsible for

• Refer to the associate consistently as an

independent contractor in practice documents

• Set work schedule by “mutual agreement”
• Have associate indemnify the practice for any

payroll taxes and waive participation in benefit plans

Independent Contractor Dos and Don'ts (cont’d)

 Don’t:

• Treat similar workers differently
• Reimburse for business expenses
• Pay a yearly salary (use per diem or % compensation

instead)

• Give the practice too much control over method,

manner and means by which associate’s work is performed

 Bottom line:

• Treating an associate as an independent contractor

is a risk.

 Knowing the difference between independent contractors and employees allows you to take steps to mitigate that risk.

60% 2% 3% 35%

Assoc

• ciate's C

Col

• llecti

tion

• ns

Overhead Payroll Taxes Misc./Profit Total Compensation

 Pie Concept

• Overhead
• Payroll Taxes
• Misc. Costs/Profit
• Total Compensation

 Other Variations

• Lab Bills
• Production vs.

Collections

• Shifting Production

 Balancing What the Practice Can Afford with

Market Rates

• Market rates generally in the 30-35% of collections

range

 Variation in specialties with lower overhead rates

• Should you pay higher than market if you can afford

to do so?

 Who should be rewarded for low overhead rate?  Risks of compensation that is too high.  Can be used as recruiting tool in some instances.

 Compensation Structures

• Percentage of Collections/Production

 Draw

• Orthodontic associates

 Too difficult to calculate collections/production attributable to individual doctor  Generally paid a salary or fixed daily rate

• Oral Surgeon

 Typical to be paid salary plus incentive bonus after “break even point”

 Benefits

• Part of total compensation
• Benefits we see:

 Malpractice Insurance  Dues, licenses, and subscriptions  Continuing education allowance  Health insurance/HSA contributions  Retirement plan participation  Uniform allowance  Disability and/or life insurance  Moving expenses/signing bonus

 Restrictive Covenants

• With limited exceptions, a former associate is not

liable for soliciting patients of his or her former employer, or otherwise competing with his or her former employer, absent an enforceable contract prohibiting such behavior.

 What are restrictive covenants?

• Non-compete
• Non-solicitation
• Non-disclosure/Confidentiality

 Discussion is focused on restrictive covenants

in the employer-employee context

 Three most important things to remember

about the enforceability of restrictive covenants:

• Governed by state law, and law varies significantly

from state-to-state

• Considered by courts on a case-by-case basis
• Generally disfavored under the law

 General rule for enforceability is

“reasonableness”:

• Narrowly written to protect the employer’s

legitimate business interests

• Not unduly burdensome on the employee’s ability

to earn a living

• Do not violate public policy

 General rule for enforceability is

“reasonableness”:

• Na

Narrowly w written to to pr protect th the e empl ployer’s legi giti timate te b business i inte terests ts

 Is there a reason you need protection from this particular employee?  Is the scope of the covenant tied to what needs protecting (i.e. patient/referral base)?

• Not unduly burdensome on the employee’s ability

to earn a living

• Do not violate public policy

 General rule for enforceability is

“reasonableness”:

• Narrowly written to protect the employer’s

legitimate business interests

• Not

t undu duly b burde densom

• me o
• n the empl

ploy

• yee’s a

ability ty to ear earn a a living

 Does the covenant restrict arguably non-competitive activities?  Does the covenant prevent the associate from working in the larger metropolitan area?

• Do not violate public policy

 General rule for enforceability is

“reasonableness”:

• Narrowly written to protect the employer’s

legitimate business interests

• Not unduly burdensome on the employee’s ability

to earn a living

• Do n

not vio viola late p public p polic licy

 Especially relevant in healthcare industry, due to policy against restricting the public’s access to medical care

 Remedies for breach of restrictive covenants

• Injunction

 Court order prohibiting further breach

• Damages

 Lost profits  Role of liquidated damages clauses

 Other covenant-specific issues

• Assignability

 May affect ability to sell to third party

• Afterthought covenants

 Is continued employment adequate consideration?

• “Blue Penciling”

 Severing unenforceable provisions  Re-writing unenforceable provisions

 Other important terms to include in the

employment agreement

• Term and termination
• Sole employment
• Access to Patient Records
• Leave time
• Obligations regarding equipment, facilities,

instruments, etc.

• Dispute resolution
• Indemnification

What Every Practice Needs to Know About Hiring an Associate

 Signs of Trouble

• Document issues as they arise
• Re-familiarize yourself with the associate’s
• bligations under their written agreement

 pay particular attention to the termination section

• Avoid a knee-jerk reaction
• It is better to talk to an attorney before you need

them than after you do something you can’t take back

 For Cause vs. Without Cause

• Pay attention to how “cause” is defined in the

employment agreement

• Risk of litigation from associate (wrongful

termination, breach of contract, etc.)

• Effect on enforceability of restrictive covenants
• Unemployment benefits

 Handling the termination

• It’s natural to feel bad about the termination
• Comply with contractual obligations regarding

notice

• Be consistent
• Avoid apologizing or providing too much

information (“Why are you really terminating me?”)

• Have a plan for the logistics of the termination and

how it will be communicated with staff and referral sources

 Some “to-do” items when terminating an

associate:

• Have the employee turn over any practice property

in his/her possession and remove personal property from the office;

• Change passwords and access codes;
• Revoke any check writing authority/authority to
• rder supplies;

 Termination “to-do” items (cont’d):

• Handle payroll and benefit details such as:

 Paying remaining compensation owed to the associate;  Providing the appropriate health insurance forms for COBRA and state law continuation coverage;  Verifying the employee’s address (for final W-2 form);  Providing retirement plan termination materials, if the employee is a participant; and  Addressing malpractice insurance coverage

 Post-termination breach of restrictive

covenants

• Be careful to document
• Do not sit on your rights
• Contact attorney immediately

Jonathan R. Martin, CPA Roger K. Hill & Company Toll-Free: 877.306.9780 jonathan.martin@mcgillhillgroup.com Patrick D. Craig, JD McGill and Hassan, PA Phone: 704.424.5450 patrick.craig@mcgillhillgroup.com