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 o Re duc tio n o f time / sc o pe o Ne w sa te llite o ffic e (s) o T ra nsitio n pla nning o BAD Re a sons for a n Assoc ia te : “Build it a nd the y will c o me ” me nta lity o De ma nd>Ca pa c ity o (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 o An a dditio na l e mplo ye e to ma na g e o Me nto ring re spo nsib ilitie s o
◦ We b Site s Na tio na l / Sta te / L o 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 ! ION: Buy-in F o llo wing a n Asso c ia te ship SIT UAT 1 Ye a r a sso c ia te ship le a ding to b uy-in o Se lle r ma de a n o ffe r tha t the b uye r c o uldn’ t re fuse : o Dra stic a lly re duc e d purc ha se pric e o Ab o ve ma rke t a sso c ia te c o mpe nsa tio n o 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 o o 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! ION: De la ye d Buy-Out b y E xisting Asso c ia te SIT UAT 1 Ye a r a sso c ia te ship le a ding to sa le o Bo th pa rtie s a g re e d to te rms a nd c o nditio ns in a dva nc e o Asso c ia te ne ve r sig ne d a n e mplo yme nt a g re e me nt o r o c o ve na nt no t to c o mpe te Se lle r wa s in the ir mid 70s o T he pra c tic e wa s lo c a te d in a n unde rse rve d a re a o 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 o 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) ION: Pe rpe tua l Asso c ia te SIT UAT Asso c ia te ne ve r sig ne d a n e mplo yme nt a g re e me nt o r o 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 o 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 o 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 o 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 Patti P ti Plumbe mber (Employee yee) (Inde depe pende dent C t Contr tractor) tor) Paid W-2 Wages Issued 1099-MISC (if payments exceed certain threshold) Provides services individually Provides services through Works only for practice/open- separate entity ended basis Has many clients/works on Trained by practice “as-needed” basis Supplies provided by practice Not trained by practice Paid by hour/salary Brings her own tools/supplies Practice controls method of Paid by the job work and manner in which it is carried out Practice pays for result Work schedule set by practice 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.
Pie Concept Assoc ociate's C Col ollecti tion ons ◦ Overhead ◦ Payroll Taxes Overhead ◦ Misc. Costs/Profit ◦ Total Compensation Payroll Taxes 35% Other Variations 60% 3% Misc./Profit ◦ Lab Bills 2% Total ◦ Production vs. Compensation 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 ome o on the empl ploy oyee’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
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