How the Dynamex Ruling Affects Medical Corporations
Many California Professional Corporations and healthcare businesses are attempting to understand how the Dynamex ruling affects medical corporations in San Diego and across Southern California. A new opinion released by the California Supreme Court will have a profound affect upon medical providers, medical corporations, physician and dental practices, outpatient treatment centers and other healthcare related businesses across California and here in the San Diego area.
It is necessary to immediately review all business models which contract with physicians, dentists, nurses, medical technicians and other medical professionals who provide work to your entity as independent contractors. This applies to all entities with a physical presence in California or independent contractors who live and work in California or provide even temporary support to any entity in the state.
For example, many contracts between medical corporations or California professional corporations classify physicians and other medical professionals as an independent contractor. Earnings are reported to the worker on a 1099 (versus a W-2). Therefore, the California medical corporation or healthcare entity is not presently providing benefits or collecting payroll taxes, workers compensation, social security or unemployment. As a result, the Dynamex ruling affects medical corporations and healthcare businesses through the risk of misclassification of employees and the resulting substantial financial penalties and perhaps a risk to the viability of the underlying business itself.
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Click on the image to the left or here to view or download your free copy of “What You Need to Know about the Recent Dynamex Decision and the Classification of 1099 Workers and Independent Contractors.
What is the Dynamex Ruling?
The California Supreme Court recently issued an opinion which will have a profound impact on medical corporations who utilize independent contractors as part of their business strategy. The opinion, released April 30, 2018, in the case of Dynamex Operations West, Inc. v. Superior Court (often referred to simply as “Dynamex”) will force significant changes for many San Diego area physician practices, medical corporations and other healthcare providers.
A New Presumption of Employment and a New ABC Test for Independent Contractors
The Dynamex ruling affects medical corporations and all healthcare businesses in San Diego and across Southern California by establishing incredible new precedents in California employment law. One of the first and most important findings in the Dynamex opinion is the new presumption that any worker is an employee. This important distinction places the responsibility squarely upon the shoulders of your medical corporation or healthcare entity to prove a worker is in fact an independent contractor and not an employee.
The new ABC test established by the ruling will require that any entity or individual providing work to the independent contractor must prove:
- “that the worker is free from control and direction over performance of the work both under the contract and in fact.” and
- “that the work provided is outside the usual course of the medical business for which the work is performed,” and
- “that the worker is customarily engaged in an independently established trade, occupation or business.”
The second test above – “that the work provided is outside the usual course of the business for which the work is performed” -should raise an immediate alarm for medical corporations and healthcare entities who classify workers as independent contractors. Unless your company is dealing with a true independent – such as the Court’s examples of a plumber or electrician which have nothing to do with your healthcare business – you will not be able to get past this provisional test and justify classifying physicians and other medical professionals as independent contractors.
Even if you or your medical corporation or healthcare entity were to independently contract with an individual or another business entity with their own business license or contract with other businesses, outside of your direction and control, if the work performed under a contract with an independent contractor falls within the usual course of your own medical or healthcare related business or entity the worker must be classified as an “employee” and not an independent contractor for the purposes of a Wage Order. You must therefore collect all appropriate taxes and may be required to extend the same benefits offered to other employees of similar stature.
It’s Easy for the EDD, FTB and IRS to Identify and Target Your Medical Corporation or Healthcare Entity
The Dynamex ruling affects medical corporations and healthcare businesses by placing them in a substantial position of financial and business risk if independent contractors are determined to be misclassified employees. Tax agencies such as the IRS and FTB and other agencies such as the EDD simply have to use internal data mining to identify and target medical corporations and healthcare entities who provided 1099’s to independent contractors for an audit. The EDD regularly reviews or audits every California medical and healthcare employer searching for misclassification. It will be easy for them to identify your entity and pursue an investigation or audit.
A determination of misclassification from any of these agencies immediately exposes a medical corporation or healthcare entity to harsh civil penalties under California law. Your entity will be financially liable for the repayment of back income taxes, as well as “uncollected” Medicare, Social Security, Workers Compensation and Unemployment taxes.
The misclassification of “employees” as “independent contractors also exposes your healthcare related business or entity to individual lawsuits or class action lawsuits which seek compensation such as unpaid overtime and the monetary value of benefits which would have been provided if the independent contractor had been “properly classified as an employee” by your medical corporation or healthcare entity.
The financial risk and exposure for a medical business entity in California cannot be overstated and could risk the viability and survival of your company. Healthcare businesses much ensure they are compliant with all changes resulting from the Dynamex Opinion while protecting their relationship with existing workers and reducing future business and financial risks.
Contact Experienced Medical Corporation and Healthcare Business and Litigation Defense Attorneys
The risk of the Dynamex decision to your healthcare related business is immediate, substantial and could threaten the very survival of your company.
The Watkins Firm has served the San Diego and Southern California medical and healthcare business community for decades. We have the experience, expertise and healthcare related experience necessary to provide accurate insight into how the Dynamex ruling affects medical corporations and healthcare businesses like yours and help you come into immediate Dynamex compliance. We will help your company to evaluate present operational models, the potential impact of the Dynamex opinion and the development of new strategies to come into compliance with California’s new and existing employment laws and leverage cutting edge strategies to reduce exposure to class action arbitration and litigation.
We invite you to review the strong recommendations of our clients and the legal industry and contact the Watkins Firm or call 858-535-1511 for a free consultation or to schedule an appointment with one of our healthcare business and employment attorneys. Learn more about these important developments and how to protect your successful medical corporation or healthcare entity now and in the future.
The time to take action is now.