What Is An Independent Contractor

Every medical transcriptionist (MT) should know that there is no simple definition of an independent contractor. A written contract is important, but the Internal Revenue Service also looks at what type of business relationship exists and who has the most control over financial aspects and work performance. Mistakes are costly. When you’re not sure, consider asking the IRS to decide.

The Internal Revenue Service

According to the IRS,“The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.”

That may seem straightforward, but things get complicated when you think about it in terms of medical transcription. Do the client’s account specifics control “how it will be done”? Is the client’s expectation of 1,000 lines a day from you control of “what will be done”?

There is no easy answer to such questions as these. The IRS looks at the entire relationship between an MT and the client, weighing things like:

- Who determines when, where and how the MT works
- How the MT is paid
- Who pays for business expenses
- Whether the MT’s services are available to the market or reserved for just one client
- How long the work relationship is to last

Not sure?

Medical transcriptionists working as an independent contractor are self-employed. Wages are set by contract, and the MT must file quarterly estimated tax payments as well as an income tax return. As an employee, an MT’s wages are subject to tax withholding. Labor and worker’s compensation laws also apply for employees.

When an employee is misclassified as an independent contractor, it’s expensive for everybody:

- Heavier tax burden for the MT
- MT must provide own insurance and other benefits
- Back taxes and penalties paid by employer
- Reimbursement of the worker for overtime and minimum wage.
- In some cases, worker’s compensation may also apply.

Whether an MT or a medical transcription company, if you’re not sure of the work status, consider asking the IRS to make a determination. You can do this by filing Form SS-8 (PDF). The process takes several months but it worth it, especially if there are many workers doing the medical transcription.

The IRS isn’t required to accept an independent contractor agreement as proof that an MT is not an employee. Instead, it will examine behavioral and financial factors, as well as the type of work relationship that exists. When in doubt, you can save a lot of money in the long run by asking the IRS to step in and decide whether an MT is an independent contractor or employee.

Note: This article first appeared at Yahoo Voices: http://voices.yahoo.com/what-independent-contractor-12642658.html in 2014