Dental hygienists are often underappreciated medical professionals whose existence is vital to any dental practice. However, some dental practices are classifying dental hygienists as independent dental contractors in their practices. There’s just one problem with this practice. It is almost always illegal.
The misclassification of dental hygienists as independent contractors has become a rising problem in the face of restrictions set by the Internal Revenue Service.
When individuals are hired as regular employees, they are given a W-4 tax form to fill out. This form establishes their tax bracket and how much is withheld from their paycheck for the IRS. When it comes to contract workers, they are instead issued W-9 forms and 1099 forms. Those individuals tend to have less to pay the IRS when tax season comes around.
However, numerous dental practices began to misclassify their hygienists as contractors and issued W-9 and 1099 forms rather than the W-2. This is especially common when hygienists are hired as temporary employees. This contract allows the employer to avoid paying out unemployment benefits when the position is terminated or paying out their share of the taxes when the season comes around.
This trick is wholly illegal and serves as a method of tax evasion that, for some time, has gone unpunished due to minimal effort inquiries by the IRS. However, the recent COVID-19 pandemic has resulted in a crackdown on financial scams, including the misclassification of workers.
To be clear: it’s not illegal to hire temporary workers as independent contractors, but it is, however, illegal to classify them that way for more than a short-term temporary position (very short-term – earning wages less than $600 in a year, so that situation is rare.) So clearly, for most hygienists, your practice must hire them as W-2 employees.
The 1099/W-2 misclassification situation benefits the employers looking to overcome IRS tax regulation while leaving hygienists without a job. The temporary positions are the easiest to misclassify, however, because they can be misattributed as contractor positions. IRS regulations state that dental hygienists are a Classification 1 position. Per the IRS website:
“People such as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers, or auctioneers who are in an independent trade, business, or profession in which they offer their services to the general public are generally independent contractors.”
“You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done).”
The working relationship at dental offices almost always involves the practice controlling the schedule and services provided by the dental hygienist. The misclassification of your employees might seem innocent enough, but it hurts the employee and puts your practice at risk. Such actions levy heavy penalties.
Fines and Penalties
Your practice might have previously hired contractors in this fashion and benefited from it. It might not be intentional; an accountant or advisor may recommend using independent contractors, either not knowing it’s illegal or willfully misleading you. However, as the crackdown on such fraudulent endeavors increases, the risks you take add up and threaten to close down your practice, as the penalties are severe.
To begin, the IRS has its own set of consequences levied against your practice even before law enforcement gets involved. There are three major IRS penalties:
- The IRS charges a fine of $50 for every W-2 form you failed to file on employees who did not legally qualify as contractors.
- The IRS charges a secondary fine equal to anywhere between 1.5% to 3% of the value of the employee’s wages.
- The IRS charges a final fine of 40% of the FICA taxes that were not withheld from the employee and up to 100% of the matching FICA taxes that were withheld.
The fines incurred are more than substantial enough to damage your practice’s financial standing severely. However, once law enforcement is contacted, you may become subject to class-action lawsuits from employees, criminal penalties of up to $1,000.00, and even a year of prison time if intentional misconduct is proven, followed by audits and compensation.
Between the financial penalties, the potential legal penalties, and the damage to reputation, committing tax fraud of this nature becomes a serious risk with equally severe consequences.
Dental hygienists of Michigan face misclassification by dental practices, and even honest practices are in danger of being culpable under poor management. All dental practices must comply with federal law, which means appropriately handling hiring and staffing.
If you need hygienists for your practice with the correct classification, you should consider contacting us at Peak Performers. Our goal is to ensure every dental practice operates on the right side of the law, with talented hygienists filling all of your needs.