It’s tempting to bring on a new provider, hygienist, or staff member as a “1099 contractor.” It’s simpler on paper, avoids payroll tax withholding, and skips benefits obligations. But whether someone is legally a contractor or an employee isn’t up to what you call them in a contract. It’s a factual question, and multiple government agencies (the IRS, the U.S. Department of Labor, and Florida’s own unemployment compensation system) each apply their own test to answer it. Getting it wrong can be expensive.
Why This Gets Practices in Trouble
Misclassification isn’t just a paperwork issue. If a worker you’ve treated as a contractor is later found to actually be an employee, you can be on the hook for:
- Back payroll taxes (both the employer and employee share), plus penalties and interest
- Unpaid overtime and minimum wage under the Fair Labor Standards Act
- Unemployment insurance contributions you should have been making
- Workers’ compensation exposure if the worker was injured on the job
- Employee benefits you should have offered, in some cases
Because multiple agencies can investigate independently, a single misclassified worker can trigger IRS, DOL, and state-level exposure all at once. And one agency’s finding often invites scrutiny from the others.
The Tests That Actually Apply
The IRS Common Law Test looks at three categories of facts, weighed together:
- Behavioral control: Does the practice control how, when, and where the work is done, or just the end result?
- Financial control: Who provides the equipment and supplies? Who bears the risk of profit or loss? How is the worker paid, with a flat contract rate, or with an hourly/salaried wage typical of employment?
- Type of relationship: Is there a written contract? Are benefits provided? Is the work ongoing and central to the practice’s core business, or a discrete, project-based engagement?
No single factor decides it. The IRS looks at the whole picture.
The Department of Labor’s “Economic Reality” Test (currently the operative federal wage-and-hour standard) asks a more pointed question: is the worker economically dependent on your practice for their livelihood, or genuinely in business for themselves? Relevant factors include the worker’s opportunity for profit or loss based on their own initiative, how much they’ve invested in their own equipment or facilities, the permanence of the relationship, and the degree of control your practice exercises over the work. Notably, what you call the relationship (even a signed agreement stating someone is an independent contractor) doesn’t control the outcome if the actual working relationship looks like employment.
Florida’s Own Standard
For state law purposes (like unemployment compensation), Florida generally applies a common-law-style control test similar to the IRS approach, rather than the stricter “ABC test” that states like California use. This makes Florida somewhat more workable for legitimate contractor relationships than some other states. But “more workable” doesn’t mean the analysis goes away.
Red Flags That Suggest Misclassification
If several of the following describe your relationship with a “contractor,” it’s worth a closer look:
- They work exclusively (or almost exclusively) for your practice
- You set their schedule and hours
- You provide the equipment, supplies, and workspace they use
- You supervise how the work gets done, not just the outcome
- The relationship has continued indefinitely, without a defined project or end date
- The work they do is central to your practice’s core services (e.g., a hygienist providing patient care in a dental office)
None of these alone is automatically disqualifying, but the more that apply, the more the relationship looks like employment regardless of what the contract says.
What This Looks Like in a Healthcare Practice
This issue comes up often with associate providers, per-diem clinicians, and specialists who split time across multiple practices. A physician who truly runs their own practice and simply provides services to yours on a contract basis, sets their own schedule, and bills independently looks very different, legally speaking, from a provider who works your hours, in your space, using your equipment, seeing only your patients.
What to Do About It
- Review your current 1099 relationships against the factors above, not just the contract label
- Document the reasoning behind each classification decision. If you’re ever audited, being able to show you considered the relevant factors matters
- Don’t rely on the worker’s preference. Even if a provider would rather be a 1099 contractor for tax reasons, that preference doesn’t change the legal analysis
- Watch for federal rule changes. The DOL’s independent contractor standard has shifted more than once in recent years, and a new rule was proposed again in 2026. What’s compliant today is worth re-checking periodically
Bottom Line
Classification isn’t a one-time decision you make when someone joins your practice. It’s a legal conclusion based on how the relationship actually works, and it’s worth revisiting as roles evolve. If you’re not sure whether your current contractor relationships would hold up to scrutiny, that’s a good problem to catch before an agency finds it for you.
If you’d like your provider or staff agreements reviewed for classification risk, we’re happy to help.
This article is for general informational purposes only and does not constitute legal or tax advice. Every practice’s situation is different, and the facts of your arrangement matter. Please contact our office to discuss your specific circumstances.