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Associating as an Independent Contractor or Employee – Which is Better?

By November 7, 2023November 9th, 2023Employment Law

After dental school, most dentists begin their careers working as an associate for an established dental clinic. An associate dentist provides services in one of two ways:

  • as an Independent Contractor providing services for a Client or
  • as an Employee providing services for an Employer.

But what is the difference, and which option is best for you? This post will highlight some distinctions between the two working styles to help you decide.

Before we get into the details, it’s important to note that the Client or Employer doesn’t need to be a dentist. For example, a dentist may set up a corporation that hires the associate as an independent contractor or employee. To keep things simple, I will use the term Payor in this post to refer to a Client or Employer who is paying the associate for their services.

All Dental Associates

Let’s start by looking at some commonalities between associating as an independent contractor or an employee.

Agreements

Both independent contractors and employees provide their services according to an agreement with the Payor. This agreement may be a verbal discussion between the two parties or a formal written contract setting out all the terms of the associate’s engagement. The terms themselves will differ between an independent contractor and an employee, but in both cases, an agreement governs the relationship. While it’s true that verbal agreements are just as enforceable as written ones, it’s much easier to turn to a written agreement for direction in the event of a dispute.

Negotiations

Whether you are signing on as an employee or an independent contractor, every associate contract will have multiple terms and clauses to describe the nature of the working relationship and each party’s obligations to the other. Some are short and contain only things like the length of the contract and compensation details. In contrast, others can include details about all aspects of the associate’s contribution to the practice, such as patient relations, scheduling, team relations, record-keeping, and marketing.

No matter the complexity of the agreement, remember that when you are presented with a contract for your new position, you are permitted to review it before you sign it. And, if there is anything you don’t understand, you should ask the hiring dentist or get advice from a dental employment lawyer (like us here at DMC). Also, remember that you are allowed to ask for changes or negotiate the terms before signing.

Associating as an Independent Contractor

An associate practicing dentistry as an independent contractor is in business for themselves – they are not employees of the Payor, but neither do they own the dental practice. Instead, they typically sign a written contract with a Payor to provide dental services to patients. These independent contractor agreements have a few crucial differences from a standard employment agreement.

Autonomy

Independent contractors have greater autonomy than employees, generally including:

  • They control how they provide services.
  • They control when they provide services.
  • They may work for multiple Payors.
  • They are not integral to the Payor’s business but provide complementary services.
  • They own their tools of production (e.g. dental tools, equipment, supplies, etc.).

Income

As an independent contractor, an associate dentist can make a profit or incur losses. They are typically compensated based on a percentage of gross billings generated or collected minus certain expenses (e.g. laboratory fees).

Taxes

Associates working as independent contractors must pay their own taxes as business income rather than employment income. They must file and remit their income taxes but have the advantage of the ability to deduct reasonable business expenses incurred to generate that income.

For the Payor, this means they do not deduct, withhold, or remit income taxes, Canada Pension Plan (CPP) contributions, or Employment Insurance (EI) premiums when paying the associate independent contractor.

Termination

Because an independent contractor is not an employee, they generally do not benefit from the legislative protections of the Employment Standards Act, 2000 (ESA). Instead, independent contractor associates have various termination options. The Payor and the independent contractor can terminate their relationship according to the terms of the associate agreement they entered into. Since the ESA  does not apply, Payors who wish to terminate independent contractors have more flexibility and fewer obligations to the independent contractor.

Associating as an Employee

An associate who is an employee forms an integral part of the Payor’s business. While they usually also sign a contract with the Payor, they differ from independent contractors in several ways.

Autonomy

Employee associates have significantly less autonomy. The Payor has much more control over how the employee associate dentist provides services in terms of supervision, discipline, and training. Also, the associate employee:

  • receives a fixed salary.
  • doesn’t risk losing money in providing services.
  • generally does not work for anyone other than the Payor.
  • has a fixed schedule, typically determined by the Payor.
  • uses the Payor’s tools and equipment.

Income & Taxes

An associate dentist working as an employee provides services personally and earns employment income rather than business income. This imposes strict limits on what types of expenses they can deduct for income tax purposes.

On the other hand, the Payor is required to deduct, withhold, and remit income taxes, CPP contributions and EI premiums on behalf of the associate employee.

Liability

As an employee, the associate works through the Payor’s business when interacting with patients. As a result, their actions or omissions may lead to the Payor being vicariously liable for any harm caused to third parties.

Legislative Standards

Employee associates benefit from minimum standards legislation as well as common law. The ESA  imposes minimum obligations on the Payor concerning things like:

  • Maximum hours
  • Minimum pay
  • Minimum notice periods (for termination)
  • Vacation pay
  • Protected leaves of absence (i.e. parental leave)

Common law in Ontario requires the Payor to provide employees with reasonable notice, or payment in lieu thereof, if the Payor wants to terminate the associate dentist without cause (i.e. without the employee associate having done anything wrong).

Bottom Line

As you can see, both associating options have advantages and disadvantages. Which is best for you depends on your situation and career goals. So, before you sign an Associate Agreement, make sure that the terms actually reflect the style of worker you have decided to be. Because, regardless of what you call it, it’s the REALITY of the working relationship that counts! If your day-to-day looks like an employee’s, you are legally an employee – even if you want to be an independent contractor and have signed an “Independent Contractor Agreement”. Mischaracterizing your position can lead to future problems for you and the principal dentist.

If you have any questions, let DMC help you. Contact us if you need someone to review, revise or negotiate your new associate agreement. We are not only legal experts but have spent years working within the dental industry to understand the nuances and specific requirements necessary to meet your needs. Send us an email or call us directly at 416-443-9280.

The Content of this post is provided for informational purposes only. It is not intended to be legal, financial, tax, or other professional advice of any kind. You are advised to contact DMC (or other counsel) to seek specific legal advice concerning your individual situation.
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