As an ABA clinic owner, your employee classification strategy is likely the last thing on your mind, amidst concerns about client outcomes, staff satisfaction, and meeting funder requirements for reimbursement of services. However, in my experience consulting with ABA organizations across the US, I have noticed a startling trend in clinics leaning towards hiring contractors instead of employees. And who can blame them? According to the IRS, hiring an employee costs up to 30% more than hiring someone on as a contractor!
However, misclassification of your employees will cost your company in the long term. If your staff members have been misclassified, the fines and back taxes can be absolutely brutal, so in this blog, I’ll discuss how to determine whether your staff members are likely to need a employee (W2) or contractor (1099) employment classification in your ABA company.
Note: Please consult with an employment attorney in your state, as these recommendations are based on my interpretation of the IRS requirements as described here.
The IRS describes the considerations for employee vs. contractor in terms of three general categories – behavioral control, financial control, and relationship. Based on these areas, here are some questions to ask yourself:
- Do you tell your staff where and when to work? Do you tell them which software solutions to use (and provide them access to the software your company has purchased)?
- Do you provide instruction on how they are expected to work for your company? Do you dictate the procedures, assessments, and other strategies for completing their work?
- Do you provide regular performance evaluation related to their ongoing work?
- Do you provide them training on how to do their job? Do they complete ongoing training or attend conferences as required by the company?
- Does the company provide the equipment, stimuli, assessment kits, computers, software, or other materials for the worker to perform their job?
- Do you reimburse expenses they incur to complete their work for you?
- Do you control how much they get paid, how many hours they work, and ultimately control all of the profit/loss they experience?
- Do you restrict them from working for other providers or starting their own business that provides the same service that you are requiring of them?
- Do you pay them an hourly, weekly, monthly, or other regular wage, as opposed to a per-job or per-contract rate?
- Do you only require an employment contract, without supplemental expectations about the work to be performed and the duration under which the contract is active?
- Do you provide benefits like PTO, vacation, sick time, CE reimbursement, etc?
- Are your staff able/expected to work for you for an indefinite period of time? Do your employment contracts not stipulate an end date of the relationship?
- Is the work performed a key aspect of the regular ongoing business activities? Do they provide the primary service of your business?
If you have answered “yes” to ANY of the above questions, and you have staff members that are classified as 1099 contractors, you should be concerned and seek out legal advice. The level of practitioners does not matter, whether they are an RBT or a BCBA. If you’re still unclear, you can also let the IRS tell you how your employees should be classified using a form SS-8, available here. This may take up to 6 months to get a response, but it may be worth a shot to get confirmation.
You may be thinking, “I’m just a small business, the IRS won’t come after me!”, but because this is such a prevalent issue that impacts the wellbeing of staff, the IRS takes misclassification very seriously. If your workers are misclassified with the IRS, you will be liable for…
Fines and Back Taxes:
- $50 for each W2 that was not filed (1 per year per staff)
- 1.5% of each employees wages
- 40% of the employee’s past Social Security and Medicare taxes (what the employee would have owed)
- 100% of the employer’s matched Social Security and Medicate taxes (what the company should have been paying)
- Additional 0.5% of the unpaid taxes as a penalty, up to 25% of the total tax liability, “failure to pay taxes”
- The employee can claim costs for health insurance, overtime, retirement contributions, and everything else they should have been entitled to as a W2 employee
- Lawsuits for these issues to be remedies are very bad for client and staff relationships
- Criminal penalties are also possible if the IRS suspects fraudulent activity
So, what do you do if you think you have misclassified your RBTs or BCBAs? After confirming with an employment lawyer in your state, the IRS has a voluntary reclassification program that allows for you to reclassify with reduced penalties and fees for doing so. You can see the program here. Much better than a disgruntled employee reporting you later down the road, right?
Please take misclassification seriously. This practice is a detriment to our field and the wellbeing of employees, and is considered tax evasion. We have brought this to your attention in alignment with our mission: to improve the world at work, one behavior change agent at a time. Now that you know better, let’s do better.