Tax forms. They're a headache for all, but can be a defining moment for MTs, signaling whether the documentation worker is an employee or an independent contractor (IC). Labor laws and tax requirements differ according to employment status-as do the perks. But as the industry subcontracts and MTs increasingly work from home, those lines are becoming less defined, and it all leaves the worker wondering: Where do I stand?

Employee Standards

The government has several tests to distinguish between employees and ICs, including the 20 common-law rules. Defined by the IRS, the rules relate to the degree of financial and behavioral control an employer holds, according to Scott Edelstein, partner, Squire, Sanders & Dempsey, Washington, DC, who counsels the transcription industry. The more an employer invests in the relationship and dictates the outcome of any product, the more likely the worker will be classified as an employee. On the other hand, workers who purchase their own equipment and determine when and how to transcribe are usually considered ICs.

For employees, the Department of Labor requires employers to pay minimum wage, plus overtime beyond the 40-hour work week. According to IRS guidelines, Social Security, Medicare and income taxes are withheld from employee paychecks, and employers pay into an unemployment tax.

But the employer-employee relationship goes beyond government regulations. Employees expect to get certain benefits, like paid time off and 401K retirement plans. It's what keeps them on board. "The big thing is health insurance-[MTs] will ask about that before they ask about other things," said Sherry Doggett, who manages MTs as director of the Health Alliance Corporate Transcription Services, Cincinnati.

In addition to a generous benefits package, the Health Alliance supplies MTs-many of whom work remotely-with a computer and pays for all software and Internet expenses, so employees have no out-of-pocket costs.

Perhaps most valuable in this economy, employee status provides a sense of job security. MTs get a steady (though production-based) paycheck and tend to be the last ones laid off, after contract-based MTs have been cut loose, Doggett said.

But that security comes with a trade-off. Employees have little say in scheduling and must abide by the employer's protocols. It follows the "behavioral control" part of IRS rules; employees are told when and how work should be done. Doggett's department requires employee-based MTs to work 8-hour days, but time can be flexed within a 12-hour period.

Karen Fox, CMT, AHDI-F, transcription and QA manager at MD-IT, Colorado Springs, CO, said employees are scheduled for specific days and times, which the company tracks through a time card. MTs are paid according to production, so the calculated hours ensure employees are making at least minimum wage. It's a benefit to MTs, but some still see clocking in and out as a nuisance.

"That is one pro to being an IC-no one can ask you for a schedule," said Fox, who previously worked as an IC.

Being Your Own Boss

According to government regulations, ICs determine when and how they want to work. The only thing clients can demand is a final product. "All ICs have to do is give a volume commitment and meet it on a regular basis," Fox said.

ICs and clients can negotiate specifics, like whether output is 24-hour turnaround or a monthly line count, or whether the IC should include patients' names on the documents. Clients often have pull because they can select which IC to work with, Fox noted, but ultimately, the IC can decide whether or not to work under the requested conditions.

ICs can also contract with as many clients as they want. In fact, it's part of "financial control" under IRS requirements. "You have to have more than one source of income to meet that IC guideline," Fox explained.

She advised ICs to follow the rule of thirds; divide work between at least three sources of income so you're not 100 percent vested in one client. That way, if one falls through, the other two can cover your finances. Fox, for example, split her time between private clients, subcontracting with a medical transcription service organization (MTSO) and teaching.

Being your own boss is a big investment, according to Fox. ICs buy their own tools, pay for health insurance and, come April 15, fork over a self-employment tax. Vacations can be a hassle, as ICs must secure coverage with a subcontractor or risk falling behind and missing deadlines.

"Independent" also means there's no guarantee assignments will be there when ICs need them. "If you decide to work early in the morning.there may or may not be the volume to withstand what you have committed to return to the client," she noted.

For that reason, ICs are often "aggressive," Fox said, scooping up assignments and cold calling offices to find new clients. Other ICs, like Fox, aren't the self-promotional type, so they may subcontract with MTSOs.

But that's where the line between employee and IC gets fuzzy.

Gray Matters

When the IRS defined common-law rules, they more likely had construction than transcription in mind, according to Fox. "You need somebody to build your fence, so you hire someone to do that. They bring their own tools and knowledge; they build your fence; you pay them; they go-that's a true IC relationship," she said. "In the transcription industry, I think we've blurred those lines a bit."

One of the biggest areas of confusion is "behavioral control" in subcontracting, according to Edelstein. MTSOs give ICs a more stable line of work, but they often lose say on line rate or method of output. "It's really the MTSO that's dictating the format, turnaround time and other things," he explained, which leans toward an employee relationship.

The company can also reassign work if an IC takes a vacation or gets sick, Fox noted. When MTSOs assume that responsibility for an MT's output, it's unclear where the IC relationship ends and employee status begins.

Another area of concern involves "financial control." According to IRS rules, ICs should have the tools and training necessary to complete any job, and foot any bills related to that equipment. Subcontracts, however, add some caveats. When Doggett's department works with ICs, the contracted MTs are given computers, which they can only use to complete assignments for her department. That arrangement wavers on employee status, according to Edelstein, because the employer, rather than the IC, is making the "substantial investment" in equipment. "But that's another factor that in itself is not determinative," Edelstein added. "You've got to look at the other tests as well."

Despite the equipment perk, subcontractors don't get benefits and can determine their own schedules, according to Doggett, which leans back toward IC status.

If that's not confusing enough, the lackluster economy may further complicate IRS rules. As employers cut budgets, some employees are seeing traditional perks-like health insurance and 401K-slashed. "In this economy, there are a lot of businesses that may or may not be able to offer those kinds of things anymore," Fox said.

To secure extra income, employees may start subcontracting on the side, and employers can't do much to stop them, according to Doggett. It blurs the fully vested vs. fully independent divide of "financial control," but as long as employees meet their obligations, employers usually don't complain.

Even payment methods seem to be flip-flopping; more transcription employees are being paid based on production, while some ICs are beginning to charge hourly rates.

So what ultimately determines employment status? Nothing-and everything. "It's hard to make a generalization about the entire industry," Edelstein said.

There's no single factor that makes an MT an employee or IC, but the overall relationship between the worker and the individual or company they serve. What's more important is that everyone's on the same page, Edelstein said.

If you're debating a switch in status, make sure to decide how much you're willing to invest and how much responsibility you'd like to take on. If you're simply befuddled about your current status, submit an SS-8 form to the IRS, Edelstein advised. The agency will look at the facts and issue an official determination of employment status. It's a way to navigate the confounding common-law rules, and ensures you'll get the perks, protections and payments you deserve.

Cheryl McEvoy is an assistant editor with ADVANCE.