Group Therapy Practices & 1099 Contractors…New Laws Prompt Change

If you have a group therapy practice with 1099 contractors, you may be hearing the whispers that this business model is on its way out because of recent updates to federal employment law.

In January 2024, the Department of Labor (DOL) published new guidelines for independent contractors (aka 1099 workers). The new rules taking effect on March 11, 2024 pending they are implemented as planned.

Even though there are often many legal challenges that impact the actual implementation date, it’s important to understand the economic landscape and how these laws impact your business.

Why are Group Therapy Practices Impacted?

1099 roles are a common set-up for group therapy practices.  This model is a little different than a traditional business and reduces your liability as a business owner for the worker.  Recent changes to federal laws are threatening the ability to continue operating under this model. 

In this post, you’ll get a brief overview of the changes, how these changes may impact your group practice, and what options you have moving forward.

Let’s get to it!

Recap on what is happening?

The Department of Labor (DOL) published new guidelines for independent contractors (aka 1099 workers). 

Although, there are many theories about the reasons for these changes at the government level, it still creates a need to review your practices nevertheless.

If you have workers who are 1099 they need to pass revised guidelines known as an economic reality test.

These rules determine if a 1099 is truly an independent worker or if they should be classified as an employee instead.  

Let’s start with taking a look at what the recent past has told us about these law changes, and their relative impact.

Brief Employment Law Review

If you have been aware of the happenings at the federal level on Employment Law, it’s obvious that the idea of growing businesses on 1099 contractors is under fire and has been for several years.

It’s my personal belief that this has been the case since the last proposed rule changes to the Fair Labor Standards Act (FLSA) in 2021. 

The focus was to make sure workers were not being exploited by incorrect classification for the benefit of the business, and denied the rights and benefits of W-2 employment. 

Hypothetically, this change was prompted by the gig economy growth of Uber, DoorDash, and similar services.

Now, in 2024, the FLSA has published new guidelines and they are going to create major disruption for group therapy practices  with a 1099 contractor model. 

This will result in restructured operations and either updated contracts or making workers W-2 employees.

Additionally, there are many more requirements and costs for a business owner to monitor and comply with if they are classified as an employer.  Employees are afforded more rights at the state and federal level as a W-2 employee.

Since the announced changes, many industries have launched efforts to challenge these changes in court. Industries like transportation and freelancing organizations have already started coordinated efforts. 

Undoubtedly, there will be a period of transition to navigate, legal challenges may postpone enforcement.

It is never best practice to “hope” a law is challenged and overturned keeping the current working model in place.

A better approach is to prepare even if the implementation date isn’t certain.

Exploring Possible Options

Before we dive into possible solutions…a brief disclaimer: I’m not legal counsel, and none of this is legal advice.  

You should seek qualified counsel to review any changes you make to your business for legal compliance.  The options presented here are a high level overview.

In full disclosure, my personal decision was to completely overhaul business strategy and eliminate therapist contractors in my business.  I did this in 2022 because I was anticipating this exact moment!

Why I decided to switch? Because my experience as an Executive Director for a company that I didn’t own for over 10 years taught me the risks and costs of being an employer. 

I decided the risk vs reward wasn’t there for me, but everyone is different and some therapists choose to build teams as a way to grow.

For that reason, I am helping practice owners currently at a crossroads, to explore the options, and make informed choices for their businesses. 

Option #1:  Review & Restructure of 1099 Contracts

The first step is reviewing the current terms of your 1099 contracts and determining what areas need to be revised.

If you choose to keep your 1099 model, at the very least, you need to review the way your business operates to make sure your contractors would pass the economic reality test.

Things to consider…

• If you have unlicensed folks working under supervision, keeping them 1099 is likely not defensible and it’s pretty risky.  I’d seek legal advice.
• In the case that therapists are fully licensed and can be independent, it’s a matter of making sure your work structure and policies reflect the current rules.

Review this Fact Sheet from the DOL on the new requirements for contractors.  It is clear that there is nuance and that work culture and the way the business operates is just as important as what is listed in the contract.

If you think that your current set-up will pass the test, I’d recommend consulting with an employment law attorney, just to make sure you aren’t overlooking anything important.

After you’ve determined what needs to change, it is time to make sure the way you obtain clients and operate the business supports independent 1099 workers.  Not only document these actions, but actually enforce them.  

Option #2: Become an Employer

This is often a very scary idea for therapists!  As a whole, our way of structuring businesses is kinda strange compared to other professions.  

The standard of hiring a clinician with “percentage split”  and only paying them based on client contact has been a result of poor reimbursement and undervaluing of services rendered by mental health professionals.

This lack of value is a direct cost to the therapist because the margins make business difficult for owners.  It isn’t easy to offer competitive employment without scale or size when margins are thin.

With insurance companies focusing on capping rate reimbursements, auditing for clawbacks, and insisting on high documentation requirements, it’s a central reason why so many therapists are leaving insurance contracts entirely.  

If you choose the employer route, you have some work to do in preparation for that change.

When workers become W-2 employees you have more rules and regulations to follow both at the federal, state, and local levels as the employer. 

Things to consider…

• If you have unlicensed therapists or therapists under supervision you likely need to make them employees to be legally compliant.
• You probably need some new tools to manage your workforce including revised policies, standard operating procedures, new job descriptions, and a process to maintain compliance with employment laws.
• If you have both licensed and unlicensed therapists, you might explore a hybrid model with some therapists being employed W-2 and others contracted.

Finding Guidance and Next Steps

For better or worse, I believe the 1099 model of growing therapy practices is over as it currently exists, and it is time to adapt if you have a group practice with contractors.

Making sure your group practice is legally compliant is important even if the competition with larger agencies or services continues.  

The first step is seeking out some good legal advice in your geographic area.  In my geographic area (MN), Holt Law does a great job, and has a blog post on the topic and what to consider when deciding your next steps. 

Checking in with your Small Business Administration in your state can get you connected with helpful employment resources as well.

In addition, consider hiring an experienced business coach or consultant to help you implement systemic change in your business.

Summary

If you have a group therapy practice with 1099 contractors, don’t ignore upcoming changes to employment law effective March 11, 2024.  

Instead, review your options, seek legal counsel, and plan for necessary changes to ensure your business is legally compliant when the time comes.

If you need some support with these big changes, book a free consultation below.