Determining Contractor vs. Employee Classification
When Mental Health Therapists are Independent Contractors vs. Employees of a Solo or Group Practice:
Independent Contractor Status
Whether a mental health therapy practice will be considered a solo or group practice is based on specific criteria set forth in the IRS’s 20-factor test. While in most states, independent contractor status is decided by the IRS using a common law relationship test, whereby the IRS will analyze the nature of control the employer has over the mental health therapist, California has its own state test to determine if a mental health therapist is an employee or an independent contractor. California’s requirements for mental health therapist employment status are much stricter than the IRS’s 20-factor test and it examines whether or not the employer has the right to control how work is done and/or the end result of the assigned work. If it is determined that the therapist has employee status, California law will grant them greater rights than California labor law permits California independent contractors, including: In California, to determine if a mental health therapist is an independent contractor or employee , all of the following must be established: The primary factors are the right to control the details of work and the right to terminate the relationship. Other factors include whether there is a right to direct the details and means by which work is done, if the individual performs work that is outside the usual course of business of the employer, if the individual performs work without supervision, and the level of skill required to perform the work. Mental health therapist practices with mental health therapists should seek legal counsel in drafting independent contractor agreements so that they are compliant with all of the federal and state requirements. Failure to do so could results in misclassification of workers and liability in the courts and/or with the IRS and the California Department of Industrial Relations.
Employee Status
Because the U.S. Department of Labor and IRS consider "mental health care services" to include services provided by the following therapists, if your practice or organization employs any of these professionals instead of contracting with them to provide mental health care services, your mental health therapy employment arrangements with the therapists are not impacted by payer source and should be fine.
Essential Provisions in an Independent Contractor Agreement
An independent contractor agreement with a mental health therapist should address the following:
Scope of Work – The scope of work can take various forms. You may be asking the contractor to provide direct services with regard to patients/clients. Or you may be contracting for a licensed professional to provide consultation services (e.g., supervision) or even non-licensed services (e.g., day-to-day administrative support). In this regard, you may want to refer to the contractor either as a "practitioner" or "consultant" for purposes of the agreement.
Payment Terms – Compensation terms are usually straight forward and include a set fee or hourly base. If the therapist’s compensation is tied to collecting insurance or patient fees, the terms should make clear how and when payments will be made after the services have been provided.
Confidentiality – While independently contracted therapists are not contractually and ethically bound to maintain the confidentiality of patient information during the course of their provision of services (e.g., as in a Group Practice agreement), you should still include confidentiality covenants in the agreement. This is important in the event that the therapist receives confidential information regarding your Practice operations (e.g., procedures, operations, policies, relationships, or finances) in connection with working as a member of your team. Breaches of confidentiality can be treated as grounds for terminating the Agreement.
Fee Splits & Shared Data – The practical import of any fee split arrangement between the Independent Contractor and the Practice depends on whether the Contractor: Practice provides the indemnity under the first scenario and pays the licensing board costs back to the contractor. Under the second scenario, the contractor would remain independently liable to the licensing authority in the event of disciplinary action.
Compensation and Compliance with the Law
When delineating between an independent contractor and an employee, the IRS requires you to analyze the control the payer has over the worker. The more that the payer can dictate what, how, and where work is done, the more likely the worker is an employee ("Commonlaw Employee"). The IRS sets forth the following factors for determining if an independent contractor is actually an employee: Beyond the IRS requirements, states may impose their own laws when determining if a worker is an employee or independent contractor. Specifically, for mental health therapists, the California Business & Professions Code §2050-2079 "regulates the license and conduct of psychologists, marriage and family therapists, clinical social workers, and professional clinical counselors." California law says that individuals holding one of the above licenses can not share office space with non-therapist licensed professionals. Suppose you have licensed mental health therapists (as defined in California business code) on staff and a wellness program with non-therapists (like personal trainers, nutritionists, and personal development coaches). There is a risk when the wellness team members are the primary contact for patients-even if the contact is limited to "follow ups" under supervision of a therapist—and there is also a risk when the therapist and non-therapist licensed professionals work out of the same office and have common areas. Separating the physical office space and ensuring that the non-therapist licensed professionals do not contact or have access to patient charts may help reduce risks but there is no guarantee that the California Board of Psychology will not impose penalties.
Safeguarding Intellectual Property & Client Information
Independent contractor agreements between therapists and mental health professionals should include clear clauses that lay out ownership of intellectual property, confidentiality requirements, and data security. Ownership of documentation, creative works, and electronic files is one of the most common points of confusion in a dispute between a practice owner and an independent contractor therapist. So, for example, if the therapist created her own handouts, then those same handouts are very likely owned by the therapist. If, by contrast, the therapist had no ownership interests in the business, the operations handbooks and documentation are most likely owned by the business.
Another consideration is if the therapist worked with a supervisor at your practice. In many cases your documents and systems can be made available to the therapist under an appropriate license agreement, such that the license can terminate if the therapist contract terminates. Your agreements can set out terms by which the therapist may not use his or her own forms and that any notes belonging to your practice must be returned immediately upon termination.
Additionally, we recommend that your independent contractor agreements contain clear expectations relating to confidentiality and client information. At minimum, the mental health professional could waive any claims to ownership of files, notes, and information if that individual has not destroyed all copies of any files or documentation that he or she might otherwise own. Most therapists understand the importance of client confidentiality but it is best to have a clause stating that client information, notes, and materials may never be disclosed or used for any purpose outside of the therapist’s work for your practice/client.
Negotiation Strategies for Therapists
Elevated pay rates typically are the best negotiating chip, and one way that you can directly improve your pay is to obtain a larger portion of the client fee. If you’re working in a facility where each client is charged a set fee, this may prove more challenging. But if the clinic bills clients for a specific amount and takes a set percentage for reimbursement from insurance companies, for example, there’s often some room for negotiation.
You can also improve the situation by receiving payment on time. A few ways to increase the likelihood of being paid on time include: negotiating shorter billing cycles into your independent contractor agreement, not accepting new clients until you’ve been paid for present clients, refusing to counsel client until past-due fees have been paid .
Of course, the most successful bargaining chip in negotiating an independent contractor therapist agreement is the leverage of having other options. The frequency of mental health therapy therapists in your area will factor into your leverage, as will your specialization. If you have multiple opportunities to choose from, you may be able to negotiate for more of the client fee.
But you must make sure you’re ready to walk if negotiations prove unsuccessful. Otherwise, you won’t put the negotiating chips you hold to good use.
Pitfalls to Avoid
It is important to be aware of common pitfalls. For example, therapist-independent contractor agreements should provide clear standards for billing and collections, such as what happens to a delinquent insurance claim, and whether the therapist is authorized to collect outstanding balances. If an independent contractor’s agreement allows a practice to collect all outstanding balances directly from the patient, such a provision is ambiguous, and it should be clear that the therapist may not seek to collect directly from the patient. There must also be a mechanism for the practice to resolve disputes between a therapist and another independent contractor working at the same location.
Another common mistake is failing to include provisions regarding continuing education, professional development, and supervision. Failing to require continuing education may be a common practice of many small and mid-sized companies, but it is not advisable in the mental health field, where applicable continuing education requirements often must be documented, and Board inspectors will want to see that the relevant Board has approved the course work. Similarly, without requirements as to supervision, you may find yourself supervising someone much more seasoned and experienced than you. Be sure to negotiate a supervision fee that is appropriate. You should also specify what happens if the therapist does not need supervision. Is it negotiable? Do you get a raise?
Finally, make sure to include an arbitration provision that lists the specific steps that must be taken in order to obtain arbitration. These steps may include notice requirements, filing fees, and the time period by which a responding party must respond.
The Importance of Legal Counsel
It is critical to consult an attorney when drafting or reviewing these types of agreements. Your attorney will know the key areas of your contract that may set up independent contractor relationships for failure. Your attorney will help you put legal protections in place to adequately protect you and your practice from liability . This includes properly vetting independent contractors and preventing those contractors from negatively impacting your clients and practice. Your attorney will also know the pitfalls in drafting the agreement and avoid language that could jeopardize your independent contractor status as a business.