Embracing Independence and Financial Freedom with 1099 Employment

This post originally was published in Dr. Incorporated March 13, 2023

In recent years, there has been a trend among some large corporations to hire workers as 1099 employees instead of as traditional W-2 employees. This shift was accelerated by the COVID-19 pandemic and the "Great Resignation," where over 100,000 physicians annually are choosing to leave their current jobs.

COVID Changed Things

“Covid has opened our eyes to the fact that there are different ways in which we can work,” said David Noel, a human resources executive at Scotiabank, a Toronto-based bank with 90,000 employees quoted in a recent New York Times article.

Indeed, COVID has given rise to the concept of the "1099 employee" in physician labor. This represents a compromise between doctors who value their autonomy as independent contractors and the reality of a job market increasingly dominated by large corporations seeking to hire them.

Over the last generation, doctors have moved en masse to traditional employment, leading to an incredible surge in physician burnout. The parallel trends of physician employment and burnout since the 1990s make it difficult to ignore the patterns as coincidental. As an insider, I know this is truly a cause-and-effect relationship.

Although burnout has multiple sources, the fundamental problem is that doctors can’t thrive when their professional autonomy is eroded by corporate control and micro-management.

The systemic solution to burnout involves restoring and preserving the professional autonomy of doctors.

The necessary systemic correction to restore physician autonomy shifts in the right direction most naturally when physicians engage with large corporations as 1099 workers (independent contractors) rather than as highly controlled W-2 workers (traditional employees).

Three Post-COVID Trends

The COVID-19 pandemic has resulted in various trends in physician labor, acting as catalysts to shift the proportion of W-2 workers to a growing number of 1099 workers.

The first COVID-related trend is the worsening of physician burnout under the tightened control of corporations responding to the economic and labor challenges of the pandemic. The effects of this are still reverberating within the physician workforce, as employers seek to cut costs by eliminating more expensive physician labor and restructuring compensation models. Collectively, this all adds up to corporations seeking ways to reduce physician labor expenses, while physicians are exploring creative alternatives to alleviate the burdens of employment. The most common responses include options such as reducing your FTE%, seeking better opportunities by changing jobs, or leaving the system altogether.

Secondly, due to COVID, a realization dawned on doctors as they discovered that their professional services can often be performed virtually. This has led to the acceleration of telehealth services and the proliferation of telehealth jobs that are highly suitable for independent contractors rather than traditional employees.

Finally, doctors observed thousands of both young and old people dying from the pandemic. This realization prompted them to prioritize their own well-being. Many came to understand that they couldn't rely on large corporations to ensure their overall balance and success in life. In fact, as mentioned earlier, many doctors found that their employers were not as benevolent as expected, as their jobs became sources of moral, emotional, or even physical harm.

The focus on self-care and mindfulness concerning the pressures of work has led to a shift towards part-time roles, side jobs offering greater life flexibility, and locum work providing more time off. These options help reduce work responsibilities, allowing you to dedicate more time to non-work interests. Achieving a better work-life balance is often easier as an independent contractor than as an employee.

Instead of simply cutting back on work hours, some individuals have taken this opportunity to break away from the traditional system and establish direct patient care models. This allows them to regain full control of their professional lives and foster a more personalized relationship with their patients. The COVID-19 pandemic has shown both physicians and patients that they can take charge of their healthcare.

Need For Alternative Employment Options

These trends have led physicians and corporations to recognize the need for alternative physician work-spaces beyond traditional full-time employment. As a result, physicians are increasingly working as independent contractors, self-employed owners of micro-corporations, and in various other individualized business arrangements. In response to these changing preferences, large corporate employers have had to accommodate the rise of the "1099 employee."

This adaptation of the physician labor menu options provides large corporations with several advantages over traditional employment. These include:

Advantages to Corporations

• Cost Savings: Hiring 1099 employees can be more cost-effective for a corporation, as they are not required to cover benefits, payroll taxes, and other expenses associated with traditional employees.

• Flexibility: 1099 employees offer corporations greater flexibility in hiring and firing. These workers can be hired for specific projects or tasks and can be released once the project is completed. Their contracts can also automatically renew for long-term or semi-permanent work arrangements.

• Reduced Liability: Hiring 1099 employees can also reduce the corporation’s liability, as these workers are considered independent contractors and are responsible for their own taxes and insurance.

With these advantages, the "1099 Employee" has emerged as a labor category for large corporations that dominate the physician job market in the US.

The benefits are not just for the employer, but also for the worker.

Advantages To You

The trend of 1099 workers has been largely driven by its flexibility, enabling you to work when and where you want, without any employer commitments.

There are several advantages for physicians to choose to be 1099 employees, including:

• Greater flexibility: As a 1099 employee, you have greater control over your work schedule and are not required to participate in all the additional time commitments associated with corporate citizenship. You can also choose to cultivate business-to-business relationships through a combination of part-time and side work that aligns better with your desired work-life balance.

• More tax deductions: Independent contractors can deduct many expenses that employees cannot, including home office expenses, equipment purchases, travel expenses, CME, auto expenses, and other fringe benefit programs. By implementing wise micro-business structuring, professionals have the potential to retain 10-15% more of their high-income earnings compared to W-2 physicians. Ultimately, working smarter rather than harder is a more effective way to increase household income than simply earning more.

• Higher earnings potential: Independent contractors often earn more money than employees because they can negotiate their own rates and work with multiple clients simultaneously. However, if you engage in a long-term contracting relationship through a structure like employment lite, your compensation matrix or formula will likely be similar to that of your W-2 peers.

• Individualized benefits: Although not having access to benefits like health insurance and retirement plans may initially appear as a disadvantage, it can actually offer more flexibility and autonomy. Independent contractors also have the advantage of being able to deduct the cost of their own benefits from their taxes. This can be particularly beneficial for professionals like physicians, especially when considering larger retirement options such as a cash balance plan.

• Opportunity- Independent contractors are often hired for specific projects, offering opportunities to learn new skills and gain valuable experience. Whether you are talking about your primary job or your side jobs, you have the chance to explore your professional preferences and expand your skills across various roles. Diversity is the spice of life.

In general, being a 1099 employee offers greater freedom, flexibility, and earning potential. However, it also entails greater responsibility for managing your own taxes and benefits.

"1099 employees" have emerged as the modern workplace has evolved, with the benefits of long-term independent contracting becoming clearer to both individual workers and corporations.

If you are currently doing any type of 1099 work, contact me to find how a micro-corporation can benefit you, the $99 business consultation will be well worth it and could save you thousands in taxes.