Physician Employment 2.0: Unveiling the Secret World of Employment Lite

This post was originally posted on KevinMD March 8, 2024

The video interview can watch at my blog post here.

Chance Meeting

In the fast-paced world of medicine, characterized by long hours, administrative burdens, and burnout, I'd like to share a story about an OB/GYN physician who discovered a path to professional freedom that revolutionized his career. Dr. B. A. had spent almost a decade working as a W-2 employee after finishing his residency. However, just before committing to a new contract with a substantial $500, 000 annual salary, he came across an alternative that would alter the course of his professional journey.

You see, he ran into a physician whom I had helped convert to an employment lite contract from their traditional employment. The physician was so thrilled about the return of autonomy and the financial benefits that he advised the OB/GYN to contact me to discuss things before signing the contract.

I am glad he did!

The Micro-Corporation & Employment Lite Revelation

After speaking with me in a micro-businesss consultation, Dr. B.A. discovered the concept of a virtual professional business entity called a micro-corporation. Unlike traditional employment, where physicians are bound by W-2 contracts, forming a micro-corporation provided him with the option to operate as an independent contractor via a 1099 contract. Here’s how it worked:

1. Micro-Corporation: Dr. B. A. established a professional micro-corporation through SimpliMD specifically for his professional services. This legal entity offered him various advantages, such as limited liability protection and tax benefits. It could be seen as a practice without physical walls, with Dr. B. A. as its sole employee. He could utilize it for his main job as well as for his side hustle involving contracted laborist shifts.

2. Employment Lite Contract: Instead of the typical W-2 arrangement, I advised Dr. B. A. to request that his prospective employer access their "hidden menu" of contracts and retrieve the professional services agreement file. By "hidden menu," I mean that every physician employer has multiple contractual templates to choose from, but they typically only present the traditional employee contract, which heavily favors them. You won't see any other options unless you specifically request them from their "hidden menu" list. Following this advice, the employer revealed the previously hidden professional services agreement files, and Dr. B. A. negotiated a more favorable employment lite contract. This contract allowed him to work as an independent contractor while still providing services to the hospital. "Employment Lite" is a hybrid employment model that mirrors most components of full employment without complete integration. Full employment represents the highest level of alignment between hospitals and physicians, while Employment Lite indicates a significant level of alignment that falls just short of full employment. This is formalized through a professional services agreement tailored to this arrangement. Under a PSA, a physician (or medical group) remains independent (i. e., not employed by the hospital) and offers professional services within the hospital or at a hospital clinic. Locums Tenens has been one of the more common PSA arrangements that healthcare employers use to tap into the professional services of doctors. Here is what employment lite looks like:

   

Expected Benefits

1. Tax Efficiency

Dr. B.A. discovered the power of forming a professional micro-corporation, a business structure that is tailored for physicians. By opting for an employment lite contract, he could unlock significant tax efficiency not available to W-2 workers. Deductions for business expenses, home office use, home business meeting rental, and retirement contributions promised a more efficient use of his hard-earned income.

• Self-Employment Tax: Dr. B. A., while working as a W-2 employee, covered his employee portions of Social Security and Medicare taxes. However, if he establishes a micro-corporation, he has the opportunity to significantly lessen his self-employment tax liability.

• Business Expenses: Dr. B.A. could deduct business-related expenses, such as malpractice insurance, CME, health insurance, and vehicle use/transportation. These deductions lowered his taxable income.

• Retirement Contributions: The micro-corporation allowed him to contribute more tax advantage dollars to his retirement accounts. Let’s explore this further.

2. Greater Retirement Savings

One of the most enticing aspects of the micro-corporation journey was the potential for significantly higher retirement savings. Dr. B.A. realized that the employment lite contract paved the way for generous contributions to a Solo 401(k) and other retirement vehicles such as a cash balance plan, propelling him towards financial freedom in the long run.

• Solo 401(k): Dr. B.A. set up a Solo 401(k) plan for his micro-corporation. In 2024, he could contribute up to $69,000 (including catch-up contributions) to this retirement account.

• Cash Balance Plan: The corporation can establish a cash balance plan, which is a defined benefit plan. Contributions are based on factors like age, income, and desired retirement benefit but can be as much as $345,000 annually.

3. Independence as a Contractor

Embracing the micro-corporation model meant embracing a new level of professional independence. No longer confined by the constraints of traditional employment, Dr. B.A. could negotiate terms that better suited his unique expertise and time commitments. The micro-corporation allowed him to operate as a contractor, cultivating a sense of autonomy and entrepreneurship.

• Professional Autonomy: Dr.B.A. enjoyed greater control over his work. He could choose what % of FTE he wanted with his primary job, negotiate terms, and even take on additional side gigs.

• Location Independence: With the micro-corporation, he wasn’t tied to a single hospital. He could work in various clinical settings, offering services where he preferred.

The Discovery of True Freedom

Dr. B. A.'s fateful decision to explore the micro-corporation wasn't just about financial gains – it was a quest for true professional freedom. As he signed the employment lite contract, the burden of traditional employment lifted, unveiling a new chapter of autonomy, tax savings, and higher retirement aspirations. Dr. B. A. had uncovered the secret world of Employment 2.0, which enabled him to thrive both professionally and financially.

I have had the same experience as Dr B.A. through my professional micro-corporation and employment lite contract. It is fantastic!

His story and mine shed light on a relatively hidden path for most doctors in the US. It’s my goal to expose this secret world and let you know that same opportunity exists for each of you!

Just like in this story, it's simply a matter of one doctor sharing their experience with another doctor who can benefit from it.

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