Protecting Your Mental Health Practice from Misclassification Risk: Why Business-to-Business Contracts Matter for 1099 NPs and Therapists

As a mental health practice, you may rely on independent contractors like nurse practitioners (NPs) and therapists to provide essential services. But, with the increasing scrutiny on worker classification, it’s critical to ensure that you are correctly categorizing these providers as independent contractors—especially when they are offering the primary services of your practice.

Misclassifying an employee as an independent contractor can expose your practice to legal and financial risks, including back taxes, fines, and penalties. So, how can you protect your mental health practice from this potential misclassification? The answer lies in business-to-business (B2B) contracts. Here's how these contracts help safeguard your practice while allowing you to engage 1099 NPs and therapists.

1. Clarifying the Independent Contractor Relationship

A well-structured B2B contract clearly defines the relationship between your practice and the NP or therapist as one of independent business entities. This is critical because it sets expectations and ensures that the contractor isn’t mistakenly treated as an employee.

The contract outlines that the NP or therapist is not just an individual working under your practice but rather a separate business entity providing services for your practice. This distinction is key in proving that they are an independent contractor rather than an employee.

2. Limiting Control Over the Work

One of the main factors that determine whether a worker is an employee or an independent contractor is the level of control the employer exerts over the worker. Employees are subject to your direct supervision, while independent contractors maintain control over their own methods and schedules.

In a B2B contract, your practice should avoid specifying how the NP or therapist performs their work. Instead, focus on the desired outcome—such as providing quality mental health services—without dictating how, when, or where they should perform their duties. This minimizes the risk of classification as an employee, where you would be expected to oversee their day-to-day tasks.

3. Avoiding Co-Employment Risk

Co-employment refers to a situation where a worker is considered employed by two entities—leading to potential legal complications. By using a B2B contract, you can establish that the contractor is working under their own business, not directly as your employee. This reduces the risk of co-employment claims.

B2B contracts also often include clauses stating that the contractor is free to provide services for other clients. This reinforces that the contractor is not working exclusively for your practice, which is a key feature of independent contractor relationships.

4. Establishing Independent Business Operations

A key aspect of the independent contractor classification is that the worker must be operating as a separate business entity. A B2B contract should require the NP or therapist to operate under their own business name, provide their own equipment, and maintain their own insurance and taxes.

This further differentiates them from employees, who are typically provided with tools, training, and benefits by the practice. By stipulating that the contractor handles their own business affairs, you reinforce the independent contractor relationship.

5. Protecting Your Practice from Misclassification Penalties

The IRS and state labor departments are vigilant about ensuring that businesses properly classify their workers. If an audit reveals that a contractor has been misclassified as an independent contractor when they should have been an employee, your practice could face costly penalties.

A B2B contract offers protection by clearly documenting the terms of the independent contractor relationship, helping to show that the worker meets the criteria for an independent contractor status. This proactive step helps safeguard your practice from misclassification risks.

6. Including Key Clauses in Your B2B Contracts

To ensure that your contracts effectively protect your practice from misclassification, there are several key clauses you should include:

• Independent Contractor Status: Clearly state that the NP or therapist is not an employee of your practice.

• Limited Control: Avoid specifying how the contractor performs their duties and focus on the desired results.

• Payment Terms: Outline payment based on the completion of services, not hourly wages or salaried compensation.

• Insurance and Taxes: Require the contractor to maintain their own insurance and assume responsibility for their taxes.

• Non-Exclusivity: Allow the contractor to work with other businesses, confirming their independent status.

Final Thoughts

Using business-to-business contracts is one of the best ways to protect your mental health practice from accidental misclassification when engaging 1099 NPs and therapists. These contracts establish a clear, legal distinction between your practice and the contractors you work with, helping to minimize the risk of costly misclassification penalties and audits.

By using a B2B contract, you can ensure that your independent contractors are recognized as business entities in their own right, while continuing to provide high-quality care to your clients.