What are the payroll, tax, and compliance differences between direct physician pay models and traditional locum agencies?

Employment

Liz

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They pay physicians directly usually through their own agreed contract. So they may have duplicative efforts since the temps won't receive the same benefits. Another issue is that the reason they use locum companies is that the physicians are then contractors to the hospital but employees of the locum company—it shifts who pays the tax burden for FICA.

You're right in thinking that adding more employees can increase the workload for payroll departments, even if they already process payroll. In the traditional locum model, physicians are often considered independent contractors, which means the hospital doesn't have to pay certain taxes like FICA (Social Security and Medicare taxes) for them. They also don't cover benefits like healthcare and paid leave that come from the locum company.

If your model shifts these physicians to being direct employees of the hospital, the hospital would then be responsible for paying these taxes, which could indeed be around a 7.65% increase due to FICA contributions. This shift also means the hospital would need to handle more detailed payroll processing, including withholding taxes and potentially offering benefits, which can add complexity and cost to their operations.

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Question about locum companies and direct hospital-to-physician payroll and the differences.

Lexi, Chatbot

I understand that navigating locum companies and payroll can be confusing. Can you tell me if you are currently working with a locum company or considering one?

It's about a different business model that would compete with locum companies.

Lexi, Chatbot

Are you looking for information on how these payroll systems affect your taxes or benefits?

I'm looking for how our model would affect hospitals’ payroll departments because instead of the hospitals paying locum companies, they would pay physicians directly.

Lexi, Chatbot

Is there anything else the lawyer should know before I connect you? Rest assured they’ll be able to help with your payroll concerns.

Yes. Just that I'm working as a consultant for a startup that would compete with traditional locum agencies, and I'm trying to figure out what the exact math for the discount they could provide would be.

Liz

Hi there! My name is Liz and I’ve been an attorney for more than a decade, and I am here to assist with your legal concerns. So I can best help, would you also be providing short-term staffing?

No, it wouldn’t be. It would be like a matching site where physicians and hospitals can see each other's details for more transparency than locum companies provide, then connect directly. The hospital would pay the physician directly instead of paying a locum agency.

I’m wondering what the hospital payroll departments would say. I’m wondering if there’d be more complexity from a tax and compliance standpoint.

Liz

Thanks for sharing more about your business model. It sounds like an innovative approach! Could you let me know where you're based or where this startup will primarily operate? This can help in understanding any specific legal requirements or tax implications.

The founder is saying that these hospitals already pay physicians directly, so there would be “little if any” increase in their workload, and I’m thinking it's probably not that simple, but I can’t just call hospital payroll departments and ask them.

Liz

Well, part of it can be the issue of segregating the full-time and the temps for payroll.

How do you mean that temps wouldn’t be receiving the same benefits? So OK, the traditional model right now is that physicians work as contractors for the hospital? OK sorry, I’m just trying to understand this. I want to try to understand the actual math, so if we’re shifting the tax burden, is that maybe a 7% increase in what they’d be paying for tax?

And I’m wondering how much of an increase it would be when it comes to actually processing payroll, because I’m assuming that if I were to ask a payroll department, they wouldn’t say that just because they already process payroll doesn’t mean that adding more employees isn’t more work.

Liz

I’m trying to go through a facility agreement that I have received. I’m certainly not a lawyer. I’m working on the CPA now, but yeah, I mean I’m a little blind. How does this Ask a Lawyer work if I wanted to send you that agreement? Can I send a file through here? That’s just maybe a little more detailed than a chat. I’m also using color coding, so I don’t think that I could show you that in this chat.

I’m not asking for a re-draft. I guess I just have questions that are specific, so I guess I could break that down in this chat. I don’t know how limited this is though. Do I have you for an hour right now or something?

Liz

Unfortunately, the system doesn't allow files to be attached.

How would you say that I could confirm this math for at least a rough estimate of what their increased tax liability would be, as well as a list of what other potential increases there could be from a tax perspective?

And now if I’m thinking about all the additional increases when I’m going back to this founder, who’s saying that he can charge 10% while the locum companies are charging 35 to 50%, what I want to know is what is the actual net savings?

So it seems like I would need to look at payroll processing, tax liabilities. I can consider benefits, but it seems like in a lot of cases locum companies don’t provide benefits—but what else?

Liz

For the increased tax liability, it would usually be about 7% per new employee. There's also the value of sick leave, which as a contractor, the temps would not usually receive. The locum company handles all administration essentially for those employees, which means there's also not issues like wrongful termination etc.

Liz

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