Misclassifying Contracted Employees Puts Your Dental Practice at Risk

Misclassifying employees as independent contractors is a severe breach of law. While this has been true for some time, employers are facing increased scrutiny as state and federal agencies escalate efforts to address misclassification. 

Health care providers are not immune to this scrutiny, and misclassification can lead to serious repercussions, including penalties, fines and even legal action. Recently, a California dentist was ordered to pay a $10,000 penalty for violating the state’s workers’ compensation insurance mandate. 

It's essential for dentists to accurately classify their workers not only to comply with labor laws but to ensure they have the appropriate workers' compensation coverage in place.

The high risk of misclassification 

“Worker misclassification is a huge area of liability,” noted Ali Oromchian, JD, CEA of HR for Health, in a recent webinar for California Dental Association members. A study commissioned by the U.S. Department of Labor found that up to 30% of employers have misclassified at least one worker. 

The six greatest risks of misclassification are:

1. Legal penalties and fines. Misclassifying employees can result in legal penalties and fines imposed by state authorities. The federal government and many states now have strict laws and regulations governing worker classification, and failure to comply with these regulations can lead to significant financial penalties.
2. Liability for uninsured claims. If a worker gets injured or becomes ill at work — even if classified by the dental practice as an independent contractor — they may still be considered an employee by California labor laws, entitling them to compensation for medical expenses, lost wages and other benefits employees are entitled to through workers’ compensation. Therefore, they must be covered under your workers’ compensation policy.
3. Potential lawsuits. Misclassified employees may choose to take legal action against the dental practice to seek compensation for damages resulting from being improperly classified. This can lead to costly litigation, legal fees and damages if the employee's claim is successful.
4. Damage to reputation. Misclassifying employees can create distrust among employees, clients, and the community, leading to negative publicity and impacting the practice's ability to attract and retain talent and patients.
5. Audit and investigation. Incorrectly classifying employees can trigger audits and investigations by state agencies or the federal Division of Labor Standards Enforcement. These audits can result in further penalties, back payments and additional compliance requirements for the dental practice.
6. Loss of insurance coverage. Insurance providers may cancel or refuse to renew a policy if they discover misclassification of employees. This can leave the dental practice without adequate workers' compensation coverage, exposing it to greater financial risks in the event of employee injuries or accidents.

Dealing with the consequences of misclassification, including legal fees, fines and potential settlements can affect a practice's profitability and long-term sustainability.

Mitigating the risk of miscalculation 

The burden of responsibility is on dental practice owners to accurately classify their workers according to state laws and regulations. Working with legal counsel and insurance providers can help ensure compliance, minimize risks and protect the practice and its employees from the consequences of misclassification. 

TDIC is committed to helping policyholders manage the risk of misclassification. A local advisor can provide assistance before finalizing a policy to verify the classification of employees.

“We really go beyond what is standard in the insurance industry to protect dentists from being penalized by misclassification,” said Jack McKinney, vice president of sales and service at TDIC Insurance Solutions. “Our insurance advisors take the time during the application process to educate our clients to ensure they are informed to make a proper classification.”

During a workers’ compensation policy consultation, your advisor will ask you detailed questions about your employees. They use this information and multi-factor tests, such as the Borello, to evaluate the classification of workers. Additionally, they will provide you with information and resources to support your compliance with labor laws. 

The insurance industry standard requires policyholders to secure a certificate of insurance showing workers’ compensation coverage from each contracted employee. Without this certificate some carriers, including TDIC, will require the contractor to be included in employee payroll, which may increase the policy premium. 

Contracted employees pose a unique challenge when it comes to workers' compensation coverage. Properly classifying them is essential for dentists to maintain compliance with workers' compensation regulations, protect their employees and safeguard their practice from potential liabilities. Stay informed about employee classification laws and work closely with a trusted insurance provider to ensure you have the right coverage for your practice’s unique needs.