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The 1099 Trap That Could Bankrupt Your Home Health Agency · The Home Health & Hospice Profitability Podcast

• 0:02
  SPEAKER_01: Every home health and hospice owner knows the feeling.
• 0:05
  SPEAKER_01: Since this is us, the team is working harder than it ever has, and the margin still isn't there.
• 0:10
  SPEAKER_01: Your host has spent a career finding out why.
• 0:13
  SPEAKER_01: Doug Walters is a CPA with a master's degree in taxation, and before that, a home health agency owner himself.
• 0:20
  SPEAKER_01: So he's lived the problem before he built a career solving it.
• 0:24
  SPEAKER_01: He founded Walters and Associates in 1999, and the firm has since served more than a thousand home health and hospice providers nationwide.
• 0:34
  SPEAKER_01: Medicare and Medicaid cost reports, hospice cap, outsourced CFO work, and hex.
• 0:40
  SPEAKER_01: It anchors the Walters Family Companies alongside Walters Billing Solutions, running revenue cycle and denials management for agencies, and Walters Strategic Advisors managing wealth for the owners who built them.
• 0:54
  SPEAKER_01: Three companies, one obsession.
• 0:56
  SPEAKER_01: The profitability of home health and hospice.
• 0:59
  SPEAKER_01: Here's Doug Walters.
• 1:00
  SPEAKER_00: Welcome back to the Home Health and Hospice Profitability Podcast.
• 1:04
  SPEAKER_00: You know, I get a lot of questions on 1099 versus W 2 employees, 1099 being an independent contractor.
• 1:10
  SPEAKER_00: So today we're going to talk about the 1099 trap, and I hope you find this helpful.
• 1:15
  SPEAKER_00: A staffing company put a non-compete clause in its nurse contracts.
• 1:18
  SPEAKER_00: Pretty standard stuff.
• 1:20
  SPEAKER_00: You don't want to train someone up and then hand nurse your referral relationships.
• 1:24
  SPEAKER_00: A federal court read that clause and used it to prove those nurses were employees.
• 1:28
  SPEAKER_00: Not the schedules, not the training, not the 1099s.
• 1:33
  SPEAKER_00: The clause a whole company's own attorney wrote to protect the business.
• 1:37
  SPEAKER_00: The judgment was over$9 million, covering about 1,100 nurses.
• 1:41
  SPEAKER_00: Here's what I wanted you to walk out of this episode with.
• 1:43
  SPEAKER_00: In a worker classification fight, the things you did to protect yourself become the evidence against you.
• 1:49
  SPEAKER_00: That's the irony.
• 1:50
  SPEAKER_00: That's how it works.
• 1:51
  SPEAKER_00: Once you see it, I hope it helps you determine if you need to make any changes moving forward.
• 1:56
  SPEAKER_00: Let me tell you why this catches good operators, because it isn't carelessness.
• 2:00
  SPEAKER_00: It's that nothing happens.
• 2:01
  SPEAKER_00: You classify someone as a contractor and for three years, four years, nothing happens.
• 2:06
  SPEAKER_00: No letter.
• 2:07
  SPEAKER_00: Life goes on.
• 2:08
  SPEAKER_00: No call.
• 2:09
  SPEAKER_00: The arrangement just works.
• 2:10
  SPEAKER_00: The nurse is happy, your Saturdays are covered, and every quarter that goes by, it feels like more proof that you get it right.
• 2:18
  SPEAKER_00: That's the trap.
• 2:19
  SPEAKER_00: The silence isn't safety.
• 2:20
  SPEAKER_00: It's the meter running.
• 2:22
  SPEAKER_00: And when it finally shows up, it doesn't come as one bill, it comes as four.
• 2:26
  SPEAKER_00: First, overtime, going back years and then doubled.
• 2:29
  SPEAKER_00: Second, back taxes with interest and penalties for every worker and every year.
• 2:33
  SPEAKER_00: Third, your state widening back employment tax for its own penalties on top.
• 2:37
  SPEAKER_00: And the fourth one nobody thinks about until it happens.
• 2:40
  SPEAKER_00: A contractor falls on the stairs in a patient's home.
• 2:44
  SPEAKER_00: He isn't your worker's comp.
• 2:45
  SPEAKER_00: Now what?
• 2:46
  SPEAKER_00: Before we go further, let me put some simple numbers on why nobody does this in the first place.
• 2:51
  SPEAKER_00: The pull toward a 10 and 9 is real money, and you can think clearly about the risk until you've seen the reward.
• 2:58
  SPEAKER_00: Start with payroll taxes because a lot of owners never even had it laid out.
• 3:02
  SPEAKER_00: An of W-2 employee, Social Security and Medicare get split down the middle.
• 3:06
  SPEAKER_00: You pay about 7.5% on top of the wage.
• 3:09
  SPEAKER_00: The employee pays the same 7.5% on their check.
• 3:12
  SPEAKER_00: Put them together and that's about 15%.
• 3:15
  SPEAKER_00: Now let me run one aid through it and I'll keep the same person for the rest of this.
• 3:20
  SPEAKER_00: 48 hours a week.
• 3:21
  SPEAKER_00: Let's assume they work that much.
• 3:23
  SPEAKER_00: $25 an hour, 50 weeks a year.
• 3:26
  SPEAKER_00: Made up numbers, but they're easy ones.
• 3:28
  SPEAKER_00: Pay that aid as a contractor at straight time and it costs you$60,000.
• 3:32
  SPEAKER_00: That's the whole bill.
• 3:33
  SPEAKER_00: There's no other taxes on top of that.
• 3:35
  SPEAKER_00: There's no workers' comp.
• 3:36
  SPEAKER_00: Now put that same aid on the W-2, some 48 hours.
• 3:40
  SPEAKER_00: Eight of those hours are overtime now, a time and a half.
• 3:43
  SPEAKER_00: That adds about$5,000 to the paycheck.
• 3:46
  SPEAKER_00: Your share of Social Security and Medicare adds about another$5,000.
• 3:49
  SPEAKER_00: So that's$10,000 a year or more on one aid.
• 3:53
  SPEAKER_00: And that's before workers' comp, that's before state employment unemployment and whatever benefits you offer.
• 3:58
  SPEAKER_00: So if you have 20 aids and you're you're now you're past$200,000.
• 4:02
  SPEAKER_00: So now you know why that is tempting.
• 4:04
  SPEAKER_00: And I won't insult you by pretending it isn't.
• 4:06
  SPEAKER_00: But look at what the$10,000 is made of, because that's the part that matters.
• 4:10
  SPEAKER_00: Half of its payroll taxes, half of it's overtime.
• 4:13
  SPEAKER_00: And those two halves behave very differently when somebody comes looking.
• 4:17
  SPEAKER_00: The payroll tax gets recalculated, the overtime gets doubled.
• 4:21
  SPEAKER_00: Go back to that$9 million judgment.
• 4:23
  SPEAKER_00: About half of it was unpaid overtime.
• 4:25
  SPEAKER_00: The other half was the court doubling it.
• 4:27
  SPEAKER_00: Payroll tax wasn't even part of the case.
• 4:30
  SPEAKER_00: So everybody worries about the payroll tax.
• 4:32
  SPEAKER_00: The overtime is what actually took the company down.
• 4:35
  SPEAKER_00: One more piece.
• 4:36
  SPEAKER_00: When you move someone to a 29, where does your 7.5% go?
• 4:40
  SPEAKER_00: It goes to the worker.
• 4:41
  SPEAKER_00: A self-employed person pays both halves.
• 4:43
  SPEAKER_00: That's self-employment tax, about 15%, 15.3% to be exact.
• 4:47
  SPEAKER_00: On the aides,$60,000, that's about$9,000.
• 4:51
  SPEAKER_00: As your W-2 employee, the age share would be would have been about$4,500.
• 4:55
  SPEAKER_00: So the eight earned$4,500 less and paid about$3,500 more in tax.
• 5:00
  SPEAKER_00: The money didn't disappear, it just moved.
• 5:02
  SPEAKER_00: And it moved into the person least able to carry it.
• 5:05
  SPEAKER_00: And here's the piece most owners never think about.
• 5:07
  SPEAKER_00: On a W-2 tax, it comes out every paycheck.
• 5:10
  SPEAKER_00: Income tax, Social Security, Medicare, all withheld before the money ever hits the employee's bank account.
• 5:15
  SPEAKER_00: April comes, there's no surprise, it's all paid.
• 5:18
  SPEAKER_00: On a 1099, nothing is withheld.
• 5:20
  SPEAKER_00: Not a dime.
• 5:21
  SPEAKER_00: The contractor is supposed to set money aside and send in quarterly tax payments.
• 5:26
  SPEAKER_00: Most aides never heard of a quarterly payment.
• 5:28
  SPEAKER_00: We had a client who paid their aides as independent contractors.
• 5:31
  SPEAKER_00: Tax time came around, and those aides owed income tax on the whole year's paid, plus self-employment on top of it.
• 5:38
  SPEAKER_00: The whole year in one bill.
• 5:39
  SPEAKER_00: And guess what?
• 5:40
  SPEAKER_00: They didn't have it.
• 5:42
  SPEAKER_00: No surprise there.
• 5:43
  SPEAKER_00: So the tax man comes knocking, and the aide doesn't really understand what a 1099 even means.
• 5:48
  SPEAKER_00: What the aide says is, I work for that agency, I'm their employee.
• 5:51
  SPEAKER_00: And now the agency has an audit.
• 5:53
  SPEAKER_00: Think about how it happened.
• 5:54
  SPEAKER_00: Nobody filed a complaint.
• 5:55
  SPEAKER_00: Nobody was out to get anybody.
• 5:57
  SPEAKER_00: One aide couldn't pay a tax bill, and the explanation pointed straight back to the agency.
• 6:02
  SPEAKER_00: So who actually decides this?
• 6:04
  SPEAKER_00: Not you.
• 6:04
  SPEAKER_00: You don't get to decide whether that person is a contractor.
• 6:07
  SPEAKER_00: The IRS does.
• 6:08
  SPEAKER_00: The labor department decides.
• 6:10
  SPEAKER_00: Your state decides.
• 6:12
  SPEAKER_00: And they decide by looking at how the two of you really work together, not at what the paperwork says.
• 6:17
  SPEAKER_00: Every one of those 1,100 nurses has signed an agreement.
• 6:21
  SPEAKER_00: It bought the company nothing.
• 6:22
  SPEAKER_00: That story I just told you is how most of these start.
• 6:25
  SPEAKER_00: It's almost never the letter out of the blue.
• 6:27
  SPEAKER_00: It starts with one person.
• 6:29
  SPEAKER_00: Somebody you let go, somebody who got hurt on a visit, somebody who couldn't pay the tax bill, or somebody whose account ran the number in March and asked, why are you paying both halves?
• 6:38
  SPEAKER_00: There's a form for that.
• 6:39
  SPEAKER_00: Form 8919.
• 6:41
  SPEAKER_00: A worker follows it when they believe they were really an employee.
• 6:44
  SPEAKER_00: That allows them to cut their payroll tax bill in half.
• 6:47
  SPEAKER_00: Think about the worker, what they're doing.
• 6:49
  SPEAKER_00: They're fixing their own tax bill.
• 6:51
  SPEAKER_00: That's the whole motive.
• 6:52
  SPEAKER_00: But to do it, they have to name your agency and say they should have been an employee.
• 6:56
  SPEAKER_00: They aren't trying to report you, but they just did.
• 6:59
  SPEAKER_00: And if the answer is wrong for that one aid, it's wrong for every person doing the same job.
• 7:03
  SPEAKER_00: Here's what I want to be direct with you about.
• 7:06
  SPEAKER_00: Anytime you pay an individual on the 1099, you are carrying risk.
• 7:10
  SPEAKER_00: Every single time.
• 7:11
  SPEAKER_00: I'm not saying that this industry doesn't have a real independent contractor, it does.
• 7:15
  SPEAKER_00: But if you use them, you need to protect yourself, and that starts with being honest about what you're looking at.
• 7:20
  SPEAKER_00: So let's talk about the protections one at a time.
• 7:23
  SPEAKER_00: Start with the agreement itself.
• 7:25
  SPEAKER_00: You paid a lawyer for it.
• 7:27
  SPEAKER_00: It says independent contractor right at the top.
• 7:29
  SPEAKER_00: And in a fight, it's exhibit A.
• 7:31
  SPEAKER_00: What a court actually asks is three questions, and you can answer them about your own agency before you finish this drive.
• 7:38
  SPEAKER_00: Question one, who decides where, when, and how the work gets done?
• 7:42
  SPEAKER_00: If you set the schedule, that's you.
• 7:43
  SPEAKER_00: If you require the meetings, that's you.
• 7:45
  SPEAKER_00: If they chart in your system on your protocols, that's you.
• 7:48
  SPEAKER_00: This is control and it carries the most weight.
• 7:51
  SPEAKER_00: Question two, who controls the money?
• 7:54
  SPEAKER_00: If you reimburse mileage, that's you.
• 7:56
  SPEAKER_00: If you pay by the hour instead of by the visit, that's you.
• 7:59
  SPEAKER_00: And if the only way that person can earn money is to work more hours, they aren't running a business, they're working a shift.
• 8:06
  SPEAKER_00: Question three, is this person really in business for themselves?
• 8:10
  SPEAKER_00: Here's the simplest way I know to answer that one.
• 8:13
  SPEAKER_00: If it walks like a duck and it cracks like a duck, it's probably a duck.
• 8:17
  SPEAKER_00: So walk through your contractors and ask, do they fill out your employment application?
• 8:21
  SPEAKER_00: Do they go through the same orientation as your staff?
• 8:23
  SPEAKER_00: Are they wearing your scrubs, your logo, your name badge?
• 8:26
  SPEAKER_00: Do they have a company email address?
• 8:28
  SPEAKER_00: Are they sitting in your staff meetings?
• 8:30
  SPEAKER_00: Getting your performance reviews?
• 8:32
  SPEAKER_00: If something goes wrong, do you write them up?
• 8:34
  SPEAKER_00: If the answer is yes, you've got a duck.
• 8:36
  SPEAKER_00: Now here's what a real contractor looks like.
• 8:38
  SPEAKER_00: They have their own business, using an LLC with its own tax ID.
• 8:42
  SPEAKER_00: They carry their own liability insurance, and they can hand you the certificate.
• 8:46
  SPEAKER_00: They send you an invoice.
• 8:47
  SPEAKER_00: You don't hand them a timesheet.
• 8:49
  SPEAKER_00: They get to set their own rate, or at least negotiate it.
• 8:52
  SPEAKER_00: They work for other agencies besides yours.
• 8:54
  SPEAKER_00: They can turn down a case without getting a phone call about it.
• 8:57
  SPEAKER_00: They bring their own equipment and supplies.
• 8:59
  SPEAKER_00: And if they can't make a visit, they can send a qualified substitute.
• 9:02
  SPEAKER_00: Run your own list against that.
• 9:04
  SPEAKER_00: Most of the names won't survive it.
• 9:06
  SPEAKER_00: And underneath all of it sits the question that decides most of these cases.
• 9:11
  SPEAKER_00: Nursing is the business of a nursing agency.
• 9:14
  SPEAKER_00: It's hard to argue that your nurses sit outside your business when the nurses are the business.
• 9:19
  SPEAKER_00: Now back to the non-compete.
• 9:20
  SPEAKER_00: The court said it kept the nurses from building a profit on their own, separate from the company.
• 9:26
  SPEAKER_00: Sit with that.
• 9:27
  SPEAKER_00: The clause existed to stop them from competing, which is another way of saying it existed to stop them from running their own business.
• 9:34
  SPEAKER_00: The company wrote down in its own contract the reason the nurses weren't contractors.
• 9:38
  SPEAKER_00: The court looked at six factors.
• 9:40
  SPEAKER_00: The company lost five of them.
• 9:42
  SPEAKER_00: The one they won was skill.
• 9:44
  SPEAKER_00: The court agreed that these were educated licensed professionals.
• 9:47
  SPEAKER_00: So if your defense is that your nurses are skilled, licensed professionals, hear me.
• 9:52
  SPEAKER_00: That argument has been made in the court in front of a federal appeals court.
• 9:56
  SPEAKER_00: It won one point out of six and lost the case.
• 10:00
  SPEAKER_00: And the owner was named personally.
• 10:02
  SPEAKER_00: The owner's name sits right there in the lawsuit next to the companies.
• 10:06
  SPEAKER_00: Second protection, and this is the most expensive mistake I watch owners make because it throws away a defense they don't even know they have.
• 10:12
  SPEAKER_00: There's a relief provision in the tax law.
• 10:14
  SPEAKER_00: If you qualify, it can wipe out federal payroll tax for the past, even when classification was wrong.
• 10:21
  SPEAKER_00: It won't touch the overtime, but on the tax side, it's real and it has saved a lot of businesses.
• 10:25
  SPEAKER_00: It has three requirements, and two of them will surprise you.
• 10:29
  SPEAKER_00: The first is that you filed the 1099s, missed those, and the relief is gone, no matter how good your reasoning was.
• 10:35
  SPEAKER_00: The second is the one that catches agencies.
• 10:38
  SPEAKER_00: You can't have ever treated that person or anyone in a similar war a similar job as an employee.
• 10:44
  SPEAKER_00: So if you had those AIDS on the W 2 and move them to 1099, your relief is gone.
• 10:48
  SPEAKER_00: Not weakened, gone.
• 10:50
  SPEAKER_00: The third is that the one everybody knows about, you need a reasonable basis for calling them contractors.
• 10:57
  SPEAKER_00: A court case, a past IRS audit, or a longstanding practice in your industry.
• 11:02
  SPEAKER_00: Now think about why anybody moves age from W 2 to 1099 to save the 7.5% we just talked about.
• 11:09
  SPEAKER_00: So you saved a nickel on the dollar and you give up one thing that could have forgiven the tax bill.
• 11:15
  SPEAKER_00: Third protection, and this one is for the hospice owners.
• 11:18
  SPEAKER_00: It's the meeting on your calendar.
• 11:20
  SPEAKER_00: But first, a rule sitting underneath it.
• 11:22
  SPEAKER_00: If you run a hospice, Medicare entered it for you a long time ago.
• 11:25
  SPEAKER_00: It's called the Core Services Rule.
• 11:27
  SPEAKER_00: And it says hospices has to routinely provide substantially all of its core services directly using its own employees.
• 11:34
  SPEAKER_00: The core services are nursing, social work, and counseling.
• 11:37
  SPEAKER_00: Physicians you're allowed to contract, and the rule says it plainly.
• 11:40
  SPEAKER_00: Are there exceptions?
• 11:42
  SPEAKER_00: Three.
• 11:42
  SPEAKER_00: Contract staff to cover extraordinary or unusual situations, a written arrangement with another Medicare certified hospice.
• 11:49
  SPEAKER_00: And a narrowly allowance for highly specialized nursing that's needed so rarely, it doesn't make sense to keep it on staff.
• 11:57
  SPEAKER_00: Read all three and you'll notice the same thing.
• 11:59
  SPEAKER_00: They're written for the unusual week, not the standing schedule.
• 12:02
  SPEAKER_00: The word the rule keeps reaching for is supplement.
• 12:05
  SPEAKER_00: So look honestly at how you staff, your bereavement and your spiritual counseling, your social work, and the on-call nursing pool coverage a schedule you could and the on-call nursing pool covering a schedule you cover every single week.
• 12:18
  SPEAKER_00: And understand this is a different animal than a tax problem.
• 12:21
  SPEAKER_00: Core services is a condition of participation.
• 12:24
  SPEAKER_00: That's a top tier of Medicare requirements, and failing one can cost you to provide your agreement.
• 12:29
  SPEAKER_00: So on nursing, social work, and counseling, the downside isn't a bill.
• 12:33
  SPEAKER_00: It's like you aren't a hospice anymore.
• 12:35
  SPEAKER_00: Now the meeting.
• 12:36
  SPEAKER_00: Medicare requires you to hold it.
• 12:38
  SPEAKER_00: The physician, the nurse, the social worker, the counselor sitting down to review every patient's plan of care at least every 15 days.
• 12:45
  SPEAKER_00: You know what I mean.
• 12:47
  SPEAKER_00: It's the immoverable object on everybody's calendar.
• 12:50
  SPEAKER_00: If your contractor is required to be at that meeting, that's control.
• 12:53
  SPEAKER_00: You're telling the person when and where to work.
• 12:55
  SPEAKER_00: The regulation makes you hold the meeting, and the meeting is approved.
• 12:59
  SPEAKER_00: I want you to be careful here because that isn't a loophole to route around.
• 13:02
  SPEAKER_00: You have to hold the meeting.
• 13:04
  SPEAKER_00: What it means is that the compliance you're required to do is the same conduct that makes the person your employee.
• 13:09
  SPEAKER_00: Home health is different here.
• 13:11
  SPEAKER_00: There's no core services rule on that side.
• 13:13
  SPEAKER_00: You provide one qualifying service directly and you can contract out the rest.
• 13:18
  SPEAKER_00: Fourth protection, the one that's supposed to be airtight.
• 13:21
  SPEAKER_00: Some states have laws saying a caregiver referred by a nurse registry is an independent contractor.
• 13:27
  SPEAKER_00: Florida's is about as strong as these get.
• 13:29
  SPEAKER_00: Deemed an independent contractor, not an employee under any chapter.
• 13:32
  SPEAKER_00: If you operate under a law like that, you're probably supped well because of it.
• 13:37
  SPEAKER_00: In April of 2023, the labor department walked into a licensed nurse registry in Sarasota, 20 minutes from my office.
• 13:43
  SPEAKER_00: They recovered about a quarter million dollars in back wages for 61 caregivers, misclassified and paid straight time for every hour they worked.
• 13:52
  SPEAKER_00: Licensed registry operating under that law.
• 13:55
  SPEAKER_00: It didn't matter.
• 13:56
  SPEAKER_00: That's a normal sized agency in my county.
• 14:00
  SPEAKER_00: And a bill that size would end most of the agencies I talk to.
• 14:04
  SPEAKER_00: Your state legislature can't decide who counts as an employee under federal tax law or federal wage law and never had the power.
• 14:11
  SPEAKER_00: And here's the same pattern one more time.
• 14:13
  SPEAKER_00: The law isn't a shield, it's a list of conditions.
• 14:16
  SPEAKER_00: Florida says a registry may not monitor, supervise, manage, or train the people it refers.
• 14:22
  SPEAKER_00: So the law you're relying on is also the standard you're measured against.
• 14:26
  SPEAKER_00: If you're scheduling those caregivers, setting their rates, or disciplining them, you don't have a problem.
• 14:32
  SPEAKER_00: You have two.
• 14:33
  SPEAKER_00: And you built the second one out of the thing you thought was protecting you.
• 14:37
  SPEAKER_00: There's a federal version of this too.
• 14:39
  SPEAKER_00: In 2025, the labor department put out two bulletins.
• 14:42
  SPEAKER_00: The first told its investigators to stop enforcing the 2024 contractor rule.
• 14:47
  SPEAKER_00: The second told them to stop arguing over home care agencies on the companionship exemption.
• 14:52
  SPEAKER_00: If you heard that it exhaled, I understand completely.
• 14:55
  SPEAKER_00: Here's a sentence in the first bulletin nobody quotes back to me.
• 14:59
  SPEAKER_00: The 2024 rule remains in effect for purposes of private litigation.
• 15:03
  SPEAKER_00: Enforcement stopped.
• 15:04
  SPEAKER_00: The rule didn't.
• 15:06
  SPEAKER_00: And now there's a new rule on the way.
• 15:08
  SPEAKER_00: In February 2026, the Labor Department proposed throwing out the 2024 rule and going back to a version of the older one from 2021.
• 15:15
  SPEAKER_00: The comment period closed at the end of April.
• 15:17
  SPEAKER_00: A final rule is expected later this year, and you can expect lawsuits the day he comes out.
• 15:22
  SPEAKER_00: So as I'm recording this, the 2024 rule is still the law and it's fully available to any attorney with a list of your former aides.
• 15:30
  SPEAKER_00: Now if you hear new rule and think the whole problem is going away, hold on.
• 15:34
  SPEAKER_00: The new version still asks the same basic question.
• 15:37
  SPEAKER_00: Is this person really in business for themselves?
• 15:40
  SPEAKER_00: And it puts two factors at the center of everything.
• 15:42
  SPEAKER_00: Who controls the work?
• 15:44
  SPEAKER_00: And whether the worker has a real shot at making or losing money.
• 15:47
  SPEAKER_00: Those are the exact two the staffing company lost hardest.
• 15:51
  SPEAKER_00: And here's the other thing.
• 15:59
  SPEAKER_00: A new rule tells the investigators what to look for.
• 16:01
  SPEAKER_00: It doesn't tell a judge what to decide.
• 16:04
  SPEAKER_00: The government stopped knocking on your door.
• 16:06
  SPEAKER_00: Your former employee's lawyer never stopped.
• 16:10
  SPEAKER_00: An enforcement pause can reverse with one memo.
• 16:13
  SPEAKER_00: A new rule can get tied up in court for years.
• 16:15
  SPEAKER_00: And the clock on the old claims runs the whole time.
• 16:19
  SPEAKER_00: One last piece of arithmetic, and this one's about a nurse instead of an aide.
• 16:23
  SPEAKER_00: Say a day of your staff nurse costs you about$420 all in.
• 16:27
  SPEAKER_00: If that nurse completes six visits, that's$70 a visit.
• 16:30
  SPEAKER_00: If that nurse completes three, that's$140 a visit.
• 16:34
  SPEAKER_00: Same nurse, same pay.
• 16:35
  SPEAKER_00: Double the cost.
• 16:36
  SPEAKER_00: Now stand a contractor next to that nurse at$85 a visit.
• 16:39
  SPEAKER_00: Against the nurse doing six, the contractor looks expensive.
• 16:42
  SPEAKER_00: Against the nurse doing three, the contractor looks like a bargain.
• 16:45
  SPEAKER_00: That's the moment most owners decide to lean harder on contract labor.
• 16:49
  SPEAKER_00: But look at what actually happened.
• 16:51
  SPEAKER_00: That wasn't a staffing decision.
• 16:53
  SPEAKER_00: It was a productivity problem wearing a staffing costume.
• 16:56
  SPEAKER_00: The contractor only looked cheap because nobody was managing your own nurse's day.
• 17:01
  SPEAKER_00: And price the other side before you decide.
• 17:03
  SPEAKER_00: If the contractor gets reclassified, the tax piece alone can run a dime or more on every dollar you paid for every year it ran.
• 17:11
  SPEAKER_00: Then add the overtime, which doubles.
• 17:13
  SPEAKER_00: So the$85 contractor turns into the most expensive nurse you ever hired.
• 17:17
  SPEAKER_00: And what made that contractor look cheap was never the rate.
• 17:20
  SPEAKER_00: I've spent this whole episode telling you that everything you did to protect yourself works against you.
• 17:25
  SPEAKER_00: So let me tell you about two things that don't.
• 17:27
  SPEAKER_00: The first is the door the IRS built itself.
• 17:29
  SPEAKER_00: There's a program where you volunteer.
• 17:31
  SPEAKER_00: You raise your hand, you agree to put a group of workers on W-2 going forward, and you settle the past.
• 17:37
  SPEAKER_00: What does settling the past cost?
• 17:39
  SPEAKER_00: About 1% of what you paid those workers last year.
• 17:41
  SPEAKER_00: 1%, not a dime on the dollar, not times three years, about a penny on the dollar, one time.
• 17:47
  SPEAKER_00: No interest, no penalties.
• 17:49
  SPEAKER_00: And no IRS audit on how you classify those workers in per years.
• 17:53
  SPEAKER_00: The catches are real.
• 17:55
  SPEAKER_00: You have to have filed the 1099s on those workers every year for the last three years.
• 17:59
  SPEAKER_00: And you can't already be under audit.
• 18:01
  SPEAKER_00: Not by the IRS on payroll taxes, not by the labor department on your state or your state on how you classify workers.
• 18:07
  SPEAKER_00: The door only opens from the inside.
• 18:09
  SPEAKER_00: It's form 8952, and you need to file it at least four months before you switch them over.
• 18:15
  SPEAKER_00: And know what it is.
• 18:16
  SPEAKER_00: It's an agreement with the IRS.
• 18:18
  SPEAKER_00: It doesn't settle anything with the Labor Department or Medicare, so talk to your own attorney about the rest.
• 18:23
  SPEAKER_00: The second thing comes out of it is the appeals case.
• 18:26
  SPEAKER_00: The last stretch of it ran about a year.
• 18:28
  SPEAKER_00: The court awarded back taxes for that year, but it refused to double them because by then the company had started complying in good faith.
• 18:35
  SPEAKER_00: They still lost.
• 18:36
  SPEAKER_00: They lost years earlier.
• 18:38
  SPEAKER_00: But fixing it mid-fight, even that late, cut the year's bill in half.
• 18:43
  SPEAKER_00: Now put those side by side.
• 18:45
  SPEAKER_00: A voluntary settlement that costs a penny instead of a dime.
• 18:48
  SPEAKER_00: And in good faith, finding that cuts a judgment in half after the lawsuit is already filed.
• 18:53
  SPEAKER_00: Every protection in this episode was something you wrote down and then hid behind.
• 18:58
  SPEAKER_00: Both things that actually helped you were moving first.
• 19:01
  SPEAKER_00: Paper doesn't protect you here, motion does.
• 19:04
  SPEAKER_00: Let me give you the other side.
• 19:05
  SPEAKER_00: It's due because you've been building in the argument in your head for 10 minutes now.
• 19:09
  SPEAKER_00: You can't staff.
• 19:11
  SPEAKER_00: And I get that.
• 19:12
  SPEAKER_00: That's true.
• 19:12
  SPEAKER_00: It's not an excuse.
• 19:13
  SPEAKER_00: It's hard to staff in our industry.
• 19:15
  SPEAKER_00: It's the reality of this industry.
• 19:17
  SPEAKER_00: In a lot of markets, the only nurse who will work for you is the one who wants a 1099.
• 19:23
  SPEAKER_00: Off the nurse of W2, and you're down the road by Friday.
• 19:26
  SPEAKER_00: Anybody telling you to just convert everybody has never tried to fill a weekend schedule.
• 19:30
  SPEAKER_00: So I'm not telling you to convert everybody.
• 19:33
  SPEAKER_00: I'm telling you to know which ones you couldn't defend and to put a price on that risk instead of carrying it at zero.
• 19:39
  SPEAKER_00: A liability you've never priced is still a liability.
• 19:42
  SPEAKER_00: It just isn't on your books yet.
• 19:44
  SPEAKER_00: And for contractors you keep, protecting yourself is important.
• 19:47
  SPEAKER_00: Don't run them through your employee application.
• 19:50
  SPEAKER_00: Give them a separate contractor packet.
• 19:52
  SPEAKER_00: Get their business name, their tax ID, a W9, and proof of insurance before the first visit.
• 19:57
  SPEAKER_00: Pay by the visit against an invoice, not by the hour off a timesheet.
• 20:02
  SPEAKER_00: Keep them out of your uniforms and off your company email.
• 20:06
  SPEAKER_00: Let them turn down a case.
• 20:07
  SPEAKER_00: Leave the non-compete out of their contract.
• 20:09
  SPEAKER_00: And file their 1099s every January on time.
• 20:13
  SPEAKER_00: Then make sure your agreement describes how you actually work together.
• 20:17
  SPEAKER_00: Because if the paper says one thing and your scheduler does another, the scheduler wins.
• 20:22
  SPEAKER_00: So here's the one thing this week.
• 20:24
  SPEAKER_00: Pull a list of every individual you paid on 1099 last year.
• 20:29
  SPEAKER_00: Individuals, not vendors, not corporations, not the company that mows the lawn, people.
• 20:33
  SPEAKER_00: Your bookkeeper can run it in ten minutes.
• 20:36
  SPEAKER_00: It's almost always longer than owners expect.
• 20:38
  SPEAKER_00: Then split it in two columns.
• 20:40
  SPEAKER_00: If you run a hospice, column one is anything anybody doing nursing, social work, or counseling, that's not a tax question.
• 20:46
  SPEAKER_00: That's a Medicare question with a different clock and a worse consequence.
• 20:50
  SPEAKER_00: Column two is everybody else.
• 20:52
  SPEAKER_00: Run the three questions and your duct test on them and write the answers down.
• 20:56
  SPEAKER_00: Then date the page and put it in a file.
• 20:58
  SPEAKER_00: Because here's the last turn and it's only good news in the episode.
• 21:02
  SPEAKER_00: It's the only good news.
• 21:04
  SPEAKER_00: The dated page is the one piece of paper in its entire story that works for you instead of against you.
• 21:10
  SPEAKER_00: Not because it protects you, because it proves you looked.
• 21:13
  SPEAKER_00: This isn't a problem that gets better by waiting, and you don't get a credit for never having noticed.
• 21:19
  SPEAKER_00: But it's one of the very few in this business where moving first lowers a bill that you're already going to get.
• 21:49
  SPEAKER_01: If you would like to learn more about how Walters can help your agency, visit WaltersAccounting.com, WaltersBilling.com, and WaltersAdvisors.com.