AMARILLO, TX – Healthcare organizations must routinely decide whether a worker should be classified as an employee or an independent contractor, how the relationship should be documented, and how the worker should be treated consistent with his or her classification. These issues are especially consequential in healthcare, where staffing models, professional autonomy, patient continuity, multistate operations, and changing regulatory priorities intersect.
Many employers (and workers alike) primarily focus on the tax consequences of the arrangement. However, the analysis should begin with the parties’ actual working relationship, not merely the label placed on an agreement or the desired tax treatment.
Employee or Independent Contractor?
In February, the Department of Labor announced a proposed independent contractor rule, revising its analysis for determining whether a worker is an employee or independent contractor under federal wage and hour laws. While the new rule incorporates familiar concepts of control, profit, and exclusivity, it refocuses the inquiry squarely on economic independence.
Under the economic realities framework, the central question is whether the worker is genuinely in business for himself or herself or is, instead, economically dependent on the employer for work. The Department of Labor’s 2026 proposal identifies two core considerations that control the analysis—the nature and degree of control over the work and the worker’s opportunity for profit or loss based on initiative or investment. Where both factors point toward the same classification, there is a strong likelihood of accurate classification.
Control Over the Work
Independent contractor status is more likely when an individual selects his or her own projects, sets the work schedule, and remains free to work for other businesses, including competitors. Employee status is more likely when the organization controls the person’s schedule or workload or requires exclusivity. However, compliance requirements should not be confused with control; requiring adherence to legal requirements, health and safety standards, agreed deadlines, and appropriate clinical standards does not, standing alone, establish control or support employee status.
Opportunity for Profit or Loss
A contractor ordinarily has a meaningful opportunity to increase profit (or incur loss) through managerial skill, business judgment, investment, hiring helpers, or purchasing equipment and materials. By contrast, if the worker can earn more only by working additional hours or performing work faster, the arrangement resembles an employee’s opportunity to earn wages rather than an entrepreneur’s opportunity to generate profit.
Additional Economic Reality Factors
Although the organization’s exercise of control and the worker’s opportunity for profit or loss are paramount, other relevant considerations include the skill required to perform the work, the permanence of the relationship between the worker and organization, and whether the work is part of an integrated unit of production.
Work that requires specialized skill or training not offered by the organization, projects that are definite in duration, and work that is separable from the organization’s core products or service offerings all support contractor status. An indefinite, continuous relationship and work embedded in the organization’s core service, however, support employee status. No single document or factor should substitute for a fact-specific review of actual practice.
Operational Evidence Matters
Organizations should expect their day-to-day relationships with workers to carry greater weight than contractual terminology, and employers should ensure they treat workers in ways consistent with the desired (and proper) classification. Employers can evidence proper employment status by exercising proper control, including by:
- setting a required schedule;
- managing employee attendance;
- requiring compliance with policies and procedures;
- prescribing uniforms;
- supervising work;
- providing training;
- conducting performance reviews;
- maintaining personnel files;
- reimbursing expenses;
- providing benefits;
- withholding taxes; and
- imposing discipline.
In contrast, a worker’s business name, separate legal entity, business cards, independent clients, work for competitors, ownership of tools, and responsibility for supervision and payment of additional personnel may evidence an independently established business and proper independent contractor classification.
The practical lesson is straightforward: healthcare organizations should not use an independent contractor agreement while managing the relationship like employment. Misalignment between paper and practice can create wage and hour, tax, benefits, unemployment, workers’ compensation, and other legal exposure.
Drafting an Appropriate Agreement
The working relationship is key in determining proper classification, but well written agreements provide organizations the opportunity to explain and create evidence of appropriate employment (or independent contractor) relationships. Using the proper language is a good place to start: employees are “employed” to work while contractors are “engaged” to perform services.
In addition, employment agreements summarize job duties, identify a supervisor, establish work expectations, set a work schedule, outline benefits and reimbursable expenses, clearly state hourly or salaried compensation and applicable tax withholding, and typically permit termination under stated standards. Employment agreements may also contain exclusivity obligations and appropriately tailored restrictive covenants, both of which cut against contractor status.
An independent contractor agreement, by contrast, should describe engagement for a project or defined service, preserve the contractor’s control over the manner and schedule of performance, avoid employment benefits and payroll withholding, specify compensation by project or fee, allocate expenses, establish a defined term, and expressly recognize the contractor’s ability to serve others. Contract terms should be tailored to the operational reality and should not promise independence while reserving employee level control.
The Bottom Line
Worker classification is not a one-time paperwork decision. Healthcare organizations should periodically compare each worker’s agreement with the realities of the working relationship, particularly when duties, scheduling expectations, supervision, compensation, or the location of services change. A carefully drafted agreement is important, but consistent operational practices are essential. Proactive review with employment counsel can help identify misclassification concerns before they develop into wage and hour claims, tax exposure, benefit disputes, or challenges to restrictive covenants. In a regulated and increasingly multistate healthcare environment, getting the classification right protects the organization, supports workforce stability, and helps all parties understand their rights and responsibilities from the outset.
Allison L. Davis, Esq., is chair of the Labor Employment Group at Brown & Fortunato, PC, a law firm based in Texas with a national healthcare practice. She represents employers in a wide range of employment matters, including discrimination, non-competition, wage and hour, leaves of absence, disability accommodation, and workplace investigations. She is Board Certified in Labor and Employment Law by the Texas Board of Legal Specialization and can be reached at (806) 345-6304 or [email protected].