Interns/Trainees Employees, Not Independent Contractors
By: Mary Riemersma
Executive Director

The California Therapist
(January/February 1989)

A question often asked by licensees, interns and trainees is, "Can an intern or trainee work and gain hours of experience as an independent contractor?"

The answer is clearly NO. The licensing law never permitted trainees and interns to be independent contractors. Any references in the law to a working relationship has always referred to "employment." Many people, of course, have been either unaware of the law or have chosen to ignore the law. Many felt that the change from independent contractor to employee status came as a result of the licensing law revision effective January l, l987. Such is not the case. Others believe that the change came about when regulation clarified this issue on January 1, 1990. There are specific reasons for the "employee" status which will be discussed later in this article.

First of all, let’s look at the differences between an independent contractor and an employee:

  • An employee works primarily for your business. In contrast, an independent contractor, a lawyer, for example, works independently for a number of people or entities. An intern or trainee may be employed by you and even others, but does not work independently with the clients he/she sees.
  • The employee is subject to your control and you have the right to direct how the work is done, not just demand a particular result. Employees are under the direct control and supervision of the employer. Employees work the hours directed by the employer, are given the necessary space, equipment and facilities to do the job, have specific tasks to accomplish and are judged on the results of those tasks. On the other hand, independent contractors are given a job to do, then basically complete the job on their own. There are no set hours, space and facilities are generally not provided and there is usually no supervision. In other words, an independent contractor is generally an outside provider of services who is basically in business for himself/herself. The general principle is that an independent contractor is subject to the control or direction of another person only as to outcome of the finished product, not the means and methods for accomplishing the finished product. Since law and regulation state that "all experience shall be at all times under the supervision of the supervisor who shall, with the person being supervised, be responsible for ensuring that the extent, kind and quality of counseling performed is consistent with the training and experience of the person being supervised, and who shall be responsible to the board for the compliance of all laws, rules, and regulations governing the practice of marriage, family and child counseling," it is impossible to construe that independent contractor status was intended or would provide sufficient supervision.
  • The employee works in your office or establishment and does not have his own place of business or business name. Of course, interns and trainees are required by law to "perform services at the place where their employer regularly conducts business and shall not have any proprietary interest in that business." This means that the intern or trainee may not have an office or business of his/her own. In addition, the intern or trainee may not have his/her own business or business name, and any advertising which would include the name of the intern or trainee would only promote the business of the employer. In contrast, an independent contractor who is in business for himself/herself, would likely have his/her own office, would probably have his/her own business name and would advertise his/her business. The licensing law is quite clear that this is not the intent for interns and trainees.
  • The kind of work the employee does for you is the type of work normally done by employees. The licensing law states that "no person may for remuneration engage in the private practice of marriage, family and child counseling...unless he or she holds a valid license..." This means that one must be licensed to engage in the practice of marriage, family and child counseling for a fee. There are, of course, exceptions for certain professions and for marriage, family and child counseling performed in certain exempt work settings. There is also an exception for interns "employed" in private practice and interns and trainees "employed" in other permissible work settings. Regardless of these exceptions, law and regulation provide that, "Trainees and interns shall not receive any remuneration from patients or clients, and shall only be paid by their employer." Thus, interns and trainees may do marriage, family and child counseling as long as the fees paid by the clients are made payable to the employer. The employer is expected to pay the employee as in any other employer-employee relationship.

Generally, employees are not licensed professionals even though licensed professionals may be employed. Licensed professionals, e.g., psychologists, CPAs, attorneys, architects, engineers, etc. may operate as independent contractors. Non-licensed persons in these professions may never work as independent contractors. This is also true with licensed marriage, family and child counselors. Some mistakenly believe the intern registration is a license and may even call it an "intern license." There is no intent, and there has never been any intent by the BBSE to grant interns a license. The "intern registration" merely means what the name indicates; the intern is registered with the BBSE as someone who does not yet meet all of the qualifications of licensure. The main purpose for registering is to continue to accrue hours of experience post-degree to eventually qualify for licensure.

Clearly, from the viewpoint of the IRS, employees and independent contractors are two very different kinds of workers. Just because you may agree to hire someone as an independent contractor does not make it so for tax and other legal purposes. Besides, you will be in clear violation of the licensing law. Thus, before you decide to hire an intern or trainee or anyone else for that matter, you need to take a long hard look at whether the IRS or a court of law would consider that person to be your employee, rather than an independent contractor. And, if after reading this article you are still not convinced, I would encourage you to submit an SS-8 form to the IRS for their position on your "employee." This form asks a number of pertinent questions upon which the IRS can issue an opinion.

Unless you are quite certain that a work relationship will be considered that of an independent contractor, be very careful about hiring in this manner. The consequences of poor judgment can be very severe. Besides being in violation of the licensing law if the employee is an intern or trainee, you may be liable for the employer payroll taxes you failed to pay and either a portion of or all of the employee taxes you failed to withhold. In effect, you could end up paying the taxes which are owed by your employee. What’s more, if your intern is hurt on the job and you have not provided workers’ compensation insurance coverage, you could be liable for extensive legal and medical expenses as well as lost wages. And, on a final note, if you have a qualified retirement plan and you have not contributed to the plan on behalf of the employee, the retirement plan could be disqualified. The consequences of poor judgment for the intern or trainee are loss of hours and possible disciplinary action by the Board of Behavioral Science Examiners. The consequences to the supervisor, in addition to the above, is subjecting oneself to disciplinary action by the licensing board for "aiding and abetting unlicensed practice."

When one becomes an employer, he/she assumes all federal and state employer obligations. These include federal and state income tax withholding, FICA, state disability, federal unemployment tax and workers compensation. Obviously, arrangements where interns and trainees are responsible for their own withholding taxes and social security are improper since they would be acting as independent contractors. It is usually the added costs for the variety of payroll deductions and taxes combined with the added burden of such calculations and their respective reporting forms to which most potential employers object. Indeed, it is a hassle to complete those forms, withhold taxes and pay taxes. But, getting caught on the wrong side of this issue can be much worse.

Many who employ interns and trainees are reluctant to realize that hiring an employee causes them to assume the responsibilities required of every other employer in this country. However, there are ways, for a nominal fee, to lessen this burden. There are many small accounting and bookkeeping firms which specialize in handling payroll accounting. There are also other firms and banks which provide payroll accounting for a nominal fee. Wells Fargo Bank offers what is known as a "small business package" which provides payroll accounting for a fee. ADP (Automated Data Processing) and Paychex are two businesses which specialize in payroll accounting and can easily be found in most telephone directories. Fees generally are approximately $50 per month. For this service charge, they calculate all of the withholdings, issue the payroll, and complete both quarterly and annual reports. All you supply are the funds to pay the checks, the hours worked by each employee and the amount to be paid per hour. This option, while it does not remove the burden, does make it much more acceptable.

Meanwhile, do not be wrongly persuaded by friends, colleagues, business associates and some accountants into the independent contractor game. They will tell you how easy it is to avoid all of those taxes and reporting forms. Listen to their advice only after you are confident that the person you plan to employ indeed qualifies for independent contractor status. And, if you are uncertain, get well-qualified, competent advice; or submit an SS-8 form for an IRS opinion. Keep in mind that even though the hiring of an intern or trainee is clear in the licensing law, not every other situation can be so clearly defined. Two different CPAs may even give differing opinions; and in such a situation it is probably better to err on the side of caution.

Employees or Independent Contractors?
The Internal Revenue Service uses 20 legal criteria to determine whether workers are employees or independent contractors. Workers are generally employees if they:

  1. Must comply with employer’s instructions about work.
  2. Receive training from or are at the direction of the employer.
  3. Provide services that are integrated into the business.
  4. Provide services that must be rendered personally.
  5. Hire, supervise and pay assistants for the employer.
  6. Have a continuing working relationship with the employer.
  7. Must follow set hours of work.
  8. Work full-time for an employer.
  9. Do their work on the employer’s premises.
  10. Must do their work in a sequence set by the employer.
  11. Must submit regular reports to the employer.
  12. Receive payments of regular amounts at set intervals.
  13. Receive payments for business or traveling expenses.
  14. Rely on the employer to furnish tools and materials.
  15. Lack a major investment in facilities used to perform the service.
  16. Cannot make a profit or suffer a loss from their service.
  17. Work for one employer at a time.
  18. Do not offer their services to the general public.
  19. Can be fired by the employer.
  20. May quit work at any time without incurring liability.

This article appeared in the January/February 1989 issue of The California Therapist, the publication of the California Association of Marriage and Family Therapists, headquartered in San Diego, California. This article is intended to provide guidelines for addressing difficult legal dilemmas. It is not intended to address every situation that could potentially arise, nor is it intended to be a substitute for independent legal advice or consultation. When using such information as a guide, be aware that laws, regulations and technical standards change over time, and thus one should verify and update any references or information contained herein.
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