therapist pay

Follow the money: Therapist pay in private practice

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Private practice therapist pay is rarely based on a salary. Instead, there is a series of steps for determining psychotherapist pay.

Firstly, every private practice sells a service, usually psychotherapy or psych testing. And then they collect payment for the sale of that service.

Typically both the client and often an insurance company pay part of the fees. Sometimes other income sources contribute, perhaps from a church or family member who is paying for some of the cost of the psychotherapy. From there, things get more complicated.

What happens to the money?

Private practices have two ways of managing the money from there. In some cases, the income from all sources is deposited by the therapist into the therapist’s bank account. Expenses and rent then are paid from that income. This is a typical “independent contractor” scenario. It is the simplest organizational structure and is quite common.

In other cases, the income is collected by the organization where the therapist is employed. The organization then pays the clinician either a “percentage of collections” or a flat hourly fee for the work that was done. The organization can choose whether to pay the clinician as an “independent contractor” or as an “employee.”

When comparing different possible private practice therapist pay structures, it is essential to understand the differences between an independent contractor or a W-2 employee. Taxes are handled differently and that is a big deal. Let look at that now.

Taxes: Independent contractors or employee

Most importantly, the Internal Revenue Service allows for two types of employees: independent contractors and regular W-2 employees. (See Picking the best option: Independent Contracting vs Employing and the IRS website for more on this topic.) This decision determines who pays which taxes.

Specifically, the IRS requires independent contractors to pay 100 percent of their Social Security and Medicare taxes. This adds 7.65 percent to the independent contractor’s tax bill over a regular W-2 employee’s tax liability. But if the employer decides to pay the therapist as a regular W-2 employee, then the company, rather than the individual, pays that 50% of the employee’s Social Security and Medicare taxes.

To summarize then, an independent contractor will pay 15.3 percent of income toward social security taxes. Whereas, a W-2 employee will pay 7.65 percent of income toward social security taxes, and the company will pay 7.65 percent toward the employee’s social security taxes. The IRS always gets their money in one way or another. In other words, independent contractors pay all of the social security tax. Whereas, employees pay half of it with the employer paying the other half.

A simple example

Let’s compare two separate compensation plans. The first is an independent contractor. The second is a W-2 employee. How do we make them equal?

  • If the Independent contractor’s arrangement is for 57.65 percent of the collections to come to the therapist, this plan equals
  • A W-2 employee’s agreement for 50 percent of the collections

In others words, taxwise these are equal deals.

Recognizing how taxes are handled allows us to compare independent contractors and employees.

The split: How much goes the practice, and how much to the employee?

The most common way that organizations handle wages is to calculate the private practice therapist’s pay based on a “percentage of collections.” The practice collects the fees and divides them between the therapist and the practice using a formula to determine actual amounts. This approach is sometimes also called productivity-based pay and is perfectly legal. Interestingly, this approach is popular with physicians as well. According to the latest physician salary info, productivity is a basis for pay for the majority. See Pay is productivity-based for nearly 55% of physicians.

However, the actual percentages vary quite a bit. In most areas of the country, employee percentages range from a 40/60 to 60/40 split for W-2 employees. In other words, the therapist gets 40 to 60 percent of the collections. The organization gets the remainder. (For more on what practices actually do, see the results of a survey I did where 40 clinicians shared their data: Survey results: Therapist wages and benefits from 40 practices.)

Usually, independent contractors get about 10% higher to cover the additional taxes we talked about earlier.

The exact split may have to do with regional differences as well as various incentives that employers build into their formulas. In the practice I owned, we had a set of graduating percentages that gave busier and more experienced clinicians a greater portion of collections.

Distinctions in psychotherapist pay by license and ownership

As a side note, most practices make no pay distinctions between psychologists, social workers, mental health counselors, and marriage and family therapists. Occasionally practices pay psychologists a higher percentage. I discourage this. Why? Because social workers, mental health counselors, and MFTs get a lower reimbursement rate from insurance companies anyway. Hence I encourage all practices to pay everyone with the same formula.

When there is only one owner, then that owner may create any number of ways to get paid. Typically though, the owner will also take a distribution from the profits, usually annually. Furthermore, when practice owners are in a partnership, there may also be a partnership profit-sharing distribution toward the end of the year. But of course, distributions can only happen if there was a profit.

Other factors

The last set of factors to consider is harder to quantify. And yet importantly, these factors can make a difference in the employee’s experience and income. For example,

Furthermore, consider are the other benefits that the organization is offering? Some practices make contributions or payments for retirement benefits, health insurance, continuing education contributions, licensing fees, and malpractice insurance. For example, these exist in some larger and more established private practices. Not in most. Assuredly, these benefits add value to an offer.

I have created a calculator of all the factors that determine a therapist’s final paycheck here: How to calculate a psychotherapist’s private practice pay.

The whole psychotherapist pay package

In the end, following the money leads us from the sale of a therapy session through a few steps. Whether one is paid as an independent contractor or a W-2 employee, the money is divided into different accounts. Some money goes to benefits and a paycheck for the therapist. The rest goes to the practice to cover its bills. Keeping all the parts working together is what a business does.

Also, read this:

Picking the best option: Independent Contracting vs Employing

Estimating your private practice income

Wealth in Mental Health – Where are the good-paying jobs?

Why create another mental health practice

https://growingourpractice.com/ultimate-guide-to-managing-growth/

Enjoying this article? Share your thoughts.

  1. Patrick says:

    Is a W-2 employee paid based on a percentage split of collections by default always going to be a non-exempt employee since they have no base salary? Since the individual employee therapist generally manage most day to day details is there a way to classify them as exempt employees?

    1. David Norton says:

      Hi Patrick. The IRS has a list of criteria used for determining if whether an employee is an independent contractor or an W-2 employee. See this page for more details: https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee Management of day to day details is just one of the many criteria. You may want to go over it with your attorney. I talked with a couple of attorney friends and one that I hired and they all said it was safest for me to treat them as W-2 employees, especially as we got larger and therefore attracted more attention. For us the big factor was that our therapists were dropping all other work to work exclusively with us. That made it harder to claim that they were an independent contractor, especially when we had meetings together and worked together on marketing ourselves.

  2. Katie says:

    Hello, I am working in a group private practice and my reimbursement rate is 50% of “collected revenue for services provided” (per my employee contract). I recently learned that the practice collects 100% of no-show fees ($150) and does not distribute any percentage of this revenue to the clinician. Is this typical for group private practices? It seems unusual for the practice to collect 100% and the clinician gets 0% regardless of admin tasks and time connected to these no shows. Please offer any insight you have around this issue. Thank you!

    1. David Norton says:

      Hi Katie. I agree that something is off here. We used the same percentages for any money that came in. Any fees collected from insurance, client, or occasionally another party ran through the same formula. Therapy fees, psych testing fees, no show fees all are treated the same. I’m not sure what the rationale would be for treating some fees differently. I would at least ask what the justification is. The therapist (you) were the one who scheduled the appointment only to have the client not show. Yes you could recoup some of the time by doing other things, but not other things that generated income.

  3. Paul Feldman says:

    I’m just about to finish up my associateship from my PsyD and I’m looking for clinical job. I’ve heard most jobs pay only a percentage with no guaranteed salary. Is this so?

    1. David Norton says:

      Hi Paul. You are correct if you are looking at a private practice job. There are a few large practices who may provide a “draw against future earnings” sort of payment system that would give you a small-ish salary that would be paid back by future earnings. Otherwise private practices usually pay clinicians by a percentage of collections which means a slow build-up in salary. It takes a while, i.e. months to a couple years, depending on the practice and how many referrals they are providing to get you started. Most not-for-profit, hospital, government jobs are salaried right from the start. I have a brief discussion of this here: Types of organizations employing mental health providers

  4. Loryn Cummins says:

    Do you have an example of the graduating percentages depending on income brought in by a clinician?

    1. David Norton says:

      Hi Loryn,
      So we had 3 levels based on collections in a given month. So say you collected $XXX in a month–that would mean one percentage. If you collected $XXXX in a month that would mean the clinician would get about 5% more. Another 5% bump if one collected > $XXXXXX in a month. What this is saying is that the “more activity gets the clinician a greater percentage”. My example here is actually simpler than we actually used because we had one set of percentages for the first year one was one our staff and then once they were promoted to Senior Staff. That promotion could happen after 12 months and plus meeting several criteria, a list of about 10 items. As for where that base percentage was, that seems to be highly regional. In our area, most private practices are paying clinicians 50% of collections. We paid the clinicians higher than that but since I am no longer the owner, it not for me to say exactly what those percentages are. The goal was to stay competitive with our therapist market while being as generous as we could.

  5. Moe says:

    I am going to be a w-2 employee as a licensed clinician with a group. we have a group EIN for insurance companies, but it sounds like I am going to be billing insurance with my own tax ID as the provider and everything. I have filled out a w-9 for the insurance company as a sole proprietor. is this incorrect? all checks will be going to the group, and I am paid my percentage split from total collected from sessions per month. any information would be helpful. thanks.

    1. David Norton says:

      Hi Moe,
      So let me take this a bit at a time and see if I understand. First off, when you form a group, i.e. a legal entity, a company, you will always need an EIN whether you bill with it or not. This is for employment tax purposes and the IRS requires it.
      Then if you are billing insurance as an individual, then yes you need a W-9 for each insurance company you are billing. The insurance company will require the W-9 before they will send you a check.
      Then you say the checks will come to the group. I think you mean that checks in your name will have the group address. This is also fine. The group then will calculate the percentages and you will get your paycheck each month. This is not an unusual setup and works fine.
      Let me just say that there can be advantages to billing as a group. We have been able to negotiate higher reimbursement rates as a group than as individuals. Apparently insurance companies prefer to work with larger groups than with a bunch of individuals so they kind of tip the scales in that direction. I would not worry about that if your group is less than 10 people but if it gets larger, billing as a group and then negotiating higher rates will be the way to go.

      1. Shannon R says:

        Can you give me any advise on this scenario…? I work for a church as a W2 employee, but I’m a licensed counselor and all payments are sent directly to the church, I collect my usual salary.

        I want to bill insurance soon, but keep my job as it is, as a W2 employee. Can the church get the insurance payments? Or do they have to go through me as a subcontractor, then I pay them rent?

        1. Dr. David Norton says:

          I am not an attorney but from my experience, here is what I would suggest. (1) Keep your W-2 job just as it is at the church. (2) Set up an LLC or PC corporation that you personally own. (3) Bill your insurance work through the corporation and have payments come to the corporation. (4) Establish a contract with the church which would outline the rent you pay to the church for the use of space for those insurance clients.
          As far as I know, you can have both a job at the church and a contract with the church for the use of their space. Of course, you should consult with an attorney in your state to help set this up properly.

  6. Christine says:

    David,
    I run a nonprofit mental health agency. We offer contract therapists a percent split in terms of the revenue received. We offer full staff support and the infrastructure (office space, software for maintaining and billing, back offfice and front desk support, voicemail, among other things). What should the percent split be since we are covering 100% of the overhead?

    1. David Norton says:

      Hi Christine,
      You would think this would be a straight-forward question but it is not. So here is how I would think about it.
      As a nonprofit, you doubtless have several different payers–insurance companies, private pay, money coming through foundations and maybe a benevolence fund of some sort that gets funded from other sources. So the question I would be asking as a provider is “What is the average collection rate for each hour of therapy?” i.e the actual amount that is collected on average for each hour.
      I know from my practice that private practices collect from $100 to $125 per hour, on average. That average includes all sessions include low paying insurances and all the other payers and even the no-show sessions. That said, then if your collection rate is in that range, then therapists usually get from 60% to 70% of collections, as independent contractors. If they are paid as a W-2 employee than they get 50% to 60% of collections…usually, that is. If you are taking them right out of graduate school and therefore providing supervision, then maybe they are being a 5% to 10% reduction to cover the additional costs to support them. (BTW I cover the differences between independent contractors and employees here here.)

  7. Sheila says:

    Hello, I work in a private practice as a W-2 employee. I am paid 50% of collected insurance payments. But some clients have never had their insurance billed, and others have had bills out for 90 days without payment. Is this the normal course of this business?

    1. David Norton says:

      Hi Sheila,
      This is NOT a typical way for billing to be handled. The usual course is this: verify the client’s insurance benefits, the session occurs, collect copays and co-insurance from the client. Then after the session, the agency bills the insurance company for the session and collects payment for the session. Then both the payments from clients and insurance companies become the basis for determining the “gross collections” for the month and then the formula is applied to determine wages for the therapist. If that is not happening, then both the agency and the therapist are leaving “money on the table” so to speak and are not getting all that they have due. Only the insurance company benefits from this lapse.
      I would talk to your employer and see how this might be corrected.

  8. DRZANE says:

    I’m just starting my practice and need to hire a 1099 therapist to share the load: where can I go to get an appropriate contract drawn up? Ideally, I’d like an editable PDF I can reuse when/if I hare someone else… Where do you all get your paperwork from?

    1. David Norton says:

      Hi Dr. Zane,
      I am unaware of a preformatted contract like you are asking for. I have always used an attorney to help me draw up this sort of document. While there was some cost, it was customized to my needs and interests. Some legal websites might have something. I know there are some advertising simple contracts. Might be a cost there too.

  9. Dan says:

    Is it normal for an individual contract therapist to also pay rent to the agency? For example, if there is a $600/mo rent paid to the agency for the office space, along with a 70/30 split.

    1. David Norton says:

      This is an unusual arrangement. More typical is either renting space, at some agreed amount each month, OR a percentage of collections. Though unusual, I can see the need for paying for services that the practice may provide on your behalf. But in my view, 30% seems high for billing, phones, an internet connection, etc., especially since you are already paying for space.

  10. Anne Adams says:

    I’m looking to bring on an independent contractor due to the amount of referrals I’m getting. I’m curious to learn how I am able to track the contractors appointments so that I am getting paid for each session that takes place. How will I know if the contractor sees them 2x a month vs weekly if they are using their own scheduling system? Thanks for your time.

    1. David Norton says:

      If you are not planning on using a joint scheduling and/or billing system, then think carefully about the arrangement. Some choose an arrangement that rents space in 4-hour blocks. For example, maybe your arrangement is that the independent contractor rents your office space in 4-hour blocks, say, X dollars for weekly times on Tuesday evenings from 5 pm to 9 pm and Weds afternoons from 1 pm to 5 pm. You are really just keeping track of the space and not the contractor’s schedule. If the contractor then has only 3 people show up, that is on the contractor. You can make this approach attractive for the contractor by keeping the rent low.

      Having said this, I would want you to think a little further out. An independent contractor may help with immediate needs but are will you not continue to grow and then need more help? If so then eventually you may be looking at more staff and more management. I have quite a few posts on these decisions but consider reading these: The dilemma of success: Do it myself or delegate and Growing pains: Hiring new clinicians

  11. EJ says:

    I just started my private practice in 2019 as an LLC – i didn’t take a salary in 2019 since I had some startup costs. I am going to start paying myself this year and am wondering if i can pay myself a flat monthly fee ($x,xxx). Do i need to pay taxes 0r estimated taxes throughout the year both personally and for the business or can this be done all at the end of the year when i file my tax return?

    1. David Norton says:

      Hi EJ,
      First off, it sounds like you are ready for a conversation with your CPA about these matters. S/he will be your best guide. I would have a version of this conversation with my CPA every year just after the tax returns had been completed. We would make a tax plan for the next year. That is the time to figure out a monthly salary amount and enough in estimated taxes to be “penalty proof.” You are going to pay taxes either via Estimated taxes or by April 15 of the next year. The total tax liability is the same either way. Why not avoid any penalties you can? Of course, if we ended up with a bigger profit than we planned (YAY!!) then I would have more taxes to pay one way or the other. As I tracked my business income through the year, id I saw more profit coming than we planned, I would schedule an additional appointment with the CPA in December. We would make a more exact guess about my tax liability and then make up any additional Estimated payments I needed. So generally, in the end, I had two conversations with the CPA. Once after the taxes were prepared and the other in December.

  12. J. Biermann says:

    Hi, David. I found this article extremely helpful. I have a question I did not see covered.
    I am an employed psychologist at a very large, multi-state practice and get paid a flat rate per session if reimbursement is received (it was a percentage when I started, then they changed the terms). I am being asked to sign a W9 with the employer’s tax ID and address., so they can provide this for credentialing purposes. I am sure they bill as a practice, with the huge number of providers in the company. It seems unreasonable that the payors (insurance companies) would be reporting to the IRS what was paid in my name – which is what I understand is the purpose of the W9 information. I am willing to sign a form that says I assign my reimbursements to the employer so the payor can pay in my name, but am hesitant to sign a W9 for IRS reporting in my name when the payor has no idea of what I get paid. Do I misunderstand how the W9 works?

    1. David Norton says:

      Thanks for your question. The answer turns on whether you are paid as an independent contractor (you would get a Form 1099 at the end of January) or an employee (W-2). I am assuming independent contractor because they are asking for a W-9. The W-9 and the 1099 are connected. Here is a pretty good post on that info:https://www.investopedia.com/articles/personal-finance/082714/purpose-w9-form.asp
      If you are an employee and get a W-2, then you would likely fill out a W-4 form. Let me know if I misunderstood.
      David

  13. MS says:

    Is it appropriate for a private practice that wants me to join them as an independent contractor, tells me to put them on my liability insurance coverage?

    1. David Norton says:

      Hello. I am not an attorney but here is my understanding. It is not unusual for an entity to require to be an “additional named insured” on your malpractice insurance. You can read about the meaning of this term here: https://www.pscinsurance.com.au/insurance-explained-difference-named-insured-additional-insured-named-additional-insured/
      Quoting from this article: “Additional Insured,” usually refers to a person or entity added to the policy by an endorsement. In general, endorsements will provide cover to the people or businesses named on them only for claims arising out of the acts or omissions of the primary insureds.” In other words, you’re adding them employer’s name as an “additional named insured” so that they are covered for actions you might make, or fail to make. It covers them. It is my understanding that this usually does not cost you much to do this. Talk to your malpractice company. They may have some info on their website about doing this. It happens quite frequently.

  14. RM says:

    As an independent contractor in a private practice, what is a typical split? 50/50? 30/70?

    1. David Norton says:

      Great question. I am working on a survey to collect real data on your question. From what I know, 70% to an independent contractor is the most generous I have heard of. A 50/50 split for an independent contractor is a pretty low percentage to the clinician. More common is 60% to 70% yo the independent contractor. As with all rates, sort of depends on what is included in the agreement beyond just pay. The general rule is that the more the organization contributes, the larger the percentage that the organization keeps.

  15. Terrell says:

    Hello David,

    I just came across your website and find it’s a wonderful resource! Thank you! I am at the point where I am expanding my practice and I’m deciding between employees or contractors. If I opt to structure the practice with employees how and what should I consider as working hours? Should pay only be based on hourly sessions or should I consider prep time and other non direct counseling hours? I’ve contracted before and was only paid for hourly sessions.

    Thank you.

    1. David Norton says:

      Hi Terrell. Thanks for your positive comments about the website. I continue to enjoy the relationships that have come from it.
      As to your questions about hours and structure, most private practices do not set hours for the therapists but rather let the demand for therapy drive the schedule. And then they pay the therapists a percentage of the collected income. That means that the practice is not setting many rules about hours of service, prep time, and non-direct counseling hours.
      The exception is in the non-profit world where therapists are typically paid a salary and then expected to schedule x clinical hours, y non-clinical hours, and be in the office for a set number of hours.
      If this is confusing to you, why not use the free 20-minute consult I offer and we can schedule a time to talk these issues through on the phone. https://growingourpractice.com/talk-to-david/

  16. Kevin James says:

    Do private insurance companies pay for treatment plans? Do private companies bill for treatment plans? Should private companies pay therapist for the treatment plans they create?

    1. Dr. David Norton says:

      Hi Kevin. I know of no insurance company that pays for the time you spend on creating a treatment plan. They mostly key payment off of the time you actually spend with the client. The only exception I know is for what is called “interactive complexity.” Click here for a link from Medicare that explains what that is. The parallel is to what happens with a physician. A physician bills for the time with the patient; not for the time reading test results or coordinating treatment or talking with other members of the treatment team. As to whether they “should” pay, of course, I think they should. But they make the rules unless a government entity says otherwise. I know of no movement toward that end. Thanks for reaching out.

  17. Rose G. says:

    Hi David:

    A therapist friend of mine will be moonlighting at my practice to help absorb some of the referrals. She only has room for max 2 clients a week right now, and can only commit to brief solution focused therapy (so a contract for perhaps 12-14 wks). I’ve crunched the numbers, and I stand to make little to nothing from this venture (given the increase in software licenses, etc, onboarding, drafts chart templates, contracts, etc.), but it will help my referral sources from dying up, provide additional support for my practice, and it is giving me the opportunity to focus on developing side of the business, so that hopefully in the near future, I can focus on hiring full-time contractors, etc.

    I would like for her to just collect all of the money directly, and then at the end of the month or contract term, to just pay me a flat rate. Is this possible, or do I still have to consider all of the money she takes in as revenue into my private practice too?

    1. Dr. David Norton says:

      Hi Rose. Thanks for the question–can you have her collect the money from her work and charge her a flat fee. The short answer is “Yes.” In this arrangement, she is operating as an independent contractor. (See Picking the best option: Independent contractor vs employing for more on this approach.) I like this approach in this case since, as you note, there is little financial gain for you in this arrangement and it keeps her stuff hers and your stuff yours. You may still want to write down the expectations and boundaries, just for clarity’s sake. If she got busier, a contract might be worth the investment. Certainly, most attorneys would advise you to create a contract but the cost is a factor.

  18. Amy W says:

    Hi David,

    Thank you so much for your article. Such a helpful resource. I’m wondering what all is typically included in the percentage split between practice and therapist. Especially with the transition to telehealth I’m wondering what a fair split should be since rent is out of the equation. The only comparison I have is how it was for me starting out before I opened my own practice. It was a 65/35 split and I covered my own billing fees, EMR fees, and phone. With telehealth I was thinking of doing 80/20 with the therapist covering their own billing fees, EMR fees, phone, and splitting the cost of the telehealth platform but am I being too generous? I am submitting all her billings and providing all referrals. Any advice you have is greatly appreciated! Thank you.

    1. Claire says:

      I too have a similar question, but on the opposite side of the spectrum. I am offered to join a private practice as a 1099 independent contractor. She is offering a 60/40 split, I take 60% of clients seen. It is all private pay. She is not providing rent, so that would be an expense of mine. For me, 40% seems high for her to take as she is not providing rent or contributing to my malpractice insurance. Thoughts? I want to either renegotiate the split or see if she will consider covering rent. Would love any input on this!!! Thanks in advance!!

      1. Dr. David Norton says:

        You are correct that for the owner taking 40% of collections, the usual contract would cover the rent for the space you are using. I think I would try to negotiate the inclusion of the rent. Malpractice would be a bit of a stretch since you are operating as an independent contractor and typically that would mean the contractor covers malpractice and licensing fees. I am not sure what she is covering for the 40% take she is getting. Space is typically the second-largest cost after payroll.

  19. Brian Bertonneau says:

    I have a question about the Fair Labor Standards Act as it applies to mental health therapists. Our therapists are W-2 employees. We would like to pay them on a straight productivity basis (i.e., a 50/50 split of receipts), but we were advised by an attorney that this is not allowed under the FLSA. Under the FLSA, a therapist employee is classified as a “learned professional” which means they must be paid a minimum salary of $684 per week (as of Jan. 2020). So we have a hybrid pay system that pays the FLSA minimum plus an additional amount based on productivity. This is very time consuming to calculate for each payroll period, plus it reduces the incentives for counselors to get their notes done on time so we can bill for completed sessions. Any thoughts would be greatly appreciated.

    1. Emily Aleksy says:

      Brian, my lawyer has said the same, which seems to be in huge contrast to what I see other practices doing. How do you calculate the additional amount to pay them?

  20. Brian Legasey says:

    Hello,

    Thank you for the helpful article! My wife and I recently started an LLC for a group practice that will provide teletherapy only and are currently getting our business set up and ready to start advertising for clinicians to work with us. Our initial thought is that we want to work with clinicians strictly as independent contractors since we’re just starting off want to start small. We believe we have structured our business so that we have appropriately categorized future potential clinicians as independent contractors, but I’d appreciate a review of what we’ve done and what some of my concerns are if you have time.

    Here are some things that we have done to help categorize clinicians who may work for us as independent contractors:

    * We have no behavioral control over how the clinicians perform their work – we don’t dictate when or how they work.
    * We don’t provide any benefits to independent contractors.
    * We have an independent contractor agreement that needs to be reviewed and signed that specifically states that the clinician will be working as an independent contractor with us rather than for us as an employee.
    * We provide clear documentation that clinicians will be working with as independent contractors and we provide resources for them for understanding what taxes they’re liable for on the IRS website as independent contractors.

    However, here are some things that I’ve read on the IRS website that concern me. Here are a summary of my concerns:

    * We’d provide contractors with some tools, such as access to SimplePractice, which would be used for providing teletherapy. Since we don’t have a physical office, I compare providing this resource to providing office space to a clinician in a physical location.
    * We’d pay the independent contractors a flat rate according to the number of clients that they see in each period (likely every 2 weeks). We know that we’re supposed to limit the financial control that we have over the contractors, but if the contractors are providing their billing statements at the end of the two week periods, I compare this to being invoiced by the independent contractor.
    *Independent contractors will not be working under their own business name, but rather as sole proprietors.
    * We will provide referrals to contractors but will not require them to maintain any specific number of clients in their caseload. They are free to see as many or as few clients as they choose.

    I’ve met with several attorneys who have stated that since we don’t have direct control over the clinicians, that they can be considered independent contractors and that we should not have to worry about the IRS. However, I’d like the opinion of someone who works in this field and has experience with this type of situation. Any advice is appreciated!

    Thank you,
    Brian

  21. Elise says:

    I’m a newbie to all things private practice and have been pouring over helpful sites like this one to learn more about the ins and outs. I was invited to join a small group private practice in Tennessee that will provide all overhead and limited benefits (dental, health, malpractice insurance – but no health/medical). The group’s practitioners do a hybrid of telehealth and face to face. I was offered $37 an hour. I’m not exactly sure what the reimbursement rates in TN are (yet) but doesn’t this seem pretty low? I know that they do take private pay, all insurances, Medicare and Medicaid.

  22. E. Vela says:

    Thank you for your knowledgeable and very useful site. I am a tele-therapist who worked as an independent contractor for a group practice under a contract in which the group kept 30% of my collections. This was terrific as I was not credentialed, and the group was, did all the billing and collections A good deal.

    Then things changed. At the end of this last year I reviewed my appointment records and discovered that I had NOT been paid at all for over 120 of my appointments. The group billed them, collected the insurance payments and then – KEPT THE MONEY! I feel very cheated – what are my options? Isn’t this fraud or theft? Should I report this to the police or district attorney? Who can I engage to get this money, about $10,000 dollars?

    Thank you. I feel like a fool.

    1. Dr. David Norton says:

      Yes, this is fraud. I would begin with a conversation with the practice owners. I would show them your summaries and see what they say. They may have simply made an error so I would not assume ill intent. But if they resist, then I think you will want to leave and find another employer. You can talk to an attorney. They might write a letter and make threats but the costs of a trial are beyond the $10K you are owed. Unfortunately, this is not that uncommon a problem but usually, it is just billing errors that no one caught.

      1. E Vela says:

        Thanks very much, and much appreciated. Bottom line is that negotiations failed, the group owner has take a “so sue me” attitude, knowing a lawsuit is unlikely, as you observed. So I left, but I am determined that legal justice is done. If this is fraud, do you mean this in the criminal sense, ie has a prosecutable law been broken? Or is this simply a civil matter? I’ve kissed this money goodbye, and learned my lesson insofar as more closely reviewing the statements (which were made up by the way). The practice used Simple Practice, but created their own altered spreadsheets (rather than SP’s built-in accurate reports).

        Thank you again.

        1. Dr. David Norton says:

          You should consult with an attorney about legal decisions. They will lay out the options, the likelihood of success, and an estimate of the costs involved for each option. Clearly, this was quite intentional if they go to the trouble of creating their own alterer spreadsheets. Very sad that this practice operates this way. Unfortunately, I have heard this troy from others.

  23. D says:

    Hello,

    I came across your site and found the information helpful! I had a question that I can’t seem to find an answer for and decided to email. I am a solo practitioner who has been practicing under an NPI Type I associated with an EIN. I am looking to expand my practice by hiring more therapists. I understand that I will need to obtain a Type II NPI, but I cannot figure out whether I should use the existing EIN I already have for my Type I or whether I should get an entirely new and separate EIN for Type II NPI. I will be renaming/rolling out a new practice name likely under a DBA to practice under as the Group and plan to have myself as an employee of the Group practice as well. Any light you can shed on whether I should used the same or different EIN would be helpful. Also, I am wondering whether I will need to go through the recredentialing process with each insurance panel all over again, or whether I can simply add the new NPI for the group practice to my current established relationship/contract with each insurance panel already.

    Thank you in advance for your time and invaluable advice related to my inquiry!

    1. Dr. David Norton says:

      The trickiness is that you are dealing with 4 types of entities, i.e, two parts of the federal government, your state government, and then many insurance companies. The answer two your situation is to sort out with each type of entity, one at a time. First, I would start by getting the new entity started. You will need a name and an address. The address can change but if you know it, use the office address. And then the new entity will require registration with the state, a new separate EIN, and if you are going to bill as a group, a Type II NPI number. Only then are you ready to work with the insurance companies. Each insurance company will have its own process for registration but you will at least have all they might ask for. Some insurance companies allow you to register your group and they will want the Type II NPI number. Others only sign up individuals and they may only care about your individual Type I NPI number. Depends on the company. This blog might help you sort out the Type I vs Type II NPI number stuff: https://blog.getbetter.co/individual-and-group-npis-7ef3d4d15d7

  24. Mark McClure says:

    Hi Dr. Norton, how is this concept of percentages allowed when the ACA Code of Ethics states in section A.10.b. Unacceptable Business Practices: Counselors do not participate in fee splitting, nor do they give or receive commissions, rebates, or any other form of remuneration when referring clients for professional services.

    Additionally, would it be seen as a conflict of interest to have a registered intern as a contractor if you are also their clinical supervisor?

    1. Dr. David Norton says:

      Hi Mark, The answer is in understanding the definition of “fee-splitting.” So when I just Googled “define fee-splitting” the first listing was: “This is essentially the payment of a commission to the referrer with the express intention of ensuring that the referring doctor directs referrals of patients to the payee. In most parts of the world, the practice is considered unethical and unacceptable, hence fee-splitting is often covert.” You may notice that the ACA ethics code seems to be targeted on “any form of remuneration when referring clients for professional services.”
      I know that people use the “fee-splitting” term in mental health but when they do, they probably mean something different. What they are meaning is another practice, i.e., what is called productivity-based pay which is legal and ethical. As I describe in the article above, productivity-based pay means that a percentage of collections is paid to the contractor or employee and the rest is retained by the practice. This practice is very common and quite different from paying the referring practitioner for referrals.

      1. YY says:

        It seems like the word “fee splitting” then is a misnomer. If fee splitting, in ACA’s eyes, is essentially a commission or payment for receiving a referral (a.k.a. a kickback) then where does the “fee” come into play? Fee splitting literally makes it sound like what everyone is doing…charging a fee for service, then splitting it. Are there any articles by the ACA clarifying exactly what they see this as?

        1. Dr. David Norton says:

          I am sure the ACA uses the term correctly. It is other, more casual users, who confuse the meaning of the term.

    2. Dr. David Norton says:

      So your second question is about the ethics of having the same clinical supervisor employing a registered intern. This is commonly done in most states and is not generally considered unethical. What would be unethical is for any supervisor or employer to in any way exploit the supervisee or employee. That would be unethical.

  25. Julie says:

    Dr. Norton-
    I have a question about the ending of business with an independent contractor. We have had an arrangement wherein the independent contractor keeps a percentage. They are now leaving and want to retain some of their clients, which is no problem. However, do we continue to make our percentage? And if so, for how long? Another question is who retains the files?
    Thank you, JJ

    1. Dr. David Norton says:

      Hi JJ,
      So in general, a contractor would continue to receive payments for collections that come in after the end date. After all, they did the work and should be entitled to the pay for it. But for how long, you ask? That is generally spelled out in a contract. But if the contract is silent, then pick a length of time and discuss it with the contractor. We usually continued payment for 4 to 6 months. In truth, the collections drop off pretty fast. Most are current within a couple months but we let it dribble out so they know we are not keeping their money.
      As for ownership of files, that too should be spelled out in the contract. It not, then generally files are owned by the practice and then the contractor can copy them if they like. But we never let files go out of our office. The practice is always the more tempting target for a complaint or lawsuit and the practice does have an obligation to protect privacy as best as possible.

  26. jj says:

    Thank you so much for your quick response! I was actually wondering whether the practice would retain their percentage for a period of time after leaving, since the practice provided the referral, or the contractor would immediately keep 100%. Of course we would want the contractor to have their fair share.

    1. Dr. David Norton says:

      Traditionally the same percentages are used after the end date. Those percentages were the agreed amount so typically they stay the same until whatever is specified by the contract or is agreed to with the contractor. If you want to read more about contracts, see my post: https://growingourpractice.com/independent-contracting-vs-employing/

  27. Lori says:

    Hi Dr. Norton,
    I owned my own private practice for the last 10 years and am now transitioning to working part time in another group practice. It would be a W2 employee position but I also was provided to contract to sublease the office space? Is this how it is traditionally done in a group practice? I understood rent would be taken out per percentage of days worked but did not understand I would need to sublease the space with a whole other contract. Thoughts? Questions to ask employer? Have not signed anything just looking over contracts. Thank you.

    1. Dr. David Norton says:

      Hi Lori. This is unusual. Typically the percentage the practice keeps includes the costs for space. But to really understand, I would need to know more about the financial arrangement. For example, what percentage is going to the group practice and what services are they including for the percentage. But in these days of teletherapy, some practice owners are separating the space costs from other-services-provided costs. Then they would have two contracts– one for space and one for other services. Email me at david.GrowingOurPractie.com and we can go deeper.

  28. B Jean says:

    Dr David,

    Thank for the information. Just wondering how to pay IC in the world of telehealth since we use a virtual office. Any thoughts?

    1. Dr. David Norton says:

      Wow, big topic. Yes, everyone is asking questions about the emerging telehealth business model. Most of the practice owners I talk to are trying to stay with the traditional payment models anticipating that we will “get back to normal” someday soon. But of course, no one knows how soon.
      What I see emerging is that those clinicians who are “content enough” with 100% telehealth are resigning and opening their own office in their homes, using SimplePractice, and surfing on the incredible demand for outpatient psychotherapy. In other words, they are going solo.
      My own thought is that that will work…for a while but burnout is coming big time. It is just that group practices cannot function as they would in more normal times.
      I have many other thoughts but sign up for my e-newsletter and stay tuned. It will be interesting days ahead. We are not out of this yet.

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