March 5, 2007

Why Become an Independent Contractor MT?
By Beth McLaughlin
For The Record
Vol. 19 No. 5 P. 6

Why do some companies use employees while others employ independent contractors? The American Association for Medical Transcriptionists (AAMT) and the Medical Transcription Industry Association (MTIA) have recently worked with the Department of Labor to establish an apprenticeship program for medical transcriptionists (MTs).

Can independent contractors be apprentices? No, the apprenticeship program is for employees. Peter Preziosi, the AAMT’s executive director, has said in his annual executive director’s message that “ICs [independent contractors] and small medical transcription service owners [will] have a hard time going it alone.” By the same token, he says, “[the] shortage of work-ready graduates persists.”

Viewing the independent contractor relationship in the parameter of a lifestyle entrepreneur is a great way to attract new people to the business and an appealing reason for working as an independent contractor. In her book Big Vision, Small Business, author Jamie Walters talks about the entrepreneur with two bottom lines. One, obviously, is the financial bottom line. The other can be called the lifestyle bottom line.

Life is a journey, and your small business can be a vehicle for that journey—a ride to learning, service, and a way of life. An MT working as a contractor can be the perfect business format for a working mom. It requires intelligence, planning, creativity, and self-discipline; as an independent contractor, you can tailor your job to your personality and time-management realities. Working as an independent MT has the added advantage of offering pay-for-production incentives, often ideal for the lifestyle entrepreneur.

As an independent contractor, you are essentially starting your own business—you have broken the glass ceiling because you’ve just become a CEO. IRS (Internal Revenue Service) Publication 1779 discusses the considerations for determining whether you are an independent contractor or an employee. The factors to be considered are control—behavioral control, financial control—and the relationship of the parties. As you can imagine, more control implies an employee relationship, less control can be construed as an independent contractor relationship. Most entrepreneurs don’t want control in their lives; the only control they are interested in is the control dictated by the client’s service needs. Their impetus for turnaround times is dictated by their pride in their work.

Independent contractors can deduct business expenses, such as computers, phone charges, association dues, office furniture, and any assistants or subcontractors. They are responsible for paying both halves of their income tax payments and the so-called self-employment (SE) tax, which is the half of the Social Security and Medicare payments the employer would pay if they were an employee. Independent contractors can deduct that extra half of their SE tax when determining their adjusted gross income.

Income tax is what the IRS terms a “pay as you go” tax, which means everyone is required to make deposits throughout the year. If you are married, filing jointly, and your spouse has tax payments deducted, that will help take care of the tax deposits. This is also defined by state, so it’s important to check with the state taxing authority regarding its definition.

Confusing? Many experts recommend making use of an accountant, who will probably save you more money in taxes than you’ll spend on their fees—and accountant’s fees are also deductible.

Don’t forget benefits, which can be a deciding issue. If you are covered by a spouse’s benefit plan, independent contractor status is perfect. Rather than throw away money on benefits an employer has to provide, use the cash for other things. Both the AAMT and MTIA have arranged for group-style policies to be available to members.

Other insurance options include health savings accounts (HSAs). According to Jim Bianco, a certified public accountant in Michigan, “Health savings accounts are a relatively new way to handle your medical care needs. It has many advantages over traditional PPO [preferred provider organization]-type health insurance. Among the advantages, your insurance premiums are cut in half with HSAs. You invest the other half, pretax dollars—which can save you a combined total of approximately 45% between payroll taxes, income taxes, and insurance—wherever you would like and have your investment earn on a tax-free basis. This ‘other half’ is yours to keep, not the insurance company’s, until you need to pay for your medical care expenses.

“At the age of 65, you can take out any leftover money from your HSA account to pay for anything you want, and you just pay the federal and state [if applicable] income taxes on the withdrawals just like you would with an IRA withdrawal,” he adds. “HSA contributions are a great way to deduct medical expenses via pretax dollars when you cannot do so on a personal income tax return, which most people are not able to deduct because of the ever-increasing standard deduction.”

A lifestyle entrepreneur has more than just taxes in mind; those freedom-from-control issues are huge. If you’re energetic, ambitious, and creative, opportunities are going to arise. There are all kinds of things that need to be transcribed, and if you are interested, word will get out about your services. Combining your own clients with clients you contract from a service is a great way to have some continuity and make a little more money.

Are you looking for a solid, structured job or opportunities? Are you doing this because you have to work or because you love to be at home, you love a challenge, and you take pride in your accomplishments? Independent contractor status isn’t for everyone. Some people prefer the structure of an employment relationship. They count on their jobs for emotional stability and a sense of security.

Lifestyle entrepreneurs are eager to break the glass ceiling and own their own businesses. Perspective is everything. If you believe you’re an independent contractor because your employer is cheap and doesn’t want to pay your taxes, you’re always going to feel cheated. If you want to own your own business and get used to estimating your own jobs, invoicing clients, and taking advantage of opportunities that come your way, independent contractor status is ideal.

Lifestyle entrepreneurs are well-suited to a production model, too. If you’re adept with your computer, creative with solutions, and pride yourself on working smarter not harder, you’ll do well in a pay-for-production situation. The healthcare provider reaps the benefits, too. They can get their work done at a slightly better price because they’re paying for overachievers who work smarter not harder. Ingenuity, creativity, and attention to detail will enable independent contractors to make top dollar. The client dictates the rules, and you use those and The AAMT Book of Style for Medical Transcription to guide you.

Preziosi is right in his admonition that consolidation is forcing those of us who want to remain entrepreneurs to align with each other to provide strategic assistance and guidance.

— Beth McLaughlin is founder and president of Adept Word Management, Inc.