Resident Student or Employee (Can You SURVIVE the Taxes?)

Medical Residents Are Employees, Not Students

Is a medical resident considered a student or an employee

When you leave med school, you have your first internship year, then you transition into residency, and you will get paid a salary, albeit a small one. Many residents still determine the tax classification once they enter residency and fellowship. If you’re wondering about the specifics of resident physician salary, you can learn more about how much a resident physician makes. So, let’s discuss that today.

There was a Supreme Court case in 2011 called Mayo Foundation versus the United States. And essentially, in that case, the Supreme Court found that medical residents are employees, not students. You can read more about this important case on the U.S. Courts’ official website. Therefore, their salary will have taxes deducted, so the FICA includes Social Security and Medicare.

Residents Tax Classification

Now, as most of you are reading this blog are either a resident or a fellow; you understand that you usually work 50 to 80 hours a week. Your base compensation is not commiserated with the time you spend working. So, any amount of money that one can save is significant. It may change anytime, but the employer will take FICA taxes from your salary

So, let’s talk about the different classifications in employment and why it matters to the physician. You are either an employee or an independent contractor when you are working. And when you get out of training, you’ll have the decision to make as far as if you’re going to pursue a job with one or the other. 

Let’s talk about the benefits of both.


Tax Benefits for Resident Employees and Independent Contractors

As an employee, taxes are subtracted from it, but you will benefit from having a lot of ancillary things provided to you. As an employee, you will receive health, vision, dental, disability, and life. They’re going to pay for your underlying premium for your malpractice insurance. They will provide you with potential productivity incentives, moving expenses, and signing bonuses

You won’t get those things when you’re an independent contractor.

 There are a few independent contractor jobs where they will pay the underlying premium for your malpractice insurance, but everything else will be on you. So, as an independent contractor, you’ll get paid in amount, and the employer will take no FICA taxes out of it. You will not get any health benefits. They will not pay for your dues and fees, board, DEA, credentialing, and privileging—it will all be on the physician. 

Now, why would you do one over the other? 

Ideally, the independent contractor relationship allows some more flexibility than being an employee, meaning you can work for multiple organizations as an independent contractor. Whereas, as an employee, almost every employment contract will have exclusivity or prohibited outside activities. The employer will have veto power if you want to work for another organization while employed with them. Organizations are usually okay with moonlighting and locums work if it doesn’t interfere with your day-to-day activities for that employer. For tips on making extra money as a resident physician, check out this article on how to make extra money as a resident physician.

Employment After Residency Training

If I had to say what is better, anyone coming out of training is unlikely to enter multiple independent contractor relationships. It would help if you built up the network when you leave training. Nine out of 10 people enter employment classified as an employee. There are a few specialties that are more likely only to offer independent contractor opportunities.

So, for whatever reason, anesthesia and dermatology use independent contractor agreements much more liberally than any other position. Now, you’ll always be an employee if you work for a hospital or hospital network. You’re not going to work as an independent contractor. The only time you’d work as an independent contractor, or a better way of saying that is when the organizations that offer these are usually smaller physician-owned groups, between two to eight physicians. And in that scenario, they may offer it. 

Do you want the security of having all those benefits? 

First, the flexibility of being an independent contractor where you can get in and out of the contract, meaning the notice requirement to get out of it will be less. You can work for multiple organizations simultaneously. Now, one other consideration is restrictive covenants. So, non-compete, non-solicit. Almost any employment contract for a physician will have a non-competition clause if you’re not in a state where they’re prohibited. 

There are four or five states where non-competes are entirely prohibited, just illegal. However, most states do allow non-competition clauses.

Non-Competition Clause for Independent Contractor Agreement

You should not accept an independent contractor agreement with a non-competition clause. They are enforceable if you sign them, but the nature of the independent contractor agreement is that it allows you to move jobs quickly. And a non-compete could stop you from doing that and could become a problem in the future. Another consideration is malpractice insurance. 

Many independent contractor agreements specify that the physician must pay for their coverage. That also means you’ll be able to choose what type of coverage you want, either occurrence or claims-made. In most independent contractor relationships, occurrence-based coverage is the way to go if you have the choice. With the claims-made policy, you need tail insurance. With an occurrence-based policy, you do not. The American Medical Association provides more insights on the topic of malpractice insurance.

Occurrence-based coverage is about a third more expensive, but most independent contractor relationships are shorter. Maybe it could be less than a year, but it’s not usually a short-term relationship. And in that scenario, just doing the math, you come out ahead even if you pay a third more per year. I know I went off on a little tangent. 

There’s not much to discuss regarding whether a resident is an employee or a student. They are classified as employees. And so, you will have FICA taxes taken out of it. But it’s also a good transition into thinking about the different types of employment relationships. You’ll have to deal with it when you come out of training.


Guaranteed Job After Residency

Is a resident guaranteed a job after training? 

The short answer is no. You’re not. 

However, it’s doubtful that you cannot find any position when you get out of training. When you are a resident, the length of the residency depends upon what specialty you’re in. But most residents will start looking for a job either in their second to last or at the beginning of their final year of training. And there are various avenues to find employment, which I’ll go through a bit. But there is no guaranteed feeder system for any resident or fellow. The physician will be responsible for going out and finding a job themselves.

Finding a Job After Residency

There are times when the training program you’re in is looking for a physician, and then it’s a smooth transition if they offer you the job and it’s somewhere you want to stay. But honestly, that is rare. 

As somebody who’s reviewed thousands of physician contracts over my career, I know the number of residents staying with the hospital or health network where they trained is deficient. Most of the time, people look outside their employment training program. 

Now, the way to look for a job is where you want to be. That is the most significant factor when finding a new job. And I’ll use an example.

Look for Jobs in Your Desired Location

Let’s say you want to move to a desirable location. For instance, I live in Scottsdale, a desirable location because of the weather, lifestyle, and all that good stuff. Because many people are moving here, the competition for jobs is much higher than in other areas. 

But if you want to live in rural Idaho or something like that, where there’s very little competition—if you want to move to a remote location, you will make more money and have less competition. So it would be much easier to find a job. However, many people don’t want to live in a remote area, and they want to live in a big city.

Finding a Job in a Medical Specialty

And if you first think, okay, where do I want to move to? That can dictate the ease of finding a new position. So, that’s the first thing. 

The second is the specialty. Some specialties could get a job wherever they want, whenever they want. Many surgical specialties and some internal medicine subspecialties are always in need. And you’ll be able to find a job relatively quickly. Whereas for someone in primary care, peds, or something like that, the competition for those jobs might be much higher. And it might be much more difficult to find a position in the exact location where you want to be. Once you’ve identified where you want to live, there are several ways of finding jobs.


Using a Physician Recruiter to Find Work

The next could be through a physician recruiter

They can be helpful, and you can skip paying the physician recruiter. The employer will ultimately have to pay if they decide to bring you on. There’s no downside to using a recruiter. It would be best to find a recruiter familiar with the area you’re looking to move to. If you want to move to California, you should see a recruiter who recruits in that area. 

Although it’s much easier to work remotely now than three years ago, finding someone with relationships in the community is still helpful. So, if you want to use a physician recruiter, find someone in the area or someone who focuses on the place you want to move to.

Building a Network Through Colleagues

Networking through colleagues is another way of doing it. People, attendings, and other physicians who work for the network may have potential job opportunities for you. 

Networking with classmates as well. If all the people in your specialty are looking for jobs, they may have leads. Those are the best ways to find a new job. As I said before, nothing is guaranteed. But if you can identify where you want to live and do the work, you should be able to find a job.


About Us:

We are a dedicated team of legal professionals specializing in physician contracts at Physician Contract Attorney. With years of experience in the healthcare industry, we deeply understand the challenges faced by physicians when navigating complex employment contracts. Our mission is to ensure that our clients are protected and well-represented. We focus on providing sound legal advice tailored to your unique needs, empowering you to negotiate your contract with confidence. For more information or to schedule a consultation, please reach out to us today.

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