It is undeniable that the pandemic fractured the already tenuous relationship between health systems and staffing agencies. Faced with overwhelming patient demand, health systems increasingly relied on traditional agencies and tech-enabled platforms to fill shift gaps. Unfortunately, the desperation for nursing staff opened the door for exploitation, with some agencies choosing to price gouge and take huge profits.
The exploitation, however, is not limited to those agencies that used the constrained nursing supply to prioritize profit over care. Another exploitative practice has emerged, namely the misclassification of nursing staff as 1099 independent contractors. The Department of Labor (DOL) has taken notice of this issue, and their interest carries significant legal and financial implications not only for agencies but the systems that engage them.
In fact, the DOL recently filed a lawsuit in Pennsylvania against a skilled nursing facility, alleging that the facility used a tech-enabled staffing platform provider which classified its workers as independent contractors, and seeking $19 million in unpaid overtime.
You may be wondering why the DOL is suing the facility ownership group and not the staffing agency. That’s because in the eyes of entities such as the IRS and DOL, healthcare systems and facilities are at the very least just as culpable as the agency when it comes to worker misclassification. Assuming that agencies take on all of the legal and financial risk that comes with misclassification is not only wrong, but it could in fact fall squarely on the healthcare system.
As the healthcare industry continues to intersect with the gig economy, we are seeing the emergence of more regulations to address the gray areas that exist. While independent contractor classification has been common in the gig economy to provide organizations with a level of flexibility, it does not appropriately apply to healthcare workers, especially nursing professionals.
The IRS and DOL determine employee classification by the workplace relationship, not the terms of a contract between the workplace and staffing provider. If the IRS and DOL conduct an audit of a healthcare facility and find that a 1099 contractor was misclassified and should be a W-2 employee, the facility may be held legally responsible as an employer. This means that the facility would be liable for unpaid overtime pay, taxes, and other steep penalties.
Healthcare leaders need to understand the implications of these regulations within the context of their industry. For example, in long-term care, certified nurse aides (CNAs) make up over half of the nursing workforce. CNAs require significant oversight, training, and control to ensure optimal patient outcomes, which aligns with the characteristics of an employee. The DOL appears to agree with this perspective.
The Labor Department has conducted over 1,200 worker misclassification investigations in long-term care since 2021, resulting in millions of dollars in back wages for independent contractors and fines paid to the federal government. Additionally, individual states like Illinois, California, Oregon, Louisiana, Pennsylvania, and Connecticut are actively making changes to their healthcare labor classification regulations.
While it’s important to remember that the recent litigation is shining a light on the risks of worker misclassification, this issue is not new. There are financial advantages to classifying workers as independent contractors, which is why some agencies choose this approach. Operating as a 1099 business allows expansion into new markets without the burden of onboarding and fully credentialing every nurse and aide. Without the costs of benefits and payroll taxes, a more attractive sticker price is offered to healthcare communities.
W-2 employed nurses and aides receive the benefits, wage, and overtime protections mandated by the Fair Labor Standards Act (FLSA). More importantly, employee designation enables staffing agencies to provide proper training, supervision, and management to meet quality standards and appropriately handle clinical incidents.
This is where the 1099 model in healthcare falls flat. It creates an environment where nurses and aides are providing the majority of direct patient care yet lack the training, support, and oversight that they require. The 1099 model is not only risky for health systems, but it’s also dangerous for patients.
The most recent data shows that 60% of nurses are planning to change their work status in the coming year. To overcome this, we need staffing partnerships that are built on trust. This begins with preventing agencies from offloading significant risk onto the communities that rely on them, allowing them to prioritize profits over the well-being of both patients and nurses.
With the enforcement of worker classification becoming stricter, healthcare leaders must carefully evaluate their staffing partners. Protecting nursing professionals and keeping them at the bedside must be a shared responsibility that is upheld through state and federal regulations and licensing requirements. Through transparency and trust, we can prioritize the well-being of nurses and build partnerships focused on better patient outcomes.
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