California says locum tenens firms must pay employee tax

Companies claim the dispute threatens to drive the industry out of the state and could threaten it elsewhere.

By Katherine Vogt, AMNews staff. Sept. 12, 2005.

For decades, physician staffing firms have been the matchmakers of the locum tenens industry, pairing physicians who want temporary work with hospitals or other health entities who want their services.

During this time, the staffing firms have treated the physicians as independent contractors, acknowledging a mutual dependence on each other for services and yet recognizing a need for physician autonomy in health care.

But a bitter tax dispute in California is calling into question the very nature of that relationship. And critics say it is threatening to drive the locum tenens industry out of the state. Further, they say that if the state taxing authority leading the charge in this fight wins, it could set a dangerous precedent for locum tenens work in other states.

"Clearly, this is a concern for our industry," said Katie Abby, president of the National Assn. of Locum Tenens Organizations. "If California is successful in forcing their assessments, it could potentially drive the locum tenens companies out of the state."

The call for alarm has erupted in the wake of several rulings by the California Employment Development Dept. finding that physician staffing firms owed taxes or penalties because they were acting as employers to the physicians that they were serving.

Abby said that during the last year at least four or five firms had been ordered to pay assessments, some of which totaled millions of dollars. The firms, which have never considered themselves physician employers, have balked, vowing to appeal the rulings. They point to the treatment of locum tenens physicians as independent contractors both historically and in other states, and say several Internal Revenue Service rulings have supported that classification as well.