This article was written by Danielle Kalberer, OD, FAAO, and has been vetted by the CovalentCareers team for inclusion in our resource library.
Starting a new job can be both exhilarating and overwhelming. Understanding an employment agreement in healthcare can be particularly difficult when the document is saturated with legal and financial stipulations you may be unfamiliar with.
The most significant factors are outlined below in an attempt to demystify the concepts and help you to reach an agreement that acts in your best interest.
1. Work Status
The agreement establishes your status within the practice. This means designating you as a full-time or part-time employee, per diem employee, independent contractor, shareholder, and/or partner. This title has important tax implications and you should be aware of the options. (1)
For new healthcare providers, the most important distinction to understand is that between employee and independent contractor status.
As an independent contractor, or 1099 tax category, the practitioner operates as a sole proprietor and can decide when and where to practice. This route does not generally include benefits and salary will not be pre-taxed.
The contractor is responsible for self-regulating his or her income tax but there may be certain tax deductions for travel or equipment that can be utilized. Since taxes and cost of benefits are not deducted, the initial take-home salary tends to be higher than those of W-2 variety.
As an employee, or W-2 tax category, the practitioner works for a certain company that will provide required training and equipment. There tends to be a more regular schedule with set hours.
Since there is contractual dedication to the company, benefits are usually offered. The company deducts payroll taxes for employees, so the net income employees see on their paycheck may be slightly less. (2)
The contract may outline the prospective path to promotion and also the path to partnership, if applicable. It may stipulate partnership status after a given number of years or an opportunity for review and consideration for partnership after a certain number of years.
Avoid agreeing to vague terms such as once you “meet expectations” or “at the approval of the existing partners” without a given time frame. (3)
To determine how competitive your potential salary is, ask other practitioners who work in a similar environment in the same region. If the contract is offered as multi-year, it should designate a first-year base salary with an annual increase for cost of living and increased experience. (4)
If the company requires a performance review in order to obtain a salary increase, the protocol should be stated along with a timeline. (5)
Incentives and bonuses to augment your base salary should be specified as well. If you are offered a sign-on bonus, having it in the agreement provides a guarantee. Incentives based on your monthly or annual productivity may be measured in several ways, including gross collections, number of patients seen or relative value units (RVUs).
RVUs take into account that some patients require greater time and effort to care for than others. This concept aims to neutralize differences between a practitioner who sees older, more ill patients and one who sees younger, healthier patients. (3)
If you require health insurance coverage for your spouse or children, be sure to negotiate to ensure that you receive it. (4) The time until eligibility should be stated in order for you to secure coverage through other means in the interim.
If a 401(k) retirement plan is provided, the contributions and matches should be stated in the contract, along with the time until eligibility. This is usually standard for all employees of the company, so long as the company participates in a retirement plan at all .
There are two types of malpractice insurance-“occurrence” and “claims made.”
Occurrence is more desirable from the practitioner standpoint. It covers all incidents while you were employed regardless of when the claim was made.
Claims made, on the other hand, only covers claims made while you were still with the employer. With claims made, you need to obtain “tail” coverage for claims made after your employment terminates. This can be costly and hopefully the company will purchase the tail for you. If not, this is something worth advocating for during negotiations. (4)
Some employers will cover professional costs including license renewal fees, a stipend toward continuing education credits and a stipend toward professional organization dues. (1) Keep in mind that these benefits add monetary value to your salary indirectly.
Time off must be specified in the agreement. This includes vacation time, sick leave and personal days. Some employers divvy these up, while others group them as paid time off (PTO). If there is an accrual system for paid days off, it should be defined in the contract. (4)
If you are relocating for a job, you should consider a provision for reimbursement or an allowance toward moving fees. Similarly, if you are commuting or traveling for the position, consider a provision for gas/transportation expense reimbursement. (4)
The number of hours per week should be specified in the contract. Avoid ambiguous terminology such as hours “as commonly spent” or “as spent in similar practices” which could result in your being stuck working countless more hours than anticipated. (3)
Call schedule should be described in either hours or days per week. Ideally, on-call hours will be split equally among practitioners. Avoid terms such as “distributed on fair basis,” “appropriate basis” or “at the discretion of the partners.”
Any of the aforementioned could lead to uneven distribution, especially with you as the newest addition to the practice. You should advocate for either a specific hour/day requirement or terminology stating the call will be equally distributed among practitioners- that way if the available number of personnel should change there is still some flexibility.
You may also wish to request a provision to limit evenings or weekends that you are expected to work. (4)
Your managerial duties, or lack thereof, should be outlined. The chain of command should be determined:
- Who is your supervisor?
- Who you are responsible to supervise?
- Are you responsible for hiring or firing of staff?
- Will you be involved within-office decision making? (5)
The first two points should be specified from the get-go while the latter two may be responsibilities gained over time once you have more experience.
5. Employment Restrictions
Some employers prevent you from working elsewhere during your hours off. If so, the agreement should identify which types of activities you are prevented from engaging in.
Work of a non-competitive nature, giving lectures or conducting research, may be permitted but could require written approval. In some scenarios, if the project promotes the practice it can be considered for bonuses.
If all practitioners are contributing or the activity is being completed during office hours, the practice may require the earnings be contributed to gross practice income. Otherwise, any payment for outside employment should be considered your private income.
Some contracts have a clause to designate the employer as the owner of any inventions, including programs or devices that are developed during employment. (5)
Non-compete clauses prevent you from providing the same services within a certain time frame and geographic area after employment has been terminated. This is extremely common in healthcare agreements, yet it is difficult to establish a normative recommendation.
The restrictions vary by geographic area, patient population and medical specialty. Some states have deemed these statutes illegal, while others uphold if “reasonable.” (3)
Non-solicitation rules prevent you from encouraging current patients or employees of the practice to leave and either enter employment with you elsewhere or at a competing business.
A confidentiality clause means that you cannot disclose confidential information about the business itself during or after your employment. This includes financial information, office procedures/protocols, or other types of sensitive information which may result in devaluing the practice if it is released to outside parties.
The penalty for not following these clauses can be a quantified sum in damages. Even in states that deem the clauses non-enforceable, you can end up with hefty legal bills from litigation. The best idea is to ask current practitioners and consult with an attorney regarding enforceability and what is “reasonable” for your area.
There should be a specified start and end date to the agreement along with a process for renewal. There are three channels through which a contract may be terminated prematurely- termination “with cause,” termination “without cause,” and a change in ownership of the practice.
As may seem obvious, “with cause” termination is due to some factor that makes the employer feel the employee is unable to perform job requirements adequately. In healthcare, the most common reasons are loss of licensure, inappropriate conduct and/or illegal conduct. (3)
Depending on state employment laws, termination “without cause” may have a specified notice period to provide you with sufficient time to seek other employment or for your employer to find a replacement. A typical notice period can be from 30-90 days. Check with a local attorney and/or your applicable state employment laws to understand whether your state is an “at will” employment state, which would permit employees or employers to terminate the agreement without cause at any time, with or without notice. (4)
This determines if the contract is transferable, should the practice be sold or merged. If the contract is assignable, the practitioner may be able to continue practicing the same way under the same contract under the new ownership. If the contract is not assignable, the contract becomes void under the new ownership, and a new contract needs to be negotiated.
The latter does not guarantee the practitioner a job under new ownership and if this were the case, a cash settlement or severance package would preferably be in place for premature termination. Consider the likelihood of a change in ownership happening during your employment, and whether it would be prudent for you to negotiate severance in advance.
The contract should specify your fiscal responsibilities if the contract is terminated. Benefits such as continuing education stipends, professional organization dues or malpractice insurance may need to be repaid.
A clear and concise employment agreement lays down the framework for a successful business relationship. Familiarizing yourself with these key points in advance will give you a huge advantage.
Keep in mind, however, you should still have an attorney review the contract for ease of your understanding and legal guidance in making your big decision!
1. Darves, Bonnie. “Anatomy of a Physician Employment Contract.” New England Journal of Medicine Career Center. http://Nejmcareercenter.org. October 2011.
2. “1099 vs. W2: How Independent Contractors and Employees Differ.” LearnVest, Inc. http://learnvest.com. February 16, 2017.
3. “10 Key Factors to Understand in a Physician Contract.” Staff Care-Editorial. http://staffcare.com. July 7,2016.
4. “Contract Negotiations: Five Elements to Consider.” American Academy of Family Physicians. http://afp.org. 2017.
5. “Understanding the Contract.” American College of Physicians-Physician Employment Contract Guide. 2017 pp. 8-12.