Associate OD: Should You Hire as an Employee or 1099 Contractor?

Is An Associate OD an Employee or a 1099 Contractor?

Bringing on an associate OD is a major decision for your optometry practice. But classifying that associate incorrectly could expose you to a pile of IRS penalties, payroll tax issues, and even legal troubles at the state level.

The employee vs. independent contractor question isn’t just about taxes, it’s about how your practice functions day to day, and whether the associate is truly independent or a core part of your team.

This practical guide, built specifically for optometry practice owners, will walk you through how to structure the relationship correctly, what the IRS really looks for, and how to protect your practice from costly missteps.

How the IRS Defines the Relationship: 3 Key Factors

Contrary to popular belief, you don’t get to choose whether an associate OD is a contractor or employee. The IRS looks at the facts and circumstances, not what you write on the contract or how you pay them. Here are the three main categories the IRS uses to assess worker classification:

1. Behavioral Control

If the practice controls how the associate OD performs their work, they’re typically an employee.

Examples in an optometry practice:

• Practice sets their clinic hours
• Practice assigns patients to their schedule
• Associate uses practice's staff (techs, front desk, billing)
• Associate follows office protocols for exams, documentation, and billing
• Owner reviews the associate's clinical performance

Bottom line? If the associate OD is following the practice's directive, they’re most certainly an employee.

2. Financial Control

This part gets overlooked, but it matters. Indicators of an independent contractor include the ability to operate their own business. In an optometry setting, this rarely applies. 1099 contractor characteristics would typically include:

• Investing in their own tools or equipment
• Covering their own CE, licensing, and malpractice
• Setting their own fees
• Invoices you for services
• Realizes a potential to earn a profit or take a loss

Most optometry practices fail these tests because the clinic controls financial aspects of care delivery.

3. Type of Relationship

This one zooms out and looks at the overall working relationship.

Here’s what the IRS checks:

• Is there a formal written employment agreement?
• Is the practice providing benefits like PTO, health insurance, or a 401(k)?
• Is this a long-term relationship that’s integral to the business?
• Do you represent the associate publicly (e.g., on your website)?

In almost every full-time associate scenarios where associates provide core services that are essential to the practice, these questions point straight to employee status.

Can an Associate OD Ever Be a True Contractor?

Yes, but it's rare and requires some very specific structuring. Here are the cases where a 1099 contractor may be possible:

• The OD operates through their own entity (LLC or S-corp)
• The OD sets their own schedule with no control from the practice
• The OD uses their own equipment, staff, and provides services independently
• The OD invoices you instead of receiving a paycheck
• The OD is brought in for specialty or limited work, such as:
  • Fill-in or vacation coverage
  • Low-vision specialist seeing patients periodically
  • Mobile OD services contracting with the practice

But here’s the catch: If the associate OD works only for you, follow your protocols, and see your patients; they’re your employee.

Optometry-Specific Classification Traps to Watch Out For

Optometry isn’t like other industries. Patient care is heavily regulated, and that adds extra complexity. Some high-risk areas to be mindful of:

Patient Scheduling

If your front desk is booking patients for the associate, that is employee behavior.

Billing & Medical Records

Using your EHR and billing systems shows you're in control of the clinical and financial side. That’s another employee signal.

Malpractice Insurance

If you're footing the bill for malpractice coverage, the IRS sees that as an employer responsibility.

Non-Competes & Non-Soliciation 

You generally can’t restrict the future practice of a true contractor this way. These kinds of enforceable clauses only hold water with employees.

How Compensation Structures Tip the Scale

W-2 Employee:

• Paid hourly, daily, or salaried
• Bonuses based on production (optional)
• Eligible for benefits
• Payroll taxes withheld
• Licensing/CE covered by practice

Independent 1099 Contractor:

• Paid per diem or per exam
• No benefits
• Handles their own taxes
• Provides their own malpractice coverage
• Invoices the practice directly

If the compensation structure looks like a traditional employee arrangement, the IRS will treat them as an employee, regardless of what the contract says.

Consequences of Misclassification

Misclassifying an associate OD isn’t just a paperwork issue, it can create a financial mess for your practice. Here’s what a misclassification can trigger:

• Back payroll taxes (plus interest)
• Employer’s share of Social Security & Medicare
• Penalties for not withholding federal and state taxes
• Wage claims at the state level
• Workers’ comp exposure
• Liability for benefits that should’ve been offered

And yes, the IRS can look back three years or more during an audit.

Best Practices for Staying Compliant

If Hiring as an Employee (W-2):

• Use a formal employment agreement
• Provide a clear compensation structure
• Set and enforce consistent clinic protocols
• Run payroll properly
• Offer benefits as desired

If Hiring as a Contractor (1099):

• Require that they operate as an LLC or PC
• Ensure they set their own hours and patient load
• Have them invoice you
• Avoid offering benefits or training
• Skip the non-compete (but a non-solicit might still work)

For most optometry practices, hiring an associate OD means hiring an employee, not a contractor. A contractor arrangement is only appropriate when the OD is genuienly independent, works for multiple practices, or provides speialty/occasional services. 

Correct classification protexts your practice, minimizes risk, and ensures compliance with IRS and state rules. If you’re unsure, don’t guess. Talk to a CPA who understands optometry and can guide you through the compliance maze.

At Williams Group, we specialize in accounting, payroll, and advisory services for optometrists. Whether you're bringing on your first associate OD or restructuring your current team, we’ll help you do it right and keep the IRS off your back. 

Get optometry-specific classification support by scheduling a call with Brad Rourke, CPA, ABV or learn more about our accounting and tax services specific for ODs on our website.