pany maintained to track performance and ensure quality work.
Much to the company’s surprise, the state commission considered the demographic information as a legal “employee file.”
Furthermore, the quality assurance information was looked
upon as employee training. At the end of the audit process, all
ICs were declared ExecuScribe employees.
A New Direction—Converting ICs to Employees
Initially the company was required to pay back FICA, unemployment taxes, penalties, and interest. It was a financial disaster and a bleak year. Over the next several months it became
clear that the ExecuScribe audit was part of a new state agenda.
From 2002 to 2005 a state task force determined that up to 10
percent of workers in New York state were misclassified by their
As if the state audits weren’t enough, there was also a risk of
the federal government getting involved. A company could incur more than $1 million in penalties and fines if the federal
government conducted an audit and reclassified its ICs as employees. Clearly, it was time to make a change.
For ExecuScribe, the only viable solution was to transition to
an employee model. The company announced its intentions
and within 90 days had successfully converted 98 percent of its
ICs to employees.
IRS guidelines are helpful in
determining whether an individual
is an IC or an employee.
The trade-off for ICs was that ExecuScribe would pay a lower
line rate for transcription but provide complete benefits. In addition, the company assigned and enforced set hours. Initially
ExecuScribe expected to see a huge drop in profits, but this did
As with most changes, communication was the first and most
important step. The management team explained the need to
transition from ICs to employees. ICs were provided with frequently asked questions, company documents, webinars, and
face-to-face meetings. It was explained that the decrease in line
rates would be more than offset by the benefits they would receive as ExecuScribe employees. In fact, the benefits worked as
a tool to enhance recruitment efforts and minimize turnover.
The few transcriptionists who remained ICs were educated on
the state regulations, which required them to:
At the federal level, IRS guidelines can be used to determine
whether an individual is an employee under the common law
rules. HIM directors and outsourced service companies should
The IRS Independent Contractor Test
THE IRS OFFERS guidelines for determining whether an individual is an independent contractor or an employee. The
guidelines consider 11 factors divided across three categories. Following is a high-level summary; the full version provides a description for each factor.
Facts that show whether the business has a right to direct
and control how the worker does the task for which the
worker is hired include the type and degree of:
1. Instructions the business gives the worker
2. Training the business gives the worker
Facts that show whether the business has a right to control
the business aspects of the worker’s job include:
3. The extent to which the worker has unreimbursed business expenses
4. The extent of the worker’s investment
5. The extent to which the worker makes services available to the relevant market
6. How the business pays the worker
7. The extent to which the worker can realize a profit or
Type of Relationship
Facts that show the parties’ type of relationship include:
8. Written contracts describing the relationship the parties
intended to create
9. Whether the business provides the worker with employ-ee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay
10. The permanency of the relationship
11. The extent to which services performed by the worker
are a key aspect of the regular business of the company
Source: Internal Revenue Service. “Employer’s Supplemental Tax Guide.”
Publication 15-A. January 25, 2010. Available at www.irs.gov/pub/irs-pdf/
ensure they are as compliant as possible with this guidance (see
Surprising Results, Safer Outcomes
Following the conversion, ExecuScribe experienced surprising results. Productivity rose dramatically. Transcriptionists
received assignments and designated hours to complete their
work. Quality improved, and turnaround time was reduced.
ExecuScribe managers also saw a boost in productivity and
accountability. In the past they had been required to manage 40
ICs doing the work of 20 employees. Because coordinating work
for full-time employees is much easier, the same managers now
oversee up to 50 full-time employees.