As a healthcare leader, you understand that staffing decisions are more than simply filling shifts—they’re about managing risk, compliance, and financial sustainability. While offering similar positions for W-2 employees and 1099 independent contractors alike may seem like a flexible strategy, it can expose your organization to serious legal, financial, and operational risks.
Several lawsuits and government crackdowns in recent years highlight the dangers of misclassification. Here’s why healthcare organizations should rethink using both employment models and prioritize W-2 for its temporary staffing to ensure compliance and long-term stability.
The Legal Risks of Worker Misclassification
State and Federal Departments of Labor have increased their focus and enforcement actions against employers who misclassify their workers as 1099 independent contractors, including enforcement actions and lawsuits against healthcare facilities that misclassify employees as independent contractors.
- In 2024, the U.S. Department of Labor filed a lawsuit against a healthcare staffing agency in Rockford, seeking $140,000 in back wages and damages for misclassifying RNs, licensed practical nurses, and certified nursing assistants as 1099 contractors and, therefore, failing to pay them the overtime these clinicians were due.
- Nursing home operators in Massachusetts, Kansas, and Pennsylvania have been sued for misclassifying certified nurse aides as independent contractors, resulting in back wage and overtime claims and penalties.
These lawsuits underscore the risks healthcare organizations face when using 1099 workers, especially when they perform similar work alongside W-2 employees. If a facility controls work schedules, policies, and supervision alongside these temporary workers, then there is a genuine risk that the law views them as W-2 employees—triggering audits, fines, and back-pay liabilities.
Why Clinicians Might Prefer 1099 (But, Why It’s Risky for Employers)
When facilities offer both W-2 and 1099 roles, many clinicians choose 1099 contracts due to higher hourly rates. However, what looks like a financial advantage often comes with hidden costs for both the clinician and the employer.
For Clinicians:
While 1099 workers may see higher paychecks, they must also:
- Pay self-employment taxes: Independent contractors cover both the employer and employee portions of Social Security and Medicare taxes, totaling ~15.3%.
- Fund their own benefits: Independent contractors are not eligible for employer-sponsored health insurance, retirement plans, or paid time off.
- Have fewer labor protections: There is no guaranteed overtime pay, workers’ compensation, or job security.
- Professional liability insurance: Independent contractors are potentially exposed to significant financial liability if they cannot claim to be covered by an employers professional and general liability insurance. When this happens, plaintiffs attorneys will look to the healthcare provider as its sole source of recovery.
For Healthcare Facilities:
While using 1099 clinicians may seem like a way to reduce payroll costs, it actually increases liability and creates compliance risks:
- Higher risk of misclassification lawsuits.
- Potential back wages, benefits, and tax penalties.
- Inconsistent patient care due to varying clinician standards.
Operational Challenges: The Cost of Inconsistency
Beyond legal and financial risks, blending W-2 and 1099 clinicians creates operational challenges that can affect patient care quality and team cohesion.
- Credentialing and training gaps: 1099 workers are responsible for their own certifications, leading to inconsistencies in compliance and competency.
- Disruptions to care continuity: Contractors frequently move between assignments, making building a cohesive care team harder.
- Variability in adherence to protocols: W-2 employees follow structured facility policies, while independent contractors may not be obligated to do so.
Standardization and reliability are critical in a high-risk industry like healthcare. Using a consistent W-2 workforce ensures greater accountability and alignment with patient safety standards.
The Smarter Staffing Choice: Prioritizing W-2 Employment
For healthcare organizations looking to minimize risk, enhance compliance, and improve patient care, a W-2 staffing model is the safest and most sustainable choice. At Matchwell, we exclusively place W-2 clinicians, helping facilities:
- Reduce Legal and Financial Risks
- Ensure Compliance with Labor Laws
- Provide Consistent, High-Quality Patient Care
- Foster A Strong, Cohesive Healthcare Team
While 1099 staffing may seem attractive in the short term, the risks far outweigh the benefits. To safeguard your facility from audits, lawsuits, and workforce instability, prioritize a W-2 staffing approach.
Matchwell, part of the Medical Solutions family of brands, is an agency alternative that matches clinicians with top healthcare facilities looking for local and per diem talent. Start a conversation today!