Retirement Plan Consultant
Cetera Retirement Plan Specialists
Blue Ridge ESOP Associates
(Charlottesville VA / Telecommute)
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|Question 291: A physician (surgeon) wants to establish a defined benefit pension plan sponsored by his professional association. The PA employs two non-highly compensated employees. The physician, through his PA, has entered into a contractual agreement with a surgery center. The physician does not have an ownership interest in the surgery center, but the PA reimburses the surgery center for use of the facilities, equipment, billing services, and services provided by the non-physician medical staff. Because the physician shares the services of the surgery center staff and reimburses the surgery center for those services, are the Surgery Center and PA in a shared employee arrangement? Would a defined benefit pension plan sponsored by the physician's PA have to take into account the surgery center employees who provide services to the physician?|
Answer: This is not an easy question, and a great deal will depend on the facts and circumstances which competent counsel should review carefully. However, in general I think this would not be a shared employee situation. As I discuss this, I'll refer to the 4th edition of my book, Who's the Employer?. (Subscribers can click to view online the text of these references.)
The key guidance on this comes from Rev. Rul. 67-101 which gives an example of shared employees. In the example, the Rev. Rul. states: "Day-to-day operation of the clinic is governed by an agreement between the physicians. For example, they must be in agreement as to the hiring and firing of employees, fixing wages, assignment of duties, altering or renovating the clinic, etc."
Who's the Employer Q 7:1 takes a similar position: "A shared employee is someone who works for more than one business at the same time. Frequently, they work for professionals who share an office. The businesses jointly coordinate, hiring, firing, salary determination, supervision, and other employer responsibilities."
Why is this an important distinction? Because it makes both entities an employer. Just performing services for someone isn't enough to make the recipient of those services an employer, even a shared employer.
Suppose I call a plumbing firm to come fix a problem in my kitchen. They send out a plumber who does the job. I tell him where the problem is and may give some specifications. (I want this type of pipe. Don't tear up my yard. I want the work done at this time.) But there's no question that the plumber is not my employee. I don't choose the employee. I have no power to fire him. I don't set his wage. I can't direct whether he goes to another job because mine is taking too long. If the firm decides to give the plumber a raise, and therefore to charge me more, my main option is to do the work myself or find another firm. Of course, when the firm counts the plumber's hours of service, it will count the time on my job.
Would the situation change if the plumbing firm were building my home, and so the plumber spent months serving my needs? No. I still wouldn't have behavioral or financial control, and there would be nothing from the nature of the relationship to suggest that I am the employer. [Q 3:12.]
I imagine the situation is much the same with your doctor. The doctor is likely one of many physicians who use the services of the facility. The doctor has no say on hiring, firing, compensation, or scheduling. The employees will, of course, follow the doctor's orders during a procedure, but overall I assume that there isn't the level of control which would make the doctor an employer.
Theoretically, it is possible that you could have a shared leased employee situation. [Q 7:6.] That would presuppose that an individual employee works at least 1,500 hours/year [Q 5:25] for a set of doctors who regularly use the facility and is under the primary direction and control of an individual doctor while involved in a particular procedure. Because the level of control for a leased employee is less than the level of control for a common-law employee [Q 5:24], this is an issue counsel should raise. However, I doubt that the facts would rise to this level.
There's a reason Chapter 3 of Who's the Employer , dealing with common-law employee status, comes before Chapter 5 on leased employees or Chapter 7 on shared employees. The basic principles that govern the existence of the employee relationship are fundamental to leased and shared employees. The shared employee rules force an employer to consider all hours performed for all sharing employers. [Q 7:2.] The shared employee rules do not take a business that doesn't have enough control to make it an employer and turn it into an employer.
I should note that the fact that neither the doctor nor his professional association has an ownership interest in the surgery center (and vice versa) is critical to this situation, as is the fact that the doctor is not an HCE of the surgery center. Otherwise, you would have the possibility of an affiliated service group, which would link the two businesses and probably prevent the formation of the defined benefit plan. [Chapter 13.]
Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner or to readers. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of this and similar situations.
The law in this area changes frequently. Answers are believed to be correct as of the posting dates shown. The completeness or accuracy of a particular answer may be affected by changes in the law (statutes, regulations, rulings, court decisions, etc.) that occur after the date on which a particular Q&A is posted.