Dr. P bought a 2nd practice location. His CPA created a separate tax ID, business name, payroll account, etc. Dr. P and his OM made all HR & business decisions for both offices.

Some employees worked at both locations; they were paid separately from each payroll/tax ID #

After one employee resigned, Dr. P received a wage & hour claim which led to back-pay for unpaid overtime and penalty fines.

Why?

Additional background: this particular employee was working about 22 hours at one location, and about 23 hours at the second location. So her total hours were over 40 hours for the week, even though she was working less than 40 hours per week at each individual location. The government saw this as a single-location business. Therefore because the employee was working over 40 hours total, she was owed overtime for all hours worked over 40 hours in the week.

The CPA’s setup process was normal and appropriate. However, from a labor standpoint the government put much weight in tax IDs or payroll accounts. The government looks at HR-specific variables such as shared resources, shared employees, and also who is making the decisions.

In the case above, because the doctor and the manager made all of the HR decisions for both practices, this meant all employees were effectively under the control of the same leadership team. That fact alone carries the most weight in determining whether this is a single business, or separate businesses.

As we see more practices consolidating, especially small groups where one or two owner doctors make all HR decisions, this is a crucial piece for everyone to keep in mind. We often hear owners say “But they are separate businesses!” Again, separate tax IDs and separate physical locations won’t prevent the issue above.

This is especially important for labor laws that vary based on the employee number. For example, a state may have an HR law that applies when you have 15 or more employees. If one practice location has 10 employees, and another has 8, individually they are below 15. If they are structured in the manner above, the government would most likely see this as one business with 18 employees, and therefore the law would apply. Depending on the state, this could mean the difference between unpaid and paid sick leave, pregnancy disability protections, or family/medical leave.

If you have questions about your multi-location practice, please contact us at (800) 679-2760 or info@bentericksen.com