Hiring Independent Contractor Therapists: Documents Every Group Practice Needs

Adding clinicians to a group practice as independent contractors is operationally appealing: no payroll processing, no employer tax contributions, fewer HR obligations. But the simplicity is real only when the classification holds up. If the IRS or a state labor agency later determines a contractor was actually an employee, the practice owner absorbs back payroll taxes, penalties, and potential interest — regardless of what the contract said.

This guide covers the classification test, the documents that make a 1099 engagement defensible, and what the contractor agreement itself must contain for a group therapy context.

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Why Classification Determines Everything Downstream

The threshold question before drafting any document is whether the clinician genuinely qualifies as an independent contractor. Signing an agreement labeled “Independent Contractor” does not establish contractor status — the actual working relationship does. The IRS evaluates three categories to make this determination.

Behavioral control: Does the practice direct or have the right to direct how the clinician performs their work — not just what outcomes are expected, but the method and manner of the work itself? Telling a clinician which clients to take, which therapeutic modality to use in sessions, or how to complete session notes are markers of employee status regardless of what the contract says.

Financial control: Does the practice control significant financial aspects of the clinician’s work? Contractors typically set their own rates, have unreimbursed business expenses, have the opportunity to profit or lose money, and can offer their services to multiple clients or practices. A clinician who works exclusively for one practice, uses the practice’s EHR, and whose rate is set unilaterally by the practice is weighted more heavily toward employee status on this factor.

Type of relationship: Are there written contracts, employee benefits (health insurance, retirement contributions, paid leave), and a permanent or indefinite relationship? Contractors are typically engaged for a specific scope of services and can work for other practices simultaneously.

No single factor is determinative. The IRS and most state agencies look at the full picture. The practical consequence for group practices: if you require a clinician to maintain a set schedule, exclusively use your EHR, attend mandatory staff meetings, or follow practice-dictated documentation formats, those facts point toward employee status regardless of how the contract is written.

For a broader overview of how W-2 versus 1099 classification plays out in a group practice, see How to Start a Group Therapy Practice.

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The Four Documents a 1099 Engagement Requires

1. Independent Contractor Agreement

This is the primary document governing the relationship. It should be executed before the clinician sees any client under the practice’s umbrella. A verbal agreement is unenforceable; a one-paragraph email is insufficient.

2. IRS Form W-9

Before making any payment to a contractor, the practice must collect a completed IRS Form W-9. This collects the contractor’s legal name, business name (if applicable), tax classification, and Taxpayer Identification Number (TIN). Keep signed W-9s on file — you need them to complete year-end 1099-NEC filing and as documentation that you made a good-faith effort to collect accurate TIN information.

3. IRS Form 1099-NEC

For the 2026 tax year and forward, practices must file a 1099-NEC with the IRS for any contractor paid $2,000 or more during the calendar year. This threshold increased from $600 under the One Big Beautiful Bill Act. The 1099-NEC is due to the contractor by January 31 following the tax year, and to the IRS by the same date for electronic filers. Failing to file a required 1099-NEC carries its own IRS penalties separate from any worker-classification issues.

4. Business Associate Agreement (BAA)

Any contractor who handles protected health information (PHI) — which includes accessing client records, session notes, or scheduling systems — is a Business Associate under HIPAA. A signed BAA with each contractor must be in place before they access any PHI. This is an operational requirement for the practice, not optional. For the full framework on HIPAA obligations in a multi-provider setting, see HIPAA Basics for a New Allied-Health Practice.

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What the Independent Contractor Agreement Must Cover

Scope of Services

Define specifically what services the contractor is engaged to provide: individual therapy, group therapy, assessments, or consultation. Avoid language that gives the practice open-ended authority to redirect the clinician to other tasks — that breadth undermines contractor status.

Compensation Structure

Group practice contractor agreements typically use one of three pay structures:

• Fee-for-service: The contractor receives a fixed rate per completed session (e.g., $85 per session), regardless of what the client or insurer pays.
• Percentage of collections: The contractor receives a percentage of amounts actually collected (e.g., 50–65%), which distributes income-collection risk between the practice and the clinician.
• Percentage of the contracted rate: The contractor receives a fixed percentage of the billable rate per payer (e.g., 55% of the contracted insurance rate for that CPT code).

Specify the payment schedule (biweekly, monthly), what triggers payment (session completion, claim collection, or invoice submission), and how disputed amounts are handled.

Records and Intellectual Property Ownership

Specify that session notes, clinical documentation, and case records produced during the engagement are owned by the practice entity — not the individual clinician. This matters for continuity of care when a contractor leaves, for billing and audit purposes, and for any licensing board inspection of the practice’s records.

Simultaneously, confirm that the contractor retains ownership of any proprietary methodologies or materials they bring to the engagement from outside the practice.

Malpractice Insurance Requirements

The contract should require the contractor to maintain active professional liability (malpractice) insurance throughout the engagement, with minimum coverage limits specified. Require the contractor to provide a certificate of insurance before beginning work and whenever the policy renews. Contractors who let malpractice coverage lapse mid-engagement create uninsured exposure for client claims that arise from their sessions.

Non-Solicitation Terms

Most group practice contractor agreements include a non-solicitation clause that restricts the contractor from actively recruiting the practice’s clients to follow them if they leave. The enforceability of this clause varies significantly by state — California, for example, has extremely limited enforceability of any non-solicitation or non-compete language for contractors — and for therapists specifically, clauses that could be read as restricting a client’s right to choose their provider raise ethics concerns under professional codes.

A defensible non-solicitation clause for therapists typically:

• Restricts active solicitation of clients (calling, emailing, or marketing directly to the practice’s client list) rather than passive availability
• Does not restrict the contractor from informing clients of their departure or new practice location
• Is limited in duration (six to twelve months post-termination) rather than perpetual
• Is geographically defined rather than blanket

Review the clause with an attorney licensed in your state before finalizing it.

Termination Provisions

Specify how either party can end the engagement: notice period (typically 30–60 days), whether termination can be immediate for cause (license suspension, HIPAA breach, ethics violation), and what happens to active client cases at termination. The agreement should address which party holds responsibility for transitioning active clients, how session notes and records are handled post-departure, and any final payment calculation for sessions completed before the termination date.

For how supervision documentation interacts with contractor agreements when pre-licensed clinicians are involved, see Clinical Supervision Documentation for Group Practices.

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What Cannot Go in a Contractor Agreement Without Triggering Reclassification

Including the following provisions in a contractor agreement substantially increases the risk that the IRS or a state agency reclassifies the worker as an employee:

• Set schedule requirements: Mandatory office hours or specific client slots the contractor must be available to fill
• Exclusivity clauses: Prohibiting the contractor from working with any other practice or taking private clients
• Practice-dictated documentation standards: Requiring specific note formats, turnaround times, or form use beyond what a payer requires for billing
• Mandatory meeting attendance: Required participation in staff meetings, trainings, or team consultations
• Provision of all tools and workspace: Providing the EHR login, office space, and equipment as the sole means of service delivery

These provisions reflect the type of direction and control the IRS associates with employment, not contracting. Practices that include them in contractor agreements while not following the corresponding employment obligations — withholding income tax, paying employer FICA, providing unemployment coverage — face the penalties associated with worker misclassification: back employment taxes, interest, and fines of up to $1,000 per intentionally misclassified worker.

If you have an existing contractor relationship you are uncertain about, the IRS Voluntary Classification Settlement Program (VCSP) allows eligible employers to voluntarily reclassify workers as employees going forward while paying a reduced employment tax liability — approximately 10% of the tax owed for the most recent year — with no interest or penalties.

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Frequently Asked Questions

Does a contractor agreement need to be filed anywhere?

No — it is a private agreement between the practice and the contractor. Keep the signed copy in the practice’s personnel or vendor file. You will need it if the IRS audits the classification or if a dispute arises about pay or termination terms.

Can a 1099 contractor bill under the group’s NPI?

This is a billing configuration question separate from the classification question, and the answer depends on how the contractor is credentialed with each payer. Most payers credential individual clinicians with their own NPI under the group’s organizational NPI and TIN — the claim is submitted under the group, but the rendering provider field identifies the individual. Verify this configuration with each payer; some payers treat independently credentialed contractors as out-of-network for group billing purposes.

What if the contractor is a pre-licensed clinician working under supervision?

A contractor agreement does not change the supervision requirements — it governs the business relationship. A separate clinical supervision agreement must be in place before the supervisee sees any client. The two documents serve entirely different purposes and should never be merged.

Can the contractor own their own clients?

No client “belongs” to a contractor in a therapeutic or records sense — client records are the practice’s property. What the contractor agreement can address is whether a clinician may continue treating a client in a different practice after departure, consistent with the client’s right to choose their provider. Clauses that purport to assign client ownership to either party typically do not hold up to ethical or legal scrutiny.