Misclassifying employees is one of the fastest ways a small practice can face six-figure penalties. And it happens more often than you think, not because practices don’t care about compliance, but because healthcare roles don’t fit neatly into HR categories.
In California, the rules are strict. Agencies apply tests for both contractor vs. employee and exempt vs. non-exempt classifications. A mistake on either front can result in back wages, penalties, and audits costs that can add up and many practices can’t absorb. For more on the financial risks practices face, see The True Cost of Not Outsourcing Your Practice Admin.
Where Practices Commonly Get Tripped Up
The problem isn’t abstract. Misclassification shows up in familiar roles:
- The practice office manager: Paid a salary and assumed exempt. But if most of their time is spent on payroll entry, scheduling, or front desk coverage, they likely fail the Duties Test under the FLSA from the U.S. Department of Labor. That would make them non-exempt, entitled to overtime and required breaks. This often ties into administrative headaches independent practices face.
- The medical assistant: Even if salaried, MAs are generally considered non-exempt, since their role is primarily clinical support rather than executive decision-making. For more on staffing structures, see Is Your Practice Staffed for Success?.
- The biller: Unless they supervise staff and spend more than half their time on independent judgment, they probably fall on the non-exempt side.
- The part-time phlebotomist: Works a few hours a week but under your direction, on your schedule, using your supplies. That situation likely makes them an employee, not a contractor a reminder of why managing staff in a California medical practice is especially challenging.
Each example highlights how common roles can trip up practices, usually with the best intentions, but without a clear understanding of California’s strict classification standards, including the ABC Test under California law.
What It Costs You
The financial impact can be significant.
In 2022, a small Southern California practice with fewer than ten employees was fined more than $200,000 for outdated policies and misclassifying staff. And today, with California’s new minimum wage and SB 525 healthcare-specific wage thresholds, the risks are even higher.
Even without fines or lawsuits, misclassification often creates hidden costs: staff dissatisfaction, higher turnover, and burnout. Learn practical ways to address this in Low-Cost Ways to Boost Healthcare Staff Retention.
It can even affect patient experience issues something that effective onboarding can help prevent. See Why Onboarding Is the Hidden Key to Practice Success.
These may not show up on a payroll report, but they drain time, money, and morale from a practice.
Building Safer Practices
The safest path is to move from reactive fixes to proactive safeguards. That usually means:
- Annual audits of your org chart, documenting why each role is classified the way it is.
- Erring on the side of non-exempt — in most cases, paying overtime is safer than facing a wage claim.
- Reviewing contractor arrangements with the IRS classification factors or the ABC test to confirm they likely qualify.
- Setting wages thoughtfully, using duties, experience, and parity with existing staff as benchmarks.
This proactive approach goes hand-in-hand with building beyond basic compliance, as outlined in Beyond Compliance: Why Getting HR & Payroll Right Builds a Stronger Practice.
Independent practices who want to maintain autonomy while staying protected should also consider why independence is becoming a smarter move for today’s physicians.
Why Independent Practices Trust Us with HR & Payroll
At MedWay, we help practices navigate these rules with confidence. Our team reviews job roles, updates policies, and sets up systems so you’re less likely to run into costly misclassification issues.
The goal isn’t just to keep you compliant — it’s to give you peace of mind that your practice can stay focused on patient care, not payroll disputes. Learn more about our HR & Payroll solutions.