California law clarifies tax on locum tenens

Leaders of physician staffing firms are hopeful that a new law in California will help resolve a bitter tax dispute that they say threatened to drive the locum tenens industry out of the state.

A state taxing authority had challenged several of the staffing firms, claiming that they owed taxes or penalties because they were acting as employers when they paired physicians who wanted temporary work with hospitals or other health entities. The staffing firms traditionally have treated the physicians as independent contractors and therefore haven't had to pay those taxes.

A bill signed into law Oct. 6 by Gov. Arnold Schwarzenegger bars locum tenens firms from directly employing those physicians and specifically defines the physicians' status as independent contractors. Leaders of staffing firms and the locum tenens industry hailed the law as a victory.

"For us it was a victory for physician autonomy and certainly for the locum tenens staff model, which has always considered doctors to be independent contractors," said Phil Miller, spokesman for Staff Care, an Irving, Texas-based staffing firm affiliated with physician search firm Merritt Hawkins.

Staff Care, which has helped place locum tenens physicians with California's corrections department, was among several staffing firms that in the last year or so were ordered to pay the California Employment Development Dept. back taxes or penalties. Staff Care's initial bill was about $2.6 million, though it was later reduced by about half. Miller said the firm was hopeful that the new law would prompt the EDD to reconsider the assessment.

EDD spokeswoman Suzanne Schroeder said the agency had not made any decisions yet about whether to rescind the assessments. "We're aware of it and we're looking into the law," she said.