This week we are talking about business legalities, and in today’s blog/video it’s all about the 5 legal missteps you need to be aware of so you’re not getting in big trouble.
Now, before we get started, let me first say I am not a legal professional or expert, and it is always important that you seek out advice from legal professionals. Also note that I am speaking specifically to US therapists here, as these are the laws we have to abide by. If you are outside the US, be sure to check your local laws.
However, I have seen these problems come up all-too-often for massage therapists…so let’s get you a quick overview.
#1: INDEPENDENT CONTRACTORS YOU DIDN’T KNOW YOU HAD
Did you know that you probably have independent contractors whether you have any therapists working for you or not? Now I did a video about this last year, but I wanted to touch on it again, because this can be a BIG issue with the IRS if you’re not giving out 1099s to the people who qualify as independent contractors…and ignorance does not negate this. According to the IRS and Department of Labor an independent contractor is any person or business that provides goods or services to another business. That doesn’t necessarily mean just massage therapists and other professionals who work FOR you or are offering services through your business, like those who rent rooms and such. It means ANYONE who does work for your business who isn’t an employee. According to tax laws you have to provide a 1099 form to all independent contractors who you pay $600 or more in a year. And since they see all individuals, partnerships, LLCs, limited partnerships, and estates that do work for your business as independent contractors, that’s a lot more people than you probably realize. So, let me clarify this a bit. Let’s say that you hired a graphic designer to create some marketing materials and awesome stuff for you. If that person is a sole proprietor or an LLC or otherwise not a corporation and you pay them $600 or more for that design work, you need to issue them a 1099 come tax time. Same goes for any goods or services that are done for your business. If they are not a corporation and you pay them $600 or more in a year for things they do for your business then technically they are an independent contractor and you need to give them a 1099…which means you’ll need to have them fill out a W-9, right? This is basically the government’s way of letting us all keep each other accountable for reporting all of our income. I think it’s kind of ridiculous, but then again, so is most tax law in my opinion, so I’ll just hush on that matter. Anyway…there are several exceptions to this but it can be a bit convoluted, so consult with a tax professional, please, to make sure you’re keeping things on the up-and-up. One big exception I will mention here…if you pay them via credit card, you don’t need to worry about that 1099 because the credit card payments qualify under their income reporting already. But if you pay them with a check or cash, you most definitely need to issue that 1099. If you choose not to do this, the penalty can range from $30 to $100 per form, depending on how long since you were supposed to issue the form, with a $1.5 million maximum. And that’s just if you can honestly claim ignorance….which you can’t truthfully do that now, since you watched this video. If you willingly ignore this law and choose not to issue the 1099 forms you’re supposed to, it’s $250 per form with no maximum. So please, just go over who your contractors really are, how you’re paying them, and how much you’re paying them per year, and then issue the right forms. Talk to your CPA or other tax professional if you have any questions at all. They’ll be able to clear this up for you.
#2: GIFT CERTIFICATE EXPIRATIONS
In 2009, Congress passed what’s known as the CARD Act, which offers consumer protection for gift cards based on state laws. Basically speaking, each state has its own regulations on how long you must honor a gift certificate. Now, let me make a clear distinction here really quick. When I’m talking about these gift certificates in regard to this law…this refers to purchased gift certificates. If you are donating a gift certificate, like to a charity auction or something, you can put whatever expiration date on it you want because it’s a donation. BUT if someone has purchased a gift certificate from you, you must honor that however long your state requires…and you cannot put an expiration date on it for less than that. Some states that means 2 years, some it’s 5 years, and in others there is no expiration whatsoever. You have to honor this…it’s not a request, it’s the law. To see what your state requirements are, I’ve put a link in the description to the gift card laws by state. Now I personally don’t think you should ever NOT honor a gift card. I mean, someone gave you money in exchange for a service or product…just because they took a while to redeem it doesn’t mean that suddenly you’d be doing that service or giving that product for free. That’s why you should have your financials in order and have a specific account to hold gift card fees until it’s actually redeemed. But I won’t go on a tangent about this. Just look at your state laws and stick with that at the very minimum.
#3: PHYSICIAN REFERRALS
I know a lot of therapists would love to get referrals from physicians and other local healthcare providers, but they often go about it the wrong way, like sending free gift certificates and such. And then you’re left wondering why you never heard back from the doctor and nobody ever used the gift certificate, right? Well that’s because legally they can’t, for the most part. In a lot of places, that might very well be considered a kickback and a violation of major legal and ethical guidelines. Here’s the thing, there’s several regulations in place to keep doctors and other healthcare professionals from getting kickbacks. For example, they can’t get a big gift from a pharmaceutical rep since that may bias their recommendation of that medication to their patients. Make sense? And while it’s meant for more serious things like that, it still applies to how we can interact with these professionals as well, so be careful and find other ways to market to your fellow healthcare providers without gifts.
#4: KEEPING CLIENT DOCUMENTS
If your state recognizes massage therapists as healthcare professionals, it’s important that you are retaining your client documents for the appropriate time. So whether the client has come in recently or it’s been quite some time, you should still have their records on file. How long should you keep them? That depends on your area. Check with your state to see what the patient file retention laws are. Typically, it falls somewhere around 7-10 years, but again, check with your state. Now obviously, you can clean up your filing cabinet or software and move those files of people who’ve not been in for quite a while into secure storage, but you’ll still need to have access to them. For example, even though I closed my practice down at the end of last year, I’ll keep all my client records in a safe for the full 10 years since their last visit, to abide by Tennessee state law.
#5: NON-COMPETE CLAUSES
If you’ve been employed as a massage therapist, you may have been asked to sign a non-compete clause, or if you employ other therapists you may have asked them to sign a contract containing a non-compete clause. This would be something like, if an employee leaves your business, they can’t work within 20 miles doing your specific modalities for the next year. That’s a pretty typical sort of setup, at least for our industry. The purpose of these non-compete clauses is to protect trade secrets, and generally make sure you’re not taking knowledge or training that one employer has invested into you as an employee and then turn around and give it to the competition….or become their competition. The problem arises in that most states here in the US, have what’s called right-to-work laws. So what these right-to-work laws are usually meant for are things like a company can’t force you to join a labor union. You have the right to have a job if you so qualify whether you want to join an organization or not. But the same legal wordings have been brought up in cases fighting against non-compete agreements, in that everyone has the right to hold gainful employment and another company cannot get in the way of that. Now, realistically, most companies won’t really pursue legal repercussions if you break a non-compete clause in a minor way. And some companies I’ve seen have ridiculous non-compete clauses, like you can’t work within 100 miles for the next 5 years doing any type of massage. Honestly, while you may have made the mistake of signing something like that, it’s really not enforceable, and you would probably win if they decided to try to pursue any legal action against you. Now preferably you wouldn’t sign that in the first place or if you’re the business owner, you wouldn’t try to have an employee sign something like that, but just be careful of the sticky situation that non-compete clauses can cause. People have a right to work, but it’s also important that you protect your own business dealings.
So what do you think? Are you guilty of any of these missteps? Do you know others who are? Let me know what you think about all this, I’d love to hear your thoughts on the matter.
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