Home nursing care - employee or independent contractor?

One of the areas causing arguments between taxpayers and the IRS today is whether certain workers should be treated as independent contractors or employees. Most often, this issue is raised in the normal trade or business environment and not for services performed in a taxpayer's home. However, the same withholding and payroll tax liability questions exist and must be addressed when a taxpayer retains a person to assist him at home. A worker's status will be determined from the nature of the services provided and not solely from his training or qualifications.

Rev. Rul. 61-196 indicated that licensed practical nurses (LPNs) were qualified semi-professionals who had completed a prescribed course of formal training and passed their state's licensing examination. As such, they are qualified to render nursing services in all but the most acute or complex cases. When performing private duty nursing, LPNs ordinarily have discretion in performing their nursing services. Even though they may be under the supervision of and follow instructions provided by an attending physician or registered nurse, they are not subject to the supervision or control of the patient for whom they are rendering services. In these situations, the LPN is much like a registered nurse providing private duty nursing and, as with a registered nurse, would be treated as an independent contractor. However, an LPN "who is engaged primarily to perform services of a household nature as distinguished from services involving the care of a private patient" would be considered an employee. Under Rev. Rul. 61-196, the pertinent factors to be considered are the type and nature of the services, the control exercised and by whom, whether the individual is licensed, and whether the services are performed in the conduct of an independent trade or business. The third and fourth factors are fairly easy to determine. However, additional facts are necessary for proper consideration of the first two factors.

Services normally expected of maids and servants (for example, bathing an individual, combing his hair, reading arranging bedding and clothing, preparing and serving meals, and occasionally giving oral medication left in their custody) would result in an LPN being treated as an employee. However, if these services are merely incidental to the providing of semi-professional nursing type services, independent contractor status may be retained.

Rev. Rul. 68-398 involved a patient in a hospital who retained a person to be an attendant who was neither a registered nurse nor an LPN. This person was held to be an employee of the patient. In this situation, the patient did not require the services of a registered nurse but she did require an attendant "to help with her physical and emotional needs." The attendant was not permitted to give any medication but was expected to remain with the patient, bathe her, assist with feeding, provide fresh water, provide necessary between meal nourishment, maintain the patient's room in a clean and comfortable condition and, if requested, do her laundry. Also, the attendant assisted the patient in moving from her bed to a chair or wheelchair, and helped her walk when appropriate.

The case of Neill, DC Miss., 1967, involved a 67-year-old widow living alone in a very large three-story house. Mrs. Neill was bedridden with disease and had not walked without assistance for eight years. Her hip had been broken and was not repairable without surgery, and Mrs. Neill had been in and out of hospitals many times in recent years. She took several different kinds of medication. Mrs. Neill had a cook for 35 years who was replaced by an LPN. The LPN recommended the employment of another individual who "waited on Mrs. Neill and gave her very careful attention and took care of all her personal needs and requirements." This individual was not a trained or licensed practical nurse. The individual also did domestic work, washing curtains and bedspreads, doing household work and cooking meals. (Other laundry for the household was sent out for cleaning.) This individual was held to be an employee of Mrs. Neill.

Mrs. Neill also hired another individual who took the place of the cook. (Apparently the LPN was hired at the time the cook quit and, although the facts in the case indicate that she replaced the cook, it was simply a matter of timing and not a matter of replacing those duties.) The new cook likewise "attended to the very personal needs and requirements" of Mrs. Neill and had never had any training as a practical nurse. She did what Mrs. Neill told her to do (exactly as any household servant would do). This individual was also held to be an ordinary domestic servant and not an independent contractor.

The court summarized the relationship with both of the individuals in question by conceding that although they "did attend to some nursing duties, some of which required some degree of skill...Mrs. Neill at all times had absolute supervision and control of all they did...."

This case resulted from the Service's assessment of payroll tax liabilities on the two individuals discussed. The court did not address the status of the LPN first hired to replace the cook. Either the IRS accepted the treatment of the LPN or Mrs. Neill accepted whatever assessment was made relative to the LPN. Since the servants were originally treated as independent contractors it is logical to assume that Mrs. Neill also treated the LPN as an independent contractor. It follows that the Service accepted this treatment. Although it was not mentioned, there may be some significance to the fact that an LPN was present in the household. Because of that presence, there would be less need for the others to do nursing type duties.

Summary

Retaining the services of an LPN to attend to one's needs in a household strengthens a taxpayer's assertion of independent contractor status. If those needs are more personal and of a domestic nature, the LPN will be treated as an employee (despite semi-professional status). If, however, the services of an LPN are required in order to provide necessary and professional, medically related services to the taxpayer, the LPN should be classified as an independent contractor. In all cases, it would be beneficial if the taxpayer's attending physician recommended and supported the need for such professional medical assistance to properly care for the taxpayer. The ultimate decision of how to treat an LPN will depend on the particular facts and circumstances (specifically, the services provided and who exercises control over those services).