An All-in-the-Family Approach is Financially Beneficial

May 26, 2014
Ed Rabinowitz

Some would call it nepotism; others might chalk it up to sound business practice. Regardless, the custom of physicians employing family members at their medical practices is fairly common.

Some would call it nepotism; others might chalk it up to sound business practice.

Regardless, the custom of physicians employing family members at their medical practices is fairly common, especially among smaller and mid-sized practices. When done correctly, the benefits of employing family members are significant.

“If you set it up right, and it doesn’t affect the culture within the practice, it works out to a financial gain for the physician,” explains Brian Long, director of healthcare for AKT CPAs and Business Consultants.

Spouses and children

A spouse employed at your medical practice can become qualified for the firm’s retirement plan. Many medical practices, Long says, have a 401(k) to which the family member can contribute. That can mean additional annual contributions of up to $16,500, or if the spouse is older than 50, up to $22,000.

“A lot of couples do that to help put more into the overall family retirement,” Long says.

There are also benefits to employing children. For example, if a child is working at the clinic and has earned income, he or she can start contributing to a Roth IRA. After 5 years, those funds can be pulled out for education use tax-free. A physician can employ a son or daughter to work for the practice doing things as simple as filing, scanning, or shredding old files, and be paid fair market value.

“There are lots of things they can do, from cleaning to filing, to helping you market your practice,” Long explains. “They can help you with your blog or Twitter or your Facebook page. As we know, the kids know that stuff better than we do. So, you might as well hire the experts on that.”

Your child now has a means of saving that money for college. If the child one day obtains a scholarship or other means to pay for college, he or she can leave the funds in the Roth IRA and it can grow tax-free for retirement or a first-time home purchase.

“One of the great things is it isn’t taxable depending on how much the child earns,” Long says. “And it can be a deduction within the practice, which then makes it less taxable to the physician, the parent, so they’re paying with more pre-tax dollars toward that college education rather than after-tax dollars.”

When employing children at your medical practice, Long suggests establishing a contract that clearly states what the child’s duties are and what his or her salary will be. It’s also important to keep a time card of exactly when he or she will be working. For example, it’s not reasonable for the child to be working long hours while in school.

“The other thing you have to make sure of, to qualify for a deduction for the company, is that the work you’re paying for has to be necessary for the trade or business,” Long explains. “You can’t have them come in and do something that has nothing to do with the medical practice.”

Employment caveats

An important consideration when employing a family member is the team environment within the practice. Long explains that employing a spouse or child changes the dynamic because of the natural perception that they are receiving special treatment. He points out that many smaller practices employ the physician’s spouse as the practice administrator.

“The old saying is, ‘be cautious of buying into a practice that has the wife as the administrator,’” he says. “That’s not always true. I have many practices where the spouse is the administrator and does a fine job. But, you have to be careful; that affects your team and the spouse needs to be doing only what their job duties entail.”

Long recalls a practice where a doctor was married to one of the medical assistants (MA). The MA worked just a few days a week, but always expected things to be done a specific way, and didn’t hesitate to dish out orders to other MAs.

“That can really cause problems because she was the spouse of the doctor,” he says. “And that made other team members afraid to put her in line for that, because they were afraid the doctor was going to get mad. That family member needs to know what their role is. That needs to be clearly communicated up front, and followed.”

Open communication is critical, Long says. If there are other physicians, are they comfortable with a spouse working at the practice, and what are the arrangements? For example, will the spouse be performing work just for the one physician, or sharing a workload evenly throughout the practice?

And, lastly, make certain to communicate with practice staff.

“Tell them, ‘this is what the duties of my spouse or child will be,’” Long says. “You need to cover that when you think of bringing in a family member.”