As the telemedicine regulatory and reimbursement environment becomes more cohesive and providers and patients alike embrace technology, opportunities for telemedicine collaborations are likely to grow. Like any collaboration, finding the right partner is crucial for success, particularly at the highly scrutinized intersection of healthcare and technology. This post explores the factors to address when evaluating service providers and vendors for your next telemedicine collaboration.

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The UK Government has confirmed that it will extend to the private sector tax rules designed to target tax avoidance by contractors who operate through an intermediary personal service company (PSC).

The UK Government has announced that new “off-payroll working” tax rules (commonly known as IR35) will apply to the private sector from April 2020. The move will shift responsibility for determining the tax status of individuals who personally provide services through an intermediary personal service company from that PSC to the end user client.

The IR35 rules apply if

  • An individual personally performs services for a client, or is obliged to do so
  • Those services are provided under arrangements involving an “intermediary”, i.e., the arrangement for the provision of the services is made between the client (or an agent on its behalf) and the PSC, rather than between the client and the individual; and
  • The individual would be regarded as an employee or office-holder, e.g., director, of the client for tax purposes, if the arrangements had been made directly between the individual and the client.

Current Situation

As the sole director and shareholder of a PSC, the contractor can pay himself the bulk of the fees received by the PSC by way of dividend, rather than as remuneration. The rate of tax paid on a dividend is much less than income tax and does not attract National Insurance contributions (NICs).

Currently, it is the PSC’s obligation to decide whether or not the contractual relationship in question falls inside or outside IR35. If it falls inside IR35, the PSC must account for income tax and NICs. If the PSC gets that analysis wrong, it is also responsible for any associated penalties and interest.

What Will Change?

From 6 April 2020, the client will become responsible for determining whether or not IR35 applies. Where it does apply, the “fee-payer” (i.e., the client or, where there is an intermediary agency, the agency) will be responsible for deducting income tax and employee NICs, and accounting for those together with employer NICs, at a rate of up to 13.8 per cent. If the client gets the analysis wrong, it will be liable for the underpaid tax and associated penalties and interest.

Only “small” businesses will be excluded from the new rules. To be considered small, a business will need to satisfy two or more of the following criteria: i) have an annual turnover that is not more than £10.2 million, ii) have a balance sheet total of not more than £5.1 million, or iii) have no more than 50 employees.

The UK Treasury expects this new measure to net over £1.1 billion per year.

Determining Whether or Not IR35 Applies

Clients will need to assess the true employment status of the individual.
There are two types of status for tax purposes: employee and self-employed; as opposed to the three types of status for employment rights purposes: employee, worker, and self-employed. Similar tests are used to decide status for tax and employment purposes, and the results are frequently the same.
Whilst one does not necessarily follow the other, it can at least be anticipated that a contractor who is an employee for tax purposes is more likely to claim to be an employee or worker for employment status purposes. As a minimum, this entitles them to the key worker rights of holiday pay, automatic enrolment into a pension scheme, and national minimum wage; and possibly the more extensive employee rights, such as unfair dismissal protection.

Status Test

The starting point will remain the written contract between the parties, but it is often alleged that the contract does not reflect the true relationship. In this case, Her Majesty’s Revenue and Customs (HMRC) and/or a court or tribunal will consider evidence on the day-to-day conduct of the parties and determine status based on the reality of the situation.
The test is multi-factoral and considers all the circumstances. However, whether or not an individual is an employee is generally judged against four key pillars.

  1. What mutual obligations exist? In an employment relationship there must be an obligation on the individual to provide his or her work or skill, and an obligation on the employer to pay for that service.
  2. To what extent is the individual required to provide services personally? If a PSC has a meaningful and genuine (rather than token) right to provide someone other than the individual whose status is being assessed, particularly if the PSC is responsible for paying that other person, this would be a strong indicator of self-employment.
  3. What degree of control does the client have over the individual? An employee is generally subject to a reasonable degree of control by his or her employer. This may manifest as the way in which the services are to be performed, what tasks have to be performed, and when and where they must be performed. A genuinely independent contractor is likely to have the freedom to work when, where, and how they want, as long as they provide the services in question.
  4. How is financial risk attributed amongst the parties? Individuals who risk their own money, e.g., by rectifying unsatisfactory work without additional payment, are less likely to be employees. A self-employed contractor would also generally provide whatever equipment is needed to do the job.

Other factors that might indicate an employment relationship will also be considered, including the length of the engagement, the degree of the individual’s integration into the client organisation, and how they are treated relative to employees.

Next Steps

Given the potentially significant costs and risks involved, it would be prudent for affected organisations to start planning for these changes now.

Decide Who Will Be Responsible for Assessing Compliance

In practice, a multidisciplinary approach is likely to be required, potentially including procurement, finance, human resource, and legal functions. Organisations may need to provide training for anyone dealing with the issue.

Audit Contracting Arrangements

Organisations should review the arrangements under which they engage independent contractors, and identify how reliant they are on services provided via PSCs, as opposed to individuals who contract directly; the risks in relation to these individuals remain unchanged.

Determine Status

Ultimately, each PSC relationship will need to be assessed, using “reasonable care”, and a Status Determination Statement (SDS) issued to both the individual and the contracting party, i.e., the PSC or intermediary agency, if there is one. Notably, the SDS must specify the reasons for the organisation’s determination.

The UK Government has created an online tool to assist with this process, which can be pointed to if HMRC subsequently questions a status determination. The tool has, however, been subject to widespread criticism. Pending an updated version and guidance expected later this year, organisations may be best served by working with legal advisors to implement their own, more robust, review system.

If an individual disagrees with a status determination, draft legislation anticipates a mandatory organisation-led dispute resolution process that must be complied with.

Plan for Change

Organisations should consider what action they will take if an independent contractor is determined to be within IR35 and have employee or worker status. The organisation will need to decide, in dialogue with the contractor, whether to

  • Amend existing contracting arrangements so that the contractor becomes genuinely engaged on a self-employed basis, and carry out these changes in practice; or
  • Engage the contractor in question as an employee or worker. The parties will need to decide which of them will bear the additional costs of the engagement, including holiday pay, pension contributions, sick pay, and employer’s NICs.

Digital health companies face a complicated regulatory landscape. While the opportunities for innovation and dynamic partnerships are abundant, so are the potential compliance pitfalls. In 2018 and in 2019, several digital health companies faced intense scrutiny—not only from regulatory agencies, but also in some cases from their own investors. While the regulatory framework for digital technology in healthcare and life sciences will continue to evolve, digital health enterprises can take key steps now to mitigate risk, ensure compliance and position themselves for success. We offer three tips for tackling risk in digital health.

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The Treasury Department and the IRS recently finalized new hardship distribution rules applicable to defined contribution plans. Plan sponsors should prepare for operational changes to comply with the new regulations, including some beginning January 1, 2020.

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In Florida’s federal courts, there has been an epidemic of class actions alleging that employers failed to provide technically proper notice of the right to continued healthcare coverage under the Consolidated Omnibus Budget Reconciliation Act. A dozen such lawsuits have been filed (each by the same law firm) with mirror image allegations.

These cases illustrate why it is necessary to sweat the details in issuing COBRA notices, which McDermott’s Megan Mardy and Julie McConnell walk through in a recent analysis for Law360.

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Originally published by Law360, October 2019

A federal district court denied class certification to health plan participants who claimed the plan promised them lifetime benefits. The court found too many individualized questions about what the plan told each participant, and the claims could not be resolved on a class-wide basis. Fitzwater, et al. v. Consol Energy, Inc., et al., No. 2:16-cv-09849 and 1:17-cv-03861 (S.D.W.Va., October 15, 2019).

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Recently the Internal Revenue Service (IRS) and the Social Security Administration announced the cost-of-living adjustments to the applicable dollar limits on various employer-sponsored retirement and welfare plans and the Social Security wage base for 2020. In the article linked below, we compare the applicable dollar limits for certain employee benefit programs and the Social Security wage base for 2019 and 2020.

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The Ninth Circuit signaled that it might rehear Dorman v. The Charles Schwab Corp., where earlier this year it held that a mandatory arbitration provision required arbitration of an ERISA fiduciary-breach claim.

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The Department of Labor (DOL) issued a proposed rule that, if finalized, would expand its existing guidance and liberalize rules for electronic disclosure of retirement plan notices under ERISA. The proposed rule, which sets forth a notice and access safe harbor, would permit electronic disclosure as the default method of delivery while permitting participants to opt out and continue to receive paper disclosures.

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Most major jurisdictions have pay equity laws, but their approach is far from uniform. Global companies need to evaluate compliance with these laws on a country-by-country basis whilst simultaneously addressing their compensation policies globally.

A sample of the rules across several countries helps to identify trends that can drive effective global policies.


The Australian Workplace Gender Equality Act of 2012 mandates equal pay for equivalent or comparable work. There are annual reporting requirements for employers with 100 or more employees. Those reports must include the following indicators: gender composition of the workforce, gender composition of governing bodies, and equal compensation between men and women.

Employers are penalised by being publicly named if they fail to lodge a public report on time, or inform employees or other stakeholders that a public report was lodged, or give the requested compliance data under the Act.


The law varies across Canada; several Canadian provinces have pay equity laws in place, such as Ontario’s Pay Equity Act of 1987. There is also pending federal legislation that would require public and private employers with at least 10 employees to

  • Identify job classes predominated by men or women
  • Evaluate the value of work performed by job classes that are male or female predominant
  • Compare compensation associated with job classes that are male or female predominant and are of similar value
  • Identify female-predominant job classes requiring an increase in pay as compared with male  predominant job classes performing work of similar value
  • Identify when pay increases are due

These pay analyses will need to be included in a Pay Equity Plan. Employers need to post notices regarding Pay Equity Plan obligations and progress, provide employees with the opportunity to comment on the Plan, and file annual statements with the Pay Equity Commissioner.


There are no direct rules or measures in China to address pay equity. China does have in place general principles for eliminating pay gaps, but those do not specifically focus on gender pay disparities, and there is no duty for employers to assess and report on gender wage differentials.


President Macron’s administration has declared equality between men and women to be a “great national cause.” France enacted new legislation in September 2018 that requires employers with at least 50 employees to publish information each year on gender pay gaps and the actions they have taken to address them.

Employers also receive an “equal pay rating” based on the following factors:

  • The pay gap between men and women, which is based on average full time compensation within equivalent job functions
  • The difference between men and women who have received raises, other than as a result of promotion
  • The difference in compensation between men and women who have received promotions
  • Whether or not the employer has complied with the existing legal obligation to give a pay rise to employees when they return from maternity leave, if pay rises were granted during their maternity leave
  • The proportion of men and women in the list of the 10 most highly paid employees within the company.

If the employer’s equal pay rating falls below a certain level, the employer must adopt corrective measures. If the problem persists for three consecutive years, a financial penalty may apply.


The German Wage Transparency Act, which came into effect in January 2018, gives employees at companies that have over 200 employees the right to find out what their co-workers of the same level and opposite gender are earning. Although employees cannot obtain earnings information for a specific employee, a company must provide average earnings for employees of the opposite gender, with the caveat that there must be at least six comparable employees at that level.

Additionally, companies with over 500 employees are required to publish reports regarding any pay disparities they may have, along with their efforts to lessen those disparities.

United Kingdom

UK employers with at least 250 employees must publish the following information:

  • Mean and median gender pay gaps
  • Mean and median bonus gender pay gaps
  • Proportions of men and women receiving a bonus payment
  • Proportion of men and women in each quartile pay band.

United States

The US Equal Pay Act of 1963 (EPA) prohibits employers from paying employees differently based on their sex for performing equal work in the same establishment under the same or similar working conditions. Title VII of the Civil Rights Act of 1964 also bans sex discrimination in compensation in any form.

The United States did not historically have pay data reporting requirements but, in April 2019, a federal judge ordered the Equal Employment Opportunity (EEO) Commission to implement without further delay its proposal to collect pay data in the EEO-1 report required by Title VII and filed annually by employers with 100 or more employees.

Where laws elsewhere rely on disclosure, US law has historically relied on litigation. Litigation is predominantly driven by individuals, rather than government agencies, but now often includes either collective actions under the EPA, or class actions under Title VII, both of which raise the stakes significantly in terms of dollar exposure for employers. One of the best-known is Kassman v KPMG LLP, an ongoing class action brought by approximately 10,000 female employees alleging they faced disparate pay and promotions.

Beyond US national laws, over 40 states and territories have enacted their own pay equity laws. Amongst the most stringent are California, Delaware, Massachusetts, Oregon, New York, and Puerto Rico. Additionally, at least 11 states have enacted salary history bans preventing employers from requesting salary history information from job applicants. As with national laws, enforcement is largely by private lawsuits.

Global Compliance

There are clearly trends that are apparent from this quick global tour, which may help improve overall compliance.

One trend is the increase in countries making public disclosure (not just to employees or the government but to everyone, including shareholders) of gender pay disparity the core principle of their attack on gender-based pay inequality. This “name and shame” policy forces businesses to actively manage pay equity to limit brand damage. This approach is paralleled in the United States by shareholder resolutions that demand such disclosures.

Although there is a focus on avoiding litigation risk (US law), “shame” (UK and Australian law), and administrative burdens (Canada’s proposed federal law), businesses need to think carefully before acting.

The most obvious solution to pay inequality is to do a pay study and fix any disparity. It is, however, counterproductive if the company conducting the pay study does not have a detailed and evidence-based process in place for addressing any problematic findings from the study, and if it has not carefully considered what, if anything, should be privileged. There is a legal and employee relations minefield for ill-conceived studies and corrective actions that could create claims of reverse discrimination, which is illegal in the United States. Rudebusch v Hughes, for example, permitted Title VII claims of white, male professors challenging pay equity adjustments for female and minority professors, resulting in a jury verdict for the plaintiffs. Quick studies and quick fixes only exacerbate the problem.

Instead of knee jerk reactions, businesses need to follow the lawmakers’ lead to identify and rectify the structural impediments to equality in order to have real, lasting effect.

The component of French law that addresses wage increases during maternity leave is illustrative, since absences from the workforce owing to family responsibilities is part of the persistent wage disparity between men and women. The German law requiring salary disclosures empowers underpaid women to take steps to ask for a raise. Similarly, those US states that prevent questions about previous salaries are designed to avoid the “market defense” or “market replication” of sex discrimination in pay.

The global trend towards closing the pay gap is an opportunity for businesses to develop and implement proactive policies that recognize the source of the problem and tackle it head on.   Some examples include the following:

  • Address the gap in experience that invariably arises due to women, far more often than men, taking time off to handle family responsibilities.
  • Standardize starting compensation for the position, rather than the person; i.e., new hires or promotions each receive the same compensation package. From that point, each could earn more based on performance.
  • Follow the US’ example and ban asking for prior salary when hiring or promoting. A further embellishment may be to ban salary negotiations, which studies show disadvantage women.
  • Make pay transparent, which requires managers to rationalize and explain pay, while permitting employees to ask how to equalize the pay of similarly situated colleagues.

This article was originally publish in the latest issue of McDermott’s International News.