Travel Nursing Pay – Is It OK to Take $10 Per Hour as an RN?

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As we discussed in the blog post on travel nursing pay packages, travel nursing agencies can split up the travel nursing pay pie in many different ways. As a result, some agencies will offer a base rate of as low as $10 per hour. As a Registered Nurse, or any other highly trained healthcare professional, you’re probably thinking that there is no possible way you’d work for $10 per hour.

But remember, you should be less concerned with the hourly rate and more concerned with the overall value of the entire pay package. However, there is debate over whether or not it’s acceptable by IRS standards for travel nurses to work for such a low rate. As we’ll see, there are certainly risks involved for nurses who do.

Let’s start with a quick example. One agency might be offering a base rate of $30 per hour plus the equivalent of $12 per hour for stipends. That’s a total value of $42 per hour. Another agency might be offering a base rate of $10 per hour plus the equivalent of $35 per hour in stipend money. That’s a total value of$45 per hour. Despite the lower “rate”, the second agency is clearly paying more money. The issue we’ll address here is whether or not it’s okay by IRS standards for travel nursing companies to pay rates as low as $10 per hour and what the potential consequences are.

The debate over paying travel nurses low taxable wages and high stipends

According to the National Association of Travel Healthcare Organizations (NATHO), a nonprofit association of travel healthcare organizations, agencies should offer a minimum base rate wage that is higher than $10 per hour for most workers. NATHO states that agencies must pay an hourly rate that is in line with fair market value for someone in the respective profession. That means the professional could reasonably expect to make the same taxable hourly rate offered by the agency if the professional were to accept a traditional permanent job. From this perspective, paying a traveler or physical therapist a base rate of $10 per hour isn’t going to cut it.

Despite this advice from NATHO, many agencies offer to pay their travelers very low taxable rates. These agencies believe IRS regulations allow them to maximize the tax free stipends as long as they pay the traveler a base rate that is equal to or greater than the minimum wage. Essentially, the agency will start with a low taxable wage and then add the remainder of the bill rate to the travel nurse’s pay package as tax free stipends. If, by chance, the tax free stipends are maximized and there is still money left over, then the agency will add the remainder to the taxable wage. These agencies believe that they’re in the right as long as the nurse has verified they qualify to receive tax-free stipends. This verification typically comes in the form of a document that agencies have their travel nurses sign attesting that the travelers qualify for tax-free money.

So who is correct in this debate?

Now we’re left reconciling these two divergent viewpoints. In considering this issue, Joseph Smith, an expert on taxes for traveling professionals, asserts that he’d rather travelers “work with companies that show better business consciences.” His reasons for saying this are the same reasons that settle the debate here. You see, providing such a low hourly rate along with huge stipends is a form of wage recharacterization, which is against IRS rules.

In this case, the only way that someone in the nursing profession would accept a travel nursing job paying $10 per hour would be because the company was offering large tax free stipends as a part of the pay package. As a result, the IRS may claim that the company is recharacterizing the wage as a stipend and deem that the company was violating the rules.

Why would agencies put themselves at risk this way? For the same reasons that any other tax violator takes such risks. They’re either unaware of the rules, or they’re seeking a financial advantage. Anyone can start an agency and one doesn’t have to be an expert in all of these issues to do so. So it’s plausible that some agencies are simply unaware of these rules.

Meanwhile, those that are aware of the wage recharacterization rules are violating them to gain a competitive edge. As mentioned in a previous blog post, lower taxable hourly rates result in lower payroll costs for the agency. The agency can pocket this money or offer it to the travel nurse as an incentive to get them to sign on with the agency. The agency can also highlight the higher net pay that will result due to the lower taxes that the traveler will incur. This is a major selling point for travel nursing companies. If a company can demonstrate that they’ll put more money in the pocket of a traveler, then they feel they have a competitive advantage.

You’ll find that smaller travel nursing agencies are more apt to offer these low hourly wages. The biggest companies in the industry are publicly traded, and/or have investors, and boards of directors. As a result, these companies are highly scrutinized to ensure that they are operating legally in order to limit liability risks for all parties involved. The smaller companies most often do not have these responsibilities. As a result, smaller companies usually are not closely scrutinized in the same fashion as the larger companies. For example, large companies will almost always have auditors reviewing their books, while the smaller ones may not.

In any case, there is no denying that offering these low wages crosses the line into unethical business behavior and it certainly puts the agency in violation of IRS rules. But what about the travel nurse?

What are the risks of taking such a low taxable pay rate as a travel nurse?

Tax adviser Joseph Smith states that it maybe okay for travel nurses to accept the low taxable rate in the FAQ section on his website traveltax.com. However, he does point out that you’d have a higher likelihood of being audited. At the same time, he also suggests that as long you have a solid tax home and properly account for your expenses, you should be fine. Remember, if you’re making a base rate of $10 per hour, you may be getting the equivalent of $40-$50 per hour in tax-free stipends. You’d want to be certain that you had records to justify those expenses, an issue we’ll cover in a future blog post (here and here). To be clear, if you are not able to justify accepting the tax-free money, then you maybe required to pay back taxes and penalties if you’re audited.

And remember, your chances of being audited are real, especially if you’re receiving a very low hourly wage coupled with high tax-free stipends. In fact, according to Joseph Smith’s October 2012 Newsletter, the IRS was auditing at least 12 agencies at that time. Wage recharacterization is one focus of the audit. Furthermore, Joseph Smith states that one agency is considering reissuing W-2s going back 6 years for those who are not willing or able to provide the agency with receipts to justify the high tax-free stipends the agency provided. If this agency reissues the W2s and the difference between the reported income and the newly reported income is greater than 25%, then the travel nurses may be responsible to pay the IRS additional taxes, penalties, and interest.

This might be confusing for readers who are unfamiliar with these issues, so let’s look at an example for clarity’s sake. An agency offers a contract that pays $10 per hour as the taxable base rate plus the equivalent of $40 per hour in tax-free stipends. The traveler accepts the contract and completes it. Of course, both the agency and the nurse will be paying taxes on only the taxable base rate. In addition, the taxable base rate is all that will be reported on the W2. Finally, the traveler reports taxable income from the assignment exactly as stated on the W2 when they complete their taxes at the end of the year.

A couple of years later, the IRS decides to audit the agency and claims that paying the travel nurse $10 per hour appears to be a recharacterization of wages. As a result, the agency will be subject to penalties and additional taxes. The agency contacts the nurse and requests receipts and other pertinent documentation in an effort to justify the tax-free payments and avoid the costs. The nurse is unable to comply for one reason or another.

The agency then decides to reissue a W2 that increases the taxable base rate and decreases the tax-free stipends by equal amounts in an effort to settle the matter. Of course, this increases the reported income to the IRS. As a result, the agency will be responsible to pay their portion of the payroll taxes and any penalties. Moreover, the nurse will also be responsible for additional taxes and penalties as long as the difference between what was originally reported and the newly reported taxable income is greater than 25%.

What does all this mean for travel nurses? First, you open yourself to increased risk of audit if you accept really low hourly wages and really high stipends. Second, this may be okay as long as you maintain an ironclad tax-home, maintain your status as a temporary employee, and keep excellent records to justify the tax-free payments.

It’s important to note that we are not tax advisers, Certified Public Accountants, or Lawyers. We are not in any way providing any tax advice. All information regarding taxes is informational and intended as a jumping off point. You must seek the help of professional tax advisers to gain a clear understanding of your unique circumstances. We recommend the folks at traveltax.com.

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7 replies
  1. Ricardo says:

    Im employed as travel nurse with 26hrly and benefits of PTO, Health insurance, Life insurance, Short term disability, 401k, Reimbursement of cost related to relocation, CEU and licensing. Is this fair?

    Reply
  2. JCForgets says:

    Jumping in a bit late but: first contract I accepted offered $19/hr base rate, which was less than the hourly rate at my previous job (I’m in the midwest, so about $27). I’m surprised this isn’t covered in more detail, but here is more of the legal basis for the per diem offered by staffing companies.

    First: Ordinary business expenses are tax deductible, and the expenses you incur to have work are ordinary business expenses (this is why your mortgage isn’t a business expense but the small apartment you rent 500 miles away from home is).

    Second: you are entitled to reduce your taxable income by the amount of those expenses. But to do so, you have to prove to the IRS that you should not have to pay income tax on those expenses.

    Third: receipts. They are the only evidence you have that you spent the money in the first place. Without proof you actually spent the money, you can’t prove you are entitled to deduct that money from your income.

    At this point, we are done talking about reporting requirements for claiming deductions from the IRS. This is important, because you are *not* entitled to compensation from your employer for any business related expenses.

    However, if your employer chooses to reimburse your for expenses incurred on their behalf, they have some hoops to jump through to avoid having to count those reimbursements as income to you. If they don’t jump through those hoops, every single dollar they reimburse you is income for you, and you have to have your receipts handy to make sure the IRS knows why you aren’t actually paying taxes on that money.

    Now, here’s the part where it gets interesting, and why the way we people talk about travel nursing pay is completely wrong. Your agency is *paying* you to be a nurse in a hospital — this is your base rate expressed in dollars per hour. Your agency is also paying for your lodging and expenses so you can work the job. Put another way: that number on your paycheck is far more than you’re getting paid because your agency is paying your expenses to go somewhere and do it.

    (For a more comprehensive (general) explanation: https://www.irs.gov/pub/irs-pdf/p463.pdf. Chapter 6 details the tax treatment of per diems. The employer view of the situation is at https://www.irs.gov/pub/irs-pdf/p535.pdf

    So, the IRS recognizes that it’s difficult for businesses (especially small businesses) to deal with the paperwork and hassle of having to process and account for the receipts of hundreds of transactions that happen on a daily basis when employees travel for business. This is why, instead of having to account for every expense, the IRS permits companies to reimburse employees for ordinary expenses on a per diem rate. So instead of providing your agency with every meal receipt, a detailed and comprehensive mileage log, and a copy of your lease, hotel reservations, and every grocery receipt you generate while on assignment (and having your agency reconcile all that information), your agency looks at the General Services Administration Per Diem tables for the area you are travelling to, takes some money off, and says “Here’s some money to help with your expenses” (technically, there are two tables: one for lodging, and one for meals and incidentals).

    This is the GSA database of Per Diem rates: https://www.gsa.gov/travel/plan-book/per-diem-rates

    So: all of this is about wage reassignment. You see, my first contract as a traveler paid me $19/hr (without benefits); the median nursing wage where I worked was $30/hr and the 10% percentile wage was $18/hr, (these are Bureau of Labor Statistics figures; I do not believe they include the monetized value of benefits). I could make an argument that wage reassignment did not occur since it was my first contract, and I had no travel nurse experience. Maybe. Maybe I was interested in staying somewhere unique and different. Maybe. I definitely needed the work.

    Since the statute of limitations has not expired, all I can say is that I took a $19/hr — barely out of the 10% percentile for wages in the area I was working — but at least it had a very nice per diem for lodging, meals, and expenses.

    By the way, the Bureau of Labor Statistics breaks down wages in nursing down to metropolitan area: https://www.bls.gov/oes/current/oes291141.htm (you have to download the spreadsheet to see percentiles. Have fun with that)

    My previous job came with some fairly decent benefits, and paid more per hour. At $19/hr, my incentive to pick up overtime was nil. I picked up one OT day, saw what it did to my paycheck, and stopped trying to pick up more shifts because it was just too exhausting. My current contract (which is in my home city) is straight pay (between the 75% and 90% percentile, but I still don’t have benefits); my incentive to pick up overtime is much greater.

    Which brings me to my point: how much is your time worth to you? Regardless of tax consequences, I have decided that I want to be paid for what my time is worth to me, and I have decided that I’m going to make sure that I get paid enough to want to work those hours and pick up that overtime. If that means reducing a per diem from $120 to $70 a day, then so be it. It’s not just about money, here. It’s about making sure your incentives line up with your goals. I figure that I am going to be working 36 hours a week regardless, I might as well make sure that I am getting paid for what my labor is worth.

    Reply
  3. S says:

    Fair market wage in No.Cali is easily $60/hr taxable so how come agencies arent offering that? Each state & location have differing fair market values, all agencies are wage re characterizing when offering across the board rates as $20-22/hr . It just means 2 things: our industry needs a regulatory board to govern a standard & agencies are promoting lower taxable so that they get the tax advantage to write off the higher tax free per diems as an expense

    Reply
    • Kyle Schmidt says:

      That’s a good point. However, I’m not sure that the IRS goes to that level of granularity when making their determination. Based on the many cases they’ve tried and settled on this issue, they most likely look at national wages. I’m not saying that’s right, but it appears this is how they do it.

      Reply
  4. gdottie says:

    I’d like to see that October 2012 list mentioned of places being audited. I’ve turned down ridiculous rates before, so I know this is happening.

    Reply
    • Kyle Schmidt says:

      Haha! Thanks for the comment. We’re glad to hear the information is useful!! Our main goal is to make sure travelers get truthful and actionable information and services.

      Reply

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