Hey everyone, welcome to the truth about travel nursing podcast. This is Kyle Schmidt and I’m your host. Thank you so much for joining us for episode 25 of the podcast. In this episode, we’re going to discuss travel nursing contract extensions. Extensions are a really important aspect of travel nursing because a significant percentage of travel nursing contracts will offer an extension. [Please note that this is a transcript of a podcast episode. As such, grammar and spelling are not optimized for written content.]
And the tighter the labor market for travel nurses gets, the more likely extensions are to be offered, because hospitals have a greater need for travelers and hiring both new travelers and new permanent staff members becomes more difficult. So right now, with a really tight labor market, extensions are probably being offered left and right. And travelers understandably have tons of questions about contract extensions. We’re going to do our best to answer them all in this podcast.
Okay, so the first thing to consider when it comes to contract extensions is the tax implications of the extension. This is an often overlooked aspect of extensions, but it’s very important. Remember, in order to keep receiving tax-free stipends you have to maintain your tax-home. And staying on contract in one place for too long can result what is commonly referred to as the abandonment of your tax-home.
Now, before we go on, I have to say that I am not a tax advisor and the information we provide on this show about taxes is not legal advice. You must consult a certified tax advisor to discuss your unique situation in order to obtain legal advice. Okay, so with that in mind, in a general sense the situation with tax-homes varies depending on your circumstances. We covered this in great detail on episode 18 of the podcast which was devoted to tax issues.
But let’s talk about it here in the context of contract extensions, because it’s really important. Remember from episode 18 that the IRS and tax courts use a 3 factor threshold test that’s going to apply to the vast majority of travel nurses. Those three factors are:
One: Working in the vicinity of the tax home, or deriving income in the vicinity of the tax-home and using the tax home for lodging purposes while doing so.
Two: Maintaining your personal business at the tax home.
And three: Paying duplicate living expenses while traveling away from the tax home.
Now, each of these have a lot of detail behind them, but we covered it in episode 18, so refer to that episode if you have any questions about exactly what it takes to satisfy each of these factors. When it comes to extensions, the important thing to consider is which of these factors you’re satisfying. Because which of these factors you’re satisfying is going to be a determining factor in how long you can stay in any one location.
Remember, if you satisfy all three factors, then you definitely qualify for the tax free reimbursements. In this case, the general rule of thumb for how long you can stay in one location is that you shouldn’t work in any one location for more than 12 months in any 24 month period.
Let’s stop and think about that. If you extend in the same location for 12 months and then return to your tax-home and work there for a week or two and then return to the same location for another contract or two, you are not going to qualify for the tax-free reimbursements. In fact, your tax home will be abandoned and it will shift to the location where you’re taking all these contracts. Also, if you work for 13 months in the same location over a 24 month period, then there is a very good chance that your tax-home will shift there, regardless of how the 13 months were split up.
Now, if you satisfy only 2 of the factors, then how long you can stay in any one location really depends on whether or not you’re incurring duplicate expenses. If you’re incurring legitimate duplicate expenses, then the rule should pretty much be the same. You can’t stay in any one location for more than 12 months in a 24 month period.
If you’re not incurring legitimate duplicate expenses, then you need to move around much more often. In fact, you probably don’t want to stay in any one location for longer than you stay and work at your declared tax home. For example, let’s say that every year you work a seasonal contract for 4 months in Arizona. While you’re there you pay full taxes on the income you earn and you maintain all your personal business there year round, every year. But, you don’t pay duplicate expenses when travel away. Maybe you’re in an RV or you have some other housing arrangement…but remember, while you’re at your tax home, you must incur expenses…it’s probably not enough to live with your parents for example, unless you’re paying them fair market value for rent and other expenses.
So, if this is your scenario, then you wouldn’t want to stay on as a travel nurse accepting tax-free money for more than 4 months in any location. Why? Because your tax-home is where you work and earn your income. If work for a longer period in one location under these circumstances, namely, the circumstances under which you’re not duplicating expenses…if you work longer in one location, than where you’re paying the taxes, then your tax home could shift, or worse, they may even classify you as an itinerant worker, which means you don’t qualify for any tax-free money.
As you can see, your situation with how you’re maintaining your tax-home should have a major impact on your decision to take contract extensions. If extended a contract may jeopardize your tax situation, then it’s probably better to move on.
Again, you can listen to episode 18 of the podcast or review all our blog posts on the subject for more information. We’ll link to both in the show notes. And as always, please seek the guidance of a qualified tax professional to obtain legal advice for your unique circumstances.
Alright, so the next big question travelers tend to have about contract extensions deals with when you should start thinking about extensions. When should you start inquiring and investigating them as an option? The conventional wisdom is that you should start looking into them about 6 to 4 weeks away from the end date. The logic here is that the hospital won’t really know for sure if they need you to extend until 6 to 4 weeks from the end of the contract. And sometimes, the hospital might not know until 1 to 3 weeks before the contract ends.
With that in mind, it’s important to know that discussions about contract extensions can be initiated by the hospital, the agency or the traveler. So, as a traveler, you don’t need to sit back and wait for someone else to drive the conversation. You can take a proactive approach if you want. And that’s what I recommend.
I mean, I don’t think it’s a good idea to hang back and wait for the hospital and the agency in order to get the ball rolling. It’s fine if you want to take the conventional approach and just wait for them. However, I’m not a fan of this conventional wisdom. I’m not saying that you can always get the hospital to make their decision any sooner, but you might be able to in many cases. If left to their own devices, the hospital and the agency will most likely wait until the last minute to get the ball rolling. That’s because it’s largely in their advantage to do so.
For hospitals, they love making decisions about supplemental staffing at the last minute. That’s when they have the clearest picture about their needs. This makes it so they don’t spend money of staff if they don’t have to.
I also think this is good for agencies when it comes to extensions. I mean, it’s true that agencies would love to have contract extensions ironed out in advance if they could. I mean, as long you’re working their happy, and as long as they have anticipated revenue booked, they’re happy…the earlier the better. But things aren’t all bad for the agency if they have you waiting until the last minute. At that time, you might be desperate. You might be more likely to accept the extension because you’re in a time a crunch. You don’t have time to play the field and make other plans.
So, for travelers there are tons of things to consider besides whether or not the hospital is going to request that you extend. This is why I advocate exploring the details of extension contracts much earlier than the conventional wisdom suggests. Knowing in advance gives you more time to plan and explore, which can ultimately lead to more leverage in negotiations for pay and working conditions.
So, let’s talk about that for a bit. For starters, many hospitals know that they definitely won’t need you to extend. They may have brought you on for a specific reason like an emr conversion, or a staff member taking off an extended period of time, or a new wing of the hospital opening. In any case, they may have a very specific window, and they know for sure that they won’t need you to stay on beyond that.
Of course, knowing that early on can help you prepare for your next assignment earlier. This is why I always recommend to ask why a traveler is needed during the interview you have with the hospital. You can even ask them if there might be potential for extending during the interview. It’s very good to know in advance if that potential is there.
Regardless of what the answer is, you might want to visit this subject with the unit manager 6 weeks into the assignment. Of course, this is only recommended if you’ve determined that you’d be interested in extending if they were offering. After 6 weeks, you may have determined that the hospital isn’t a good fit for you.
But, if you might be interested in extending, then revisiting the subject 6 weeks in is a good idea. For example, if the Unit Manager said there was no chance of extending during the interview, then you can ask if anything has changed because you’d be interested in exploring the option with your agency if there was a possibility. No worries if not; it takes no time to ask the question. And if they told you during the interview that an extension was possible, then broaching the subject 6 weeks into the contract to see if they know for sure whether they’ll have a need or not is a good idea. Again, it takes no time and the worst they can say is no, or check back in a week or two.
At this point, it’s important to point out that when speaking to your unit manager or anyone else at the hospital about a contract extension, you’ll want to make it clear that you’ll need to get all the details ironed out with your agency before you can fully commit. Also, you’ll find that different hospitals approach contract extensions in different ways. At some hospitals, the unit manager handles all the details, so speaking with the unit manager is a good way to go. At other hospitals, everything is handled through the staffing office and they expect your agency to contact the staffing office to discuss the extension. Either way, it never hurts to ask.
Again, one of the major advantages of jumping on this early is that you’ll have the opportunity to plan in advance. Is I think this is a big advantage for travelers. Now, I can hear everyone saying that there is no need to plan this far in advance. Travel contracts never become available until at least four weeks before the start date. However, that’s not true. Contracts often become available much earlier than 4 weeks is advance. In fact, seasonal needs at hospitals in Florida and Arizona can often be secured 8 to 12 weeks in advance, sometimes even more.
Moreover, given the tight labor market for travel nurses that we’re experiencing here in 2015, you can often secure contracts more than 4 weeks in advance. During market conditions like this, even hospitals with contracts that are looking for people to start sooner will often consider a later start just to lock down the position.
But why is it so advantageous to have a head start when looking for your next assignment? Well, for starters, you decrease the risk that you’ll miss work unintentionally. This is one of the biggest salary reducers for travel nurses. Every week of work missed will cost you a minimum $1200 up to $2300 or more. So, it’s in your best interest to avoid missing work weeks unintentionally. I mean, you want your missed work weeks to be planned to they can be enjoyable vacations not costly down time.
Also, having a head start can help ensure that you’re able to get to your desired destinations and ultimately land the jobs you want. For example, you may want to go to Washington state for your next assignment if you’re not able to extend at your current facility, but maybe none of the agencies you’re currently working with have a big staffing presence there. So, you’ll be stuck looking for an agency that is able to staff you there. Having a head start on your plans can provide you with the time you need.
Now, all that said, you might want to roll the dice for high paying assignments. As we discussed in episode 21 on tips for the hot travel nursing job market, waiting to the last minute can help you land the highest paying rapid response, or crisis rate contracts, that are looking for folks to start immediately. Of course, you’ll need to be flexible with the locations you’re willing to accept and you’re always rolling the dice when you until the last minute.
Okay, so another advantage of getting a head start on extension contracts is that you can attempt to iron out the pay package for the extension well in advance. I think that this has many advantages for travel nurses.
So, for starters, it’s important to know that the pay package for an extension can be discussed at any time in almost every case. So, I recommend approaching your recruiter early on in the contract, even within the first four weeks. Tell them that you want to discuss the pay package for an extension if one should become available. You’ll most likely get some pushback from the recruiter. And the most likely thing they’ll tell you is that you that the hospital won’t consider an extension until at least 6 weeks until the contract ends.
That’s okay! You’re not interested in discussing a contract extension with the hospital yet. You’re interested in knowing what the pay package will be for the extension if one is offered. Your recruiter may still not want to discuss the pay package for the extension. They may give you any number of reasons. For example, they may tell you that they don’t know how long the extension would be for, or if it will be for the same number of hours per week. It’s true that these things like this can affect the pay package, but you can simply ask them to quote a pay package assuming that everything stays the same.
There are several advantages to getting a pay quote earlier than later for extension contracts. First, you’re not under any pressure to accept the assignment yet. You can take your time and try to negotiate a better deal if at all possible. We’ll discuss negotiating extension contracts in a bit.
Second, you can use this pay quote as an alternative when you’re looking for other assignments. And having alternatives is a huge advantage when negotiating. I discuss that at length in our eBook travel healthcare compensation negotiation. You can get a copy of that book for free by going to blog.bluepipes.com/negotiate. I’ll include a link in the show notes as well.
Finally, you can get an idea of how your agency operates with extensions in general, especially if you’ve never discussed an extension contract before. Different agencies approach them in different ways. And if you’re with an agency that has a poor approach to extensions, then you might want to reconsider the agency you’re working with and start looking into others.
So, this is where we get down to the details of negotiating your extension deal, things to expect, things to watch out for and things to consider. One of the most common questions I see out there these days is, “Should I get a bonus or a pay raise on my extension?” Now, you’ll hear different people say different things, but I’m of the belief that you should always try to get a bonus or a little raise and you should be successful more often than not.
And here’s why. When you take an extension contract, it is nearly inevitable that the agency will experience lower costs with the extension than they did with the original contract. And this is especially true if the original contract was your first with the agency.
If the original contract was your first with the agency, then they had to go through the entire onboarding process with you. They had to get your application together, they had to check you references, they most likely had to send you in to get some clinical exams done, like a PPD, a physical, maybe a titer, and possibly other things. All of these things cost the agency either money and/or time…which in my book, time is money.
Moreover, on extension contracts, it’s pretty rare that the agency will need another drug or background check. Perhaps more importantly, the agency will most likely not be subject to any non-billable orientation hours. Remember, non-billable orientation hours are hours that the agency is not able to bill the hospital for, but still has to pay you for. I’m not talking about testing and paperwork that needs to be done before you step foot in the facility; I’m talking about hours that you’re actually working at the facility.
It’s fairly common for there to be 4 to 16 hours’ worth of non-billable orientation hours on the first contract. That’s a cost of $260 to $1040 with an average bill rate of $65 per hour.
Additionally, the agency won’t have to put in any manpower or expenses on housing, travel arrangements, finding you a new assignment, or the credentialing and compliance process that takes place between the agency and the hospital. The bottom line is that contract extensions are a breeze for the agency.
Another big thing for you to keep your eye on when it comes to your extension pay package is the travel stipend. On the original contract, it’s almost a certainty that you received a travel stipend. In essence, that represents money that the agency was able to pay on the first contract. So, they should be able to pay it on the second contract as well. But, you’ll find that some recruiters will get tricky with the travel stipends.
Sometimes you’ll hear that you don’t qualify for the travel stipend on the extension because you’re not traveling. That sounds like it makes sense, so a lot of travelers fall for it. But this is an entirely new contract, so the agency could change that travel stipend to a bonus, or they could add the value of the travel stipend to your hourly rate.
Some recruiters and agencies will argue that this represents wage recharacterization and they’re not supposed to do that. Remember from episode 4 that agencies aren’t supposed to be moving money from one classification to another because it looks like they’re trying to recharacterize their tax-free money to taxable and vice versa. The IRS doesn’t like this and it can get the agency in trouble.
However, I think it’s a real stretch when it comes to extension contracts. These are brand new contracts for all intents and purposes. The agency could just as easily claim that you deserved a raise or bonus. Moreover, you may have racked up more in travel expenses than your original stipend covered. Or, you may even need to travel home during the extension to take care of some personal business. By the way, this is one of the reasons that I always stress the importance of keeping a good mileage log or travel expense report. You can always send it to the agency as proof that you incurred the costs. And agencies that are really on top of it, are probably requiring these records anyway.
There’s another trick that I’ve heard some recruiters pulling when it comes to travel stipends and extensions, and that’s not paying the second half of your travel stipend from the original contract and holding it over for the extension contract. As you know, travel stipends are commonly split up to where agencies pay the first half on the first paycheck of the contract and the second half on the last pay check of the contract.
So, the recruiter might say something like, “well, you’re not traveling anywhere since you’re taking an extension, so you don’t need or qualify for the second half of the stipend. You have to incur the expense for it to be paid.” And this is absolute nonsense. You should never fall for this and you should immediately question the integrity of your recruiter if they say this.
For starters, there’s a good chance that you racked up more in travel expenses just getting to your assignment than the total amount of the travel stipend would cover in the first place. Again, keep records and logs to prove it. Second, if the agency maintained such a policy, then your recruiter should have explained that to you in the first place instead of leading you on to believe that you were going to get this money. At which time, you could have negotiated a different deal. Watch out for this tactic; it’s one of the worst in the business.
Now, when it comes to tax-free money versus taxable money, it’s always important to remember that agencies don’t incur any tax burdens on tax-free money, but they do incur tax-burdens on the taxable money they pay you. So, if you had a $700 stipend on the first contract, then it’s fair to expect that figure to be a little less if they give you taxable money on the extension because they’re incurring additional costs. This is actually true of all the monetary costs we discussed as well.
Okay, so, I think it’s clear that agencies are not incurring many of the costs on the extension contract that they did on the original contract. And therefore, there is opportunity for you to get at least a little more money on the extension. Many agencies have a system in place for that already. They may even offer bonuses for extensions. Or they may come to you with a sweetened offer so that you don’t need to haggle for it.
If not, then you should always ask. And when they say no, then you should bring all these issues up to illustrate that you know what you’re talking about. Demonstrating that you’re informed goes a long way in negotiations. Of course, they may still say no. Sometimes it’s warranted and sometimes you’re just working with an agency that doesn’t want to budge and is determined to keep more of the pie for themselves. It’ll be tough to tell which one you’re working with, but here are some things to consider.
First, it’s sometimes true that the agency won’t have more to pay on the extension because they gave you a really good deal on the first assignment. However, I think this happens far less than agencies make it out. I mean, when all the cost savings are added up on extension contracts, there can be anywhere from 2% to 5% of the bill rate saved, maybe more. So unless your agency gave you your first deal at a 15% to 18% profit margin, then there is wiggle room for a little extra to go to the traveler on the extension. And let me tell you, it’s extremely rare for large companies to offer pay rates with profit margins this low. So, if you’re with a larger company, then chances are that they have some wiggle room but they’re just not willing to budge.
At the end of the day, I think this is much more common with smaller agencies. They’re willing to give you the best deal they possibly can, even a better deal than they really can on the first contract, hoping they’ll make it up on the second and third contract.
Second, you’ll sometimes hear your recruiter say that the pay for your extension contract will have to be reduced because the quote “the stipends went down.” I have no idea what this means, so I’m going to call shenanigans on this until someone can offer a viable explanation.
Here’s the way I see this issue. The contract between the hospital and the agency has all inclusive bill rates on it. This means that the hourly rate paid to the agency is intended to cover everything. In fact, hospitals don’t really look at it in a way that breaks everything up. They just pay an hourly rate. What the agency does with the hourly rate is the agency’s business. So a hospital wouldn’t be able to…quote “reduce the stipend”.
Moreover, the contracts between the hospital and the agency are pretty much set in stone for the most part. It’s not like the hospital can just come to the agency and say, “hey, we’re reducing the rate for this.” I’ve never seen this happen without an entirely new contract being signed by the hospital and agency.
Finally, some recruiters will say that the actual GSA rates were reduced based on the season. In some areas of the country, the GSA publishes higher per diem rates during peak seasons in areas that experience large fluctuations in seasonal population. However, the GSA rates are the maximum rates that employers are allowed to pay and the vast majority of agency aren’t paying the maximum rates because there isn’t enough money in the bill rate to allow them to do so.
Moreover, the lowest GSA rate I was able to find for lodging was $83 per day, which comes out to $2490 per month. And the areas that have that rate are the lowest cost of living areas in the country. I highly doubt that agencies are paying that much for lodging in those areas. And in places like Los Angeles, the lodging rate is around $200 per day or $6000 per month. So unless your agency is paying something like this for lodging, then I have no clue why it matter if the per diem rates reduced for your extension contract because of seasonality. Who cares if they reduced, as long as your agency isn’t paying some absurdly high rate for per diems, then there shouldn’t be a problem If this happens to you, then you can go to the GSA tables and check the rates against what your agency is paying. We’ll link to the tables in the show notes.
Now, it is possible for the agency to get a lower bill rate for the extension then they had on the original contract. That can happen if the original contract had a crisis rate or rapid response rate which are increased rates to get positions filled quickly. By the time the extension roles around, the hospital may want you to extend, but not at the crisis rate because their needs aren’t as urgent any more. If this is the case, then the recruiter should be able to explain that clearly. You should also notice quite a large dip in the pay rate because crisis rates tend to be quite a bit higher than standard rates.
Okay, so another recruiter explanation for lower rates on an extension that I saw recently was that sometimes, and I quote “sometimes agencies have to pay high rebates to the hospital for extensions.” I have no idea what this means. I’ve never heard of such a thing. So, again, I’m calling shenanigans. Rebate for what? 9 years in this business and I’ve never seen nor heard of such a thing. So, until someone can physically show me that a quote “rebate” has been paid to a hospital for an extension, I’ll refuse to believe it exists.
Now, the last thing I want to say about discussing your pay earlier than later when it comes to extensions is that when do, you’ll have more time to compare rates from other companies. You can find travelers from other agencies at the hospital and contact their recruiters to inquire what an extension contract would pay through that agency. How you choose to use that information is up to you. You may have a non-compete clause in your current contract that prevents you from working at the hospital in question through another agency for at least a year. Sometimes these clauses are enforceable and sometimes they aren’t. Maybe you just use the pay quote for your own knowledge or peace of mind. That said, there is some really good negotiating research that talks about competing salary offers and we just wrote a blog post about it. It’s a topic for a future episode, but we’ll link to the blog post in the show notes for this episode. Trust me it’s well worth checking out.
Okay, so that’s a good place to wrap this episode up. We have covered a lot of information here. The show notes page will have the transcript along with links to all the resources we discussed in this episode. The show notes will be at blog.bluepipes.com/episode25. While you’re there, be sure to join Bluepipes and take advantage of all the free tools and resources designed to help you manage your travel healthcare career more effectively and efficiently. The documentation management tools, and networking tools are helping thousands of healthcare professionals manage their careers more easily.
Okay, so until next time, have a safe and prosperous travel nursing adventure!
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Travel Nursing Pay – Qualifying for Tax-Free Stipends and Tax Deductions: Part 1
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The post TTATN 025: Tips For Travel Nursing Contract Extensions appeared first on BluePipes Blog.