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Determining the type of relationship you will have with a physician-whether he or she will work as an independent contractor or an employee-is one of the most important steps in the compensation planning process. This decision can influence the way you pay a physician, the amount you pay him or her, and your protection status under the Stark and anti-kickback laws. Some cases are clear cut. If the relationship you have with a physician meets Internal Revenue Service (IRS) requirements for an employment relationship, you must treat the physician as an employee or risk fines and penalties (see "Independent contractor or employee?" below for characteristics of an employee).