07 Sep Payroll Tax Alert – Engaging Practitioners In Your Practice
Are you a medical, dental or allied health practice engaging other practitioners on a service arrangement? If so, it is important you document the method of engagement properly and consider the manner in which you conduct day to day operations of the clinic and its interaction with the practitioner.
State Revenue Office alert
State Revenue Offices across Australia are increasingly looking at medical, dental and other allied health practices regarding payroll tax obligations on the payments made to ‘non-employee’ practitioners working in the practice. The focus is on how the service arrangement is structured and how the health professional conducts their practice. They are taking a more assertive view of what they consider to be assessable for payroll tax.
A recent case in Victoria involving an Optical Store, The Optical Superstore Pty Ltd & Ors vs Commissioner of State is a good example of the importance of ensuring the engagement is correct. The case involved an Optometry business engaging optometrists and collected income from optical sales and the provision of eye tests on behalf of the optometrist. Such payments, less a service fee based on an hourly rate, were then paid to the optometrist. The SRO’s view was that these payments were in relation to the performance of work much like an employee and these payments were deemed to be wages for payroll tax purposes. On the other hand, The Optical Store stated that they were simply holding the fees in trust for the optometrists and returning these fees to them according to their trust arrangement.
Another case in NSW in 2016 involved a Radiology practice, Winday International Pty Ltd vs Chief Commissioner of State Revenue. In this example radiologists paying a facility fee to the practice were regarded as employees of the practice for payroll tax purposes under the ‘employment agent’ provisions. The practice advertised its radiology services to the general public where the radiologists conducted the work. The Tribunal concluded that clients (we refer to as the patients) were patients of the practice and not patients of the practitioner. The outcome in this case has surprised many.
The market norm of engaging a practitioner
As with most medical, dental and allied health practices, a qualified practitioner is engaged as what we describe an ‘independent associate’ paying a service fee to the practice for the day to day services provided to the practitioner. These services include the use of consulting room, use of professional and administrative staff, booking patient appointments and collecting patient fees on behalf of the practitioner and use of plant and equipment. The practice charges a service fee, normally in the form of a set percentage based on gross billings plus GST. The practitioner is essentially running their own practice as a Personal Services Business (PSB) income tax payer and is paid by their own individual patients. Notwithstanding that the practice may provide the service of banking the patient fees on behalf of the practitioner into a holding account before it is transferred to the practitioner/practitioner’s entity after deducting the service fee.
Day-to-day operations prove the true relationship
Each of these two cases hinge on their own unique facts, however, both show a greater willingness of the various State Revenue Offices to look at medical businesses and deem there to be payroll tax assessable where traditionally practice owners thought they were safe.
It is less likely that a relationship between a practice and an independent practitioner will be construed as one of ‘employment’ (and therefore assessable for payroll tax, employment entitlements, superannuation, etc) when it has the following characteristics:
- All income generated by the practitioner is banked either by the practitioner directly or by the practice in trust for the practitioner. The fees will be held in trust in a ‘liability account’ in the bookkeeping records and the annual financial accounts show that these fees are not fees generated by the practice. The practice would only show the service fee paid by the practitioner (or withheld by the practice) as income in the bookkeeping file and financial accounts.
- The practitioner receives 100% of their gross billings. The practice invoices the practitioner for the service fee plus GST. This may be withheld from the gross billings to make it administratively easier for both parties.
- The practitioner is not a staff member or referred to as ‘staff’ in any way.
- There is no minimum payable by the practice to the practitioner in the event the fees they generate are low.
- The practitioner has autonomy with setting their own hours and taking leave. In the interests of ensuring they continue maintaining care for their patients and a steady revenue stream throughout the year, they may liaise with the practice and pre-plan rosters to confirm their availability. If the practitioner decided to take leave, they are not required to engage a replacement practitioner in their place.
- All patient records belong to the practitioner given they have the relationship with the patient and operate their own practice.
Paper proves purpose – make sure a contract is in place
It is extremely important to ensure a practice clearly documents the relationship it has with a practitioner in the form of an ‘independent associate’ agreement. This agreement sets out the terms of the agreement, the legal relationship between the parties with respect to how the business is conducted, the services provided and the ownership of patient records, autonomy with working hours and all other factors that confirm the practitioner is running their own practice and not under the banner of the host practice.
Review existing contracts in place
As the law evolves around such arrangements, it is important you review any existing agreements and work practices. You should seek tax and legal advice and make any changes if necessary.
We can help
Please contact our accountants to discuss your existing arrangements and any concerns you have, and we can arrange a review.