Review your contracting arrangements
1 June 2016 | Minutes to read: 3

Review your contracting arrangements

By William Buck

It has been common over many years for medical practices to engage practitioners on a contracting basis.  If the correct arrangements are not put in place it can increase the likelihood that contracting arrangements may subject practices to statutory leave entitlements; payroll tax; WorkCover and superannuation regardless of the agreement in place between the medical centre and the practising doctor.

There are two common methods generally employed under which a contracting arrangement is put in place.

Option 1 – Associateship Model

This is by far the most common model currently utilised. Under this model, the service arrangement between the medical centre and the doctor is drafted in such a way that the doctor appoints the medical centre as their agent for the collection of their patient fees. The medical centre then charges the doctor a fee for this service and adds GST to the service fee charged.

From a cash flow perspective, the patient fees are collected by the medical centre on behalf of the doctor and then disbursed to them, after deducting the service fee amount.

As the doctor is paying a fee to the medical centre for services, and at no time is engaged by the medical centre to perform work for it, there is no opportunity for a deemed employer/employee relationship.

Option 2 – Contractor/Locum Model

Historically this model was popular because it was easy to understand and slightly easier to document when it came to the service agreement.

Under this model the doctor contracts their services to the medical centre for an agreed rate or percentage of patient fees generated. As the doctor is contracting with an entity, and not the end patient for their services, they are required to charge GST for this service.

From a cash flow perspective, the medical centre collects all patient fees and then determines the payment due to the doctor, adds 10% GST and then makes the payment.

There are a number of issues with regards to the Contractor/Locum Model which have made it increasingly unpopular.  Where the doctor is contracting as an individual, the payments under this model will most likely be subject to;

  • Inclusion in any Workers Compensation premium assessments;
  • Subject to the superannuation guarantee;
  • Leave entitlements; and
  • Where the practice is large enough, state Payroll Tax.

This is the case even if the contractor is operating through a company or trust.

Recent Developments

In more recent years there have been a few cases which has reinforced the issues further. The main developments from these cases is that the Court decided that as employees, the contractors were entitled to statutory annual leave and sick leave. This overrides any private agreement where it may have been stated to the contrary.

It is now even more likely that Locum Contracting arrangements will be subject to;

  • Payroll tax
  • Workers Compensation
  • Superannuation guarantee; and
  • Statutory leave entitlements

Required Action

If you are currently utilising a contractor arrangement, the upside is that the change to an Associateship Model is relatively easy to implement.  The adoption of an updated service agreement and some minor changes to your bookkeeping in relation to the recording of income and service fees, will ensure that any audit activity in this area does not impact on your practice.

If you are concerned about your contractor arrangements and the impact upon your medical practice, please contact your local William Buck advisor.

Disclaimer: The contents of this article are in the nature of general comments only, and are not to be used, relied or acted upon without seeking further professional advice.  William Buck accepts no liability for errors or omissions, or for any loss or damage suffered as a result of any person acting without such advice.  Liability limited by a scheme approved under Professional Standards Legislation.  This information is current as at 14th June 2016

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