GUEST BLOG WRITTEN BY: SARAH BARTHOLOMEUSZ from YOU LEGAL
When most traditional businesses are considering bringing someone new into their practice, a lot of the focus is channelled towards what will reap the most benefit, and minimise the most risk. One important element to consider is whether to engage a contractor or hire an employee.
Whilst this decision may be simple for some businesses, it can be a bit more complex within the medical industry because as you may know, most doctors wish to work as independent contractors within a practice. For practice owners, the question of ‘Should we hire doctors as independent contractors or as employees?’ is not as straightforward as you might hope.
Doctors often like to be engaged as independent contractors because it is often perceived as being the more ‘flexible’ choice. There is also a belief that they will be paid more as an independent contractor.
However, in the eyes of the law, a contracted doctor may, in some circumstances, be deemed as an employee. This can become highly problematic for you as the practice owner, but it will be highly fact dependent and will be determined based on a multitude of indicators.
In this article we explore how an independent contractor and employee is differentiated, what the different indicators are that help you to determine the employment status of doctors working within your practice, and we look at how you can minimise the risk to your medical practice.
Employing Doctors as Independent Contractors or Employees?
Typically, when a doctor is hired as an independent contractor, they are, in effect, running their own business with an ABN and all of the obligations that go along with business ownership. That is, they will be responsible for their own tax and superannuation. Whereas, if they are deemed to be an employee, the practice is responsible for paying the doctor’s superannuation, payroll tax and any leave entitlements.
The main risk for medical practices is that it is not actually you as the practice owner, or the doctor you are bringing on board, that makes the decision as to the terms of employment, even if you have a Contractor’s Agreement in place. It is the law that decides if someone is a contractor or an employee.
Unfortunately I have seen cases where, for example, a contracting doctor chose to leave a practice, and it transpired that they should have been classified as an employee. As a result, upon exiting, the practice owners were left with hefty tax bills for unpaid payroll tax, superannuation and leave entitlements to cover.
For this reason alone, it is a worthwhile exercise to make sure you know what is involved in determining whether your contracted doctors would be classified as employees, and ensure everything is set up correctly from the start, in accordance with the law.
Indicators of when Doctors are not Independent Contractors by law
The most important part of making sure you are on the right side of the law is understanding the indicators that help determine whether a contractor or employee relationship exists. We cannot call them rules specifically, as each indicator alone will not determine whether a relationship is that of a contractor or an employee. Rather, we need to consider each indicator on its own merits, then zoom out to look at all the pieces together to determine what type of relationship exists.
CONTROL AND INDEPENDENCE
Independent contractors have control over how many hours and what hours they work. If you dictate to your contractor when, where and how they perform their work, you may in fact be positioning yourself as an employer.
We understand this creates some difficulties for practice managers who need to ensure that there are medical practitioners available consistently within the practice to see patients. However, let’s say, for example, you engage a medical practitioner to work Monday, Tuesday and Wednesday. That is not necessarily taking away their control and independence, particularly if we consider that these hours were likely negotiated with the practitioner during the hiring and contracting stage.
If, however, you have engaged the practitioner on these terms, and then you make additional demands or requirements such as, they must arrive 15 minutes before their shift for a team meeting, or they must be available on call after hours, this is moving into an employer/employee relationship. Other examples of this include, expectations that they schedule at least x number of patients per day, or they must not take more than 2 x 15-minute breaks in between scheduled appointments. You can start to see how this quickly changes from an independent contractor to an employee-employer relationship.
Contractors must provide their own equipment. In some circumstances, such as where that equipment is expensive or specialised medical equipment, it may be necessary to share resources, so your contractors use this to undertake the work required.
As a general rule however, it is important that contractors are responsible for providing their own tools, including laptops and other medical equipment required by them to complete their contract.
The ability of your contractor to subcontract or delegate their work under the contract is an indicator of whether they are in a contract or are an employee.
This is another challenging indicator for practice managers and owners, and it is not difficult to see why. You invest time in ensuring you engage the right practitioner for your practice, someone with the right experience and skills, and you don’t particularly want that person to delegate their role under the contract to one of their own employees. Particularly where you cannot determine whether that practitioner possesses the experience or skills you might expect.
A way this concern can be alleviated is by having the contract contain a clause essentially stating that subcontracting is permitted with the consent/approval of the practice.
PAYMENT INCLUDING TAX
Another one of the reasons contracting is such a tricky area for medical practices is that traditionally, it is expected that a contractor will set their own fees and be paid for their results as set out in the contract. Contractors are also responsible for their own tax obligations and do not receive sick leave or holiday allowance.
Within a medical practice however, the fees or results of the contract are the Medicare rebates which are, more often than not, collected by the practice on behalf of the practitioner.
There are many ways in which this can be structured that we have seen in our experience, from practice managers paying per hour or day, per patient seen, the rebate less the lease of the consulting rooms, or the rebate less a service fee.
A payment that is calculated on time given by the practitioner is more likely than not to be an employment arrangement. On the other end of the spectrum, an agreement in which the full Medicare rebate is remitted to the practitioner and the practitioner pays the practice a separate service, is the clearest indicator of a contracting arrangement
It is again important to remember, even if you structure the payments as a service fee, if the practitioner has no control over their work, uses only the facilities of the practice and is not able to delegate, the ATO might still find that the structure is a tax avoidance scheme.
The final indicator is risk. It is said that the risk runs with control of the contract. Meaning, when you transfer independence and control to your medical practitioner, you are also transferring the risk.
This means all self-employed practitioners should hold their own professional indemnity insurance, however caution should still be exercised. Where a contractor’s agreement assigns risk to an employer for work performed by a contractor, it may indicate an employer/employee relationship. If your contractor is a medical practitioner, your contract should contain a warranty that they will always hold sufficient and valid professional indemnity insurance.
Which laws relate to whether doctors are seen as employees or independent contractors?
The main piece of legislation is the Fair Work Act, as this governs Australian workplaces. It is the foundation for all standards and regulations for employment, so every employer should be familiar with it.
Then, nestled under the Fair Work Act, are the relevant Awards. The Awards set out the specific minimum wages and working conditions per profession.
There is an Award for GP’s (that work in hospitals), as well as one for optometrists and one for physiotherapists. These Awards can also vary from state to state, and detail entitlements such as how many breaks an employee should be provided with, what overtime hours are, details about allowances for travel, training or uniforms etc.
Also as an employer, you need to be familiar with any ATO obligations such as income tax, and Pay As You Go Withholding Tax. In my experience, more often than not, this is where medical practices tend to run into difficulties. This is because the ATO has been given broad powers to audit and recover tax, and they have the authority to make a determination about whether your contractors are, in fact, employees for tax purposes. Calling someone a contractor means very little to the ATO, because if the ATO views the relationship of a doctor to your medical practice as an employee relationship, you can guarantee they will enact their powers to recover that tax.
The other piece of relevant legislation is included in the Corporations Act and governs your medical practices obligations to pay superannuation. It is important for you to know that engaging a contractor does not automatically relieve you of the obligation to pay superannuation. Under the Superannuation Guarantee scheme, if you pay a contractor for their labour more than $450 per month in any quarter, you may be required to pay superannuation. That figure is easily reached, so you can see how this can leave practice owners with significant debts over the course of time.
Sometimes contractor relationships are used by employers to avoid their obligations. If the Fair Work Ombudsman finds that you are intentionally avoiding your obligations by directing employees to undertake work as contractors, you can be fined up to $54,000 per contract.
How to minimise risk to your medical practice
As you can see from the indicators above, this can be quite a complicated area for medical practices, and it is wise to leverage the expertise of someone with significant experience in this space to help you ensure you are acting within the parameters of the law.
As specialist lawyers for medical professionals, we can help you to get the structure of your contracts right or review what you already have in place.
If you are considering bringing in a new doctor to your practice, start the relationship between your practice and the doctor off on the right foot by aligning expectations, reducing the risk of conflict and ensuring everyone is aware of the rights and obligations of each party.
Want a review of your Contractor’s Agreements? Our friends at YouLegal are ninjas and would love to help! You can contact them here.
If you already have doctors in your practice, or are looking to employ a doctor soon, YouLegal have created a questionnaire that can help you confirm whether the doctors on your team would be classified as an employee or a contractor at law. Find the questionnaire here.
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