Payroll tax has been on the headlines of all the major GP associations over the past year, with intense lobbying of all the state governments by the peak bodies. But are you aware that the issue of payroll tax goes far beyond only GPs and extends to all health professionals.
As a surgeon, or the practice owner/manager of a surgery, how does payroll tax apply to you? Where are the areas of risks and what can you do as a practitioner or business owner?
In this article, we discuss the key points you should know to avoid the pitfalls.
Are you aware of payroll tax?
All states and territories across Australia apply payroll tax on employers (and group of related employers) based on the total wages exceeding a certain annual threshold. The definition of total wages specifically includes payments to contractors under what is known as a ‘relevant contract’. This is primarily where there is an agreement between a principal and a contractor for the supply of personal services such as time and labour. This rule is most prevalent in the medical profession for GPs and their relationship with medical centres, and has been the focal of attention in the media over the past year, but it is equally applicable to all other health professionals including dentists, physiotherapists, specialist surgeons, and all other allied health service providers.
How does it apply to you?
If you as a surgeon contracts with a practice or day surgery (whether you own the business or not) to provide your personal services and receive a payment under the contract, that payment will likely be included as part of total wages for payroll tax calculation purposes. This is particularly the case where you are unable to satisfy the independent contractor provisions based on recent Fair Works Act changes to the definition of an employee.
The implication of this rule means if payroll tax becomes applicable, it is likely in the future that you as a contractor may receive a smaller portion of the fee income as the business you are contracting to will seek to withhold a greater proportion of the fees to cover their payroll tax costs. On the other hand if you are the business owner you may see your operational costs rise due to increased payroll tax liabilities as you are required to include more contractor payments in the total wages calculation.
Who is an independent contractor?
Whether an individual is an employee or a contractor, even if they hold their own ABN and signs a contract stating they are an independent contractor, will be determined by reference to 'the real substance, practical reality and true nature of the relationship’ between the parties. The recent changes at law mark a return to the 'multi-factorial test' applied by the courts prior to 2022, where the reality of post-contractual conduct (how the contract is performed in practice), and the totality of the relationship must be considered when assessing whether an individual is truly an independent contractor or an employee. It will no longer be sufficient to simply look to the terms of the written contract.
For payroll tax purposes, where a contractor cannot satisfy the requirements to be considered truly an independent contractor, and is therefore a deemed employee under Fair Works Act, it will be much more difficult to argue that the contract they entered into is not for the supply of labour, and therefore much more difficult to argue it should not be a ‘relevant contract’ for payroll tax. We would recommend a business obtains legal advice regarding the above matters if your circumstances are unclear given recent Fair Works Act changes to the definition of an employee.
What can you do to prepare yourself?
Now is the time to review and plan for payroll tax! It is crucial for business owners to act now to understand and minimise future payroll tax obligations and protect your earnings and profit margin.
At the date of this publication, each state and territory governments have adopted a slightly different approach given recent changes, however if a business is not subject to payroll tax then some common issues include:
- Ensure any contract between a practitioner and a business is not a relevant contract under the definitions per payroll tax legislations; or
- Ensure the performance of the contract is in a way that can satisfy at least one of the payroll tax exemption categories, such as the 90 days exemption.
We remind you that payroll tax is not only a matter for GPs, it is a matter for the entire health services industry. Further, any concessions, exemptions, or rebates that may have been reported in the media does not apply to you as they had been provided only to GPs.
What are your next steps?
For further details and to review your own contracting arrangements either as a practitioner or as a business owner, contact one of our specialist medical advisory team directors to arrange for a no obligation, no charge payroll risk review meeting. The purpose of the meeting is to:
- Establish whether you are at risk.
- Quantify the potential exposure in dollar terms.
- Recommend remedial action to minimise risk.
- Scope out the work required including review of service agreement, administration of payments and records, service provided and other important factors.
If you have any questions regarding the above, contact Prosperity Health to discuss. We have Specialist Health Sector Advisers in each of our offices. If you would like to speak to one in your location, call 1300 795 515.
