Employee or Contractor doctor? – 10 common myths

August 10th, 2012

To separate fact from fiction, here are 10 common myths the Tax Office says can often get doctors /practice owners into hot water.

1. Having an Australian business number (ABN)

Myth: If a doctor has an ABN they are a contractor.

Fact: Just because a doctor has an ABN does not mean they will be a contractor for every job. Whether the doctor has or quotes an ABN makes no difference and will not change the doctor into a contractor. To determine whether a doctor is an employee or contractor, you need to look at the whole working arrangement and examine the specific terms and conditions under which the work is performed.

2. Common industry practice

Myth: “Everyone in my hospital/practice takes on doctors as contractors, so my practice should too.”

Fact:  Just because “everyone” in a hospital/practice uses contractors does not mean they have correctly worked out the decision. Do not consider common industry practice when determining whether your employee doctor is an employee or contractor.

3. Short-term work

Myth: Employees cannot be used for short jobs or to get extra work done during busy periods.

Fact: The length of a job (short or long duration) or regularity of work makes no difference to whether a doctor is an employee or contractor. Both employees and contractors can be used for on call and locum work.

To determine whether a doctor is an employee or contractor, you need to look at the whole working arrangement and examine the specific terms and conditions under which the work is performed.

4. 80% rule

Myth: A doctor cannot work more than 80% of their time for one practice if they want to be considered a contractor.

Fact: The 80% rule, or 80/20 rule as it is sometimes called, relates to personal services income (PSI) and how a contractor:

• reports their income in their own tax return
• Determines if they can claim some business-like deductions.

It is not a factor a practice should consider when they determine whether a doctor is an employee or contractor.

5. Past use of contractors

Myth: “My practice has always used contractors, so we do not need to check whether new doctors are employees or contractors.”

Fact: Before engaging a new doctor (and entering into any agreement or contract), a practice should always check whether the doctor is an employee or contractor by examining the working arrangement. Unless a working arrangement (including the specific terms and conditions under which the work is performed) are identical, it could change the outcome of whether the doctor is an employee or contractor.

Sometimes a practice may also have incorrectly determined their doctor is a contractor. Continuing to rely on the original “contractor” decision would mean the business is incorrectly treating all future doctors as contractors when they are employees.

6. Registered business name

Myth: If a doctor has a registered business name, they are a contractor.

Fact: Having a registered business name makes no difference to whether a doctor should be an employee or contractor for a particular job. Just because a doctor has registered their business name does not mean they will be a contractor for every job or working arrangement.

7. Contracting on different jobs

Myth: If a doctor is a contractor for one job, they will be a contractor for all jobs.

Fact: If a doctor is a contractor for one job, it does not guarantee they will be a contractor for every job. The working arrangement and specific terms and conditions under which the work is performed will determine whether a doctor is an employee or contractor for each job.

Depending on the working arrangement, a doctor could be an:

Employee for one job and a contractor for the next job

Employee and a contractor if completing two jobs at the same time for different businesses.

8. Paying super

Myth: “My business should only take on contractors so we do not have to worry about super.”

Fact: A practice always needs to look at the working arrangement and examine the specific terms and conditions under which the work is performed to determine whether a doctor is an employee or contractor. A practice cannot decide to treat a doctor as a contractor when they are an employee.

Additionally, practices may be required to pay super for their contractors. If you pay an individual contractor under a contract that is wholly or principally for the labour of the person, you have to pay super contributions for them.

9. Doctor wants to be a Contractor

Myth: “The doctor wants to be a contractor, so my business should take them on as a contractor.”

Fact: Just because a doctor has a preference to work as a contractor does not mean your practice should engage them as such. Whether a doctor is an employee or contractor is not a matter of choice, but depends entirely on the working arrangement and the specific terms and conditions under which the work is done.

If you give into pressure and agree to treat an employee as a contractor, you can face penalties, interest and charges for not meeting your tax and super obligations.

10. Using invoices

Myth: “If a doctor submits an invoice for their work, they are a contractor.”

Fact: Submitting an invoice for work done or being “paid on invoice” does not automatically make a doctor a contractor.

To determine whether a doctor is an employee or contractor, you need to look at the whole working arrangement and examine the specific terms and conditions under which the work is performed.

If based on the working arrangement that a doctor is an employee, submitting an invoice or being paid on the basis of an invoice will not change the doctor into a contractor.

If you are concerned and not sure whether your staff should be Employees or Contactors, please contact your MEDIQ Financial relationship manager.