This article forms part of the series “Contractors – Shifting Sands for Medical and Allied Health Practices”
A range of factors affect whether or not an individual engaged to perform work is actually an employee or an independent contractor.
The payment of fees and remuneration structure in place between the parties can lend significant weight to the assessment of whether someone you treat as a contractor is, in fact, a contractor (or rather an employee). An employee is generally paid for their time (i.e. set hours worked), amounting to an annual salary or wages. True contractors are typically paid to deliver a particular result, and are more commonly paid a fixed fee for units of work completed or services delivered, and are often paid pursuant to an invoicing system.
Commission arrangements, which have commonly been adopted by medical practices in the past as a basis for payment to “contractors” are now more commonly being considered by Courts to be a neutral factor in deciding whether a worker is really an employee or a contractor, as both employees and contractors might be paid a portion of the income derived by a business from their individual efforts.
Sometimes, a structure might instead be adopted where:
the practitioner rents a room for a fixed price and/or acquires services from the practice;
the practitioner pays the practice (for example, in return for administrative support);
the practitioner bears the cost of equipment and consumables; and
the practitioner sets their own prices and fees.
There is no “one size fits all” approach, but if your practice is paying “contractors” for their time or personal labour, it is worthwhile undertaking a risk assessment, to check your exposure to risk that they may be instead be found to be employees.
In the event that a purported contractor is found to be an employee by a court or other relevant body, significant adverse consequences, including tax consequences (discussed in “What are your tax obligations, and are you meeting them?”) and financial penalties may arise.
Consider your current arrangements and review your practice structure. We invite you to contact us with any questions.