How medical practices can avoid payroll tax penalties

How medical practices can avoid payroll tax penalties

8 mins

How medical practices can simplify payments to contracted practitioners

If you’re a medical practice with medical practitioners, dentists or allied health service providers working within your practice under a “services arrangement”, you’ve probably been watching the latest developments in payroll tax changes with interest. 

What’s the issue?

In summary, many practitioners work at a shared practice that provides facilities and administration services in return for a service fee.  Under this arrangement, the practitioner provides services to their patients - not to the practice - and the practice collects the patient fees from patients on behalf of the healthcare provider. After deducting a service fee, the practice pays the balance of the patient fees to the healthcare provider. 

As a result of recent high-profile payroll tax case decisions, the question of whether medical practitioners working under these service arrangements are considered employees of a medical practice, and subject to payroll tax, has been raised.

In practical terms, this means owners of medical practices must be aware that they’re at a higher risk of receiving a large retrospective payroll tax bill.

How can practices avoid paying the tax?

A practice needs to demonstrate the relationship can’t be deemed as  ‘employment’ to avoid being subject to payroll tax, superannuation, etc. To do this, various sources suggest the following conditions would need to be met:

  • All income generated by the practitioner is banked either directly by the practitioner or held in trust by the practice for the practitioner in a ‘liability account’ to show the fees are not generated by the practice. Only the service fees paid by the practitioner are recorded as income for the practice.

  • The practitioner receives 100% of their gross billings and the practice invoices the practitioner for the service fee plus GST (or withholds it from the gross billings if it’s easier for both parties).

  • The practitioner is not a staff member or referred to as ‘staff’ in any way.

  • The practitioner receives no minimum fee or retainer from the practice.

  • The practitioner sets their own hours and leave schedule (although they may liaise with the practice to pre-plan rosters and confirm their availability). 

  • All patient records belong to the practitioner given they have the relationship with the patient.

Formally demonstrating what was possibly an informal arrangement, means medical centres or practices will need a simple way to charge the service fees for renting the rooms out and disburse the patient fees owing to the practitioner. 

This may require making changes to accounting software practices that were designed for charging patient fees rather than making payments. Charging variable recurring payments manually or through your practice’s invoicing platform could prove costly. 

Here’s how Ezidebit can help

For medical and healthcare practices seeking alternative ways to bill practitioners for recurring service fees, look no further. Ezidebit’s direct debit services are a simple, streamlined and cost-effective solution to keep your operations running smoothly.

Ezidebit offers a range of payment types via our stand-alone payment platform or through various integrated software partners specialising in the medical industry. 

Ezidebit has you covered if you want:

  • To take fixed and variable payments 

  • Low transaction fees of only 99 cents per transaction  

  • Quick and easy onboarding and setup. 

Want to find out more about Ezidebit’s all-in-one payment solutions for your medical practice? Talk to us:

This advice is general in nature and does not take into account individual circumstances. It does not constitute professional advice.

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