A recent case in the Full Federal Court of Australia may have superannuation guarantee implications for medical practices paying medical practitioners under a services agreement. The structuring of a services agreement has wide-ranging implications for both the practice and practitioner in respect to payments, withholding taxes, super, leave entitlements, payroll tax and WorkCover.
- Dr Moffett (a dentist) sold his practice to Dental Corporation Pty Ltd in November 2007, but agreed to continue working in the practice.
- Under a services agreement, Dr Moffett was required to provide dental services to patients of Dental Corporation.
- Dr Moffett resigned in November 2014 and claimed that he was an employee, and therefore entitled to annual leave, long service leave and superannuation.
- The court found that Dr Moffett was an independent contractor, therefore rejecting his claim for leave entitlements.
- However, the court ruled that Dr Moffett was an employee for superannuation and was entitled to super.
Why was Dr Moffett an independent contractor?
Whether a person is an employee or contractor depends on a number of factors. In this case, the judge reviewed the degree of control over Dr Moffett’s work, the structure of the relationship and other financial arrangements in the services agreement. In particular, Dr Moffett had control of his work hours, the procedures he performed and the amount he charged for dental services. The judge also noted Dr Moffett was remunerated based on his patient billings, rather than for his time.
Why does Dr Moffett have an entitlement to super?
The definition of an employee for superannuation purposes includes a person working under a contract wholly or principally for the labour of that person. Dr Moffett was required to provide dental services (labour) under the services agreement with Dental Corporation.
This agreement differs from genuine services agreements, where the medical practice is engaged to provide services to a practitioner in exchange for a fee.
What does this mean for my medical practice?
It is critical for all medical practices to review the conditions of their services agreements, so that payments to medical practitioners are not subject to super.
Super that is not paid by the due date (28 days after the end of the quarter) is not tax deductible and is also subject to interest and an administration fee. The ATO have no limit on the number of years they can review to determine underpaid super.
Additionally, for medical practices operating as a company, super is subject to the director’s penalty regime, which means the ATO can issue a director penalty notice and make the director of the company personally liable for unpaid super.
Please contact Kristy Baxter or your Pilot Advisor for assistance with reviewing your current services agreement and potential superannuation guarantee exposure.