Whether certain persons working as purported independent contractors or employees, are as they are claimed to be, is of ongoing contention in Australia (where the case of ZG Operations Australia Pty Ltd & Anor v. Jamsek & Ors is currently before the High Court).
Arrangements such as those of principal and independent contractor are typically entered into over an employment relationship for convenience and the benefit of not having to pay entitlements that an employer would be liable for. Recently, however, in Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue  NSWCATAD 259 (Thomas), it was held payments made by the operator of medical centres to doctors who operated out of the centres were liable for $795,292.95 in payroll tax.
Within the medical profession, it is commonplace for doctors to enter into what are known as contracts for service. These contracts provide for doctors to not be employees of medical practices, but to merely be an independent contractor who operates out of the practice’s rooms. In exchange for the use of the practice’s rooms and staff (where the practice typically performs invoicing, Medicare rebates, and the like on the doctor’s behalf), the doctor pays a fee to the practice. This recent decision draws this practice into question.
Within Thomas, Dr Thomas and Ms Naaz operated three medical centres, where doctors who wished to practice out of the centres would enter into a contract for service. These contracts provided the doctors with use of a centre’s staff and rooms in exchange for a service fee. Relevantly, the terms of the contracts entered into provided that payments from patients to doctor would occur by:
- The doctors would bulk bill clients;
- The doctors had the medical centre deal with Medicare to make Medicare claims on behalf of their patients;
- The funds received from billing and Medicare claims were placed into the account of the medical centre;
- Staff of the medical centre would account for the billed time and Medicare claims against funds received into the account; and
- From the funds received, the medical centre retained a percentage of such as a fee, and paid the rest to the doctor. It is this release of monies to the doctor which were subject to the tax liability claim.
Further, under these contracts:
- Doctors were obliged to work rostered shifts;
- Doctors were obliged to promote the interests of medical centres;
- Doctors were obliged to abide by policy and procedures of the medical centres;
- Doctors had restraints imposed on them;
- Doctors were obliged to inform the medical centre of unplanned absences;
- Doctors were obliged to provide at least 6 weeks’ notice of holidays;
- The amount of holidays that could be taken by the doctors was limited; and
- Leave required written requests and approval.
The question for the tribunal was whether the contracts were a ‘relevant contract’ under the provisions of the NSW Payroll Tax Act, which would create a tax liability for the payments made from the practice to the doctors, and if so, whether an exception applied to exclude the payments from tax liability.
Thomas sought to argue the contracts were not relevant contracts as services were provided by the doctors to patients, and further that if liability arose, an exception should arise as the doctors offered their services to the public at large, not just to/from the centre.
The Tribunal held, in light of the above obligations under the contracts, the contracts were relevant contracts as they were for the supply of services in relation to work, and thus a tax liability arose. The tribunal found the clauses of the contracts, and the nature of Thomas’ business, meant that the services provided by the doctors were provided not only to patients, but the centres themselves:
These clauses indicate that the Agreement secured the provision of the Services provided by the Doctors to the patients of applicant’s medical centres. In circumstances where such services were a necessary part of the applicant’s medical centre business, the Doctors provided them not only to the patients but also to the applicant.
The Tribunal did not consider the exception of the doctors offering services to the public generally, as it was held the centres required the services of the doctors for more than 180 days in a year. However, the Tribunal stated that they would not be prepared to accept an inference that such an exception would have arisen.
Thomas serves as a reminder for businesses who engage, or are themselves engaged by, contractors to ensure that their contracts for service are drafted appropriately to reflect a contractor arrangement, and not that of an employment or greater relationship. It was ultimately Thomas’ restrictive contracts that resulted in the finding that the arrangement on foot was more than a separate and distinct contractor relationship, and that Thomas’ business required the doctors’ services.
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The contents of this article are general in nature and is for information purposes only. The content of this article does not constitute legal advice and should not be used as such. Should you require assistance with a specific legal matter, it is recommended that you seek appropriate advice.
Authors Bradley Ellacott (Lawyer) and Nigel Saines (Principal).