Medical practices in Australia typically engage doctors and other health professionals under one of three models: as employees, as contractors, or as independent practitioners operating from a serviced facility. Each model has very different legal, tax, payroll tax, superannuation, and risk implications.
In recent years, regulators including the Australian Taxation Office, Fair Work Ombudsman, State Revenue Offices, and WorkSafe authorities have increased their focus on the healthcare sector. As a result, it is critical that medical practices clearly understand how each engagement model operates in practice, not just in name.
Employee model: Practitioners are engaged directly by the medical practice as employees. The practice employs the practitioner, controls rostering and operational matters, and pays wages, compulsory superannuation, and leave entitlements. The practice bears most of the commercial and compliance risk.
Contractor model: Practitioners provide medical services to the practice under a contractor agreement. The practice often controls patient billing, collects fees, and pays the practitioner a percentage of billings or a fixed amount. While commonly used, this model attracts heightened payroll tax, superannuation, and workcover scrutiny.
Serviced facility model: Practitioners operate their own independent medical practice and use the clinic’s rooms, staff, systems, and infrastructure under a service agreement. Patient fees belong to the practitioner, who pays the clinic a service fee for facilities and administrative support. When properly structured, this model places commercial risk with the practitioner rather than the clinic.
Employees: In the employee model, medical practices exercise a high degree of control, including setting hours, approving leave, directing duties, and determining workflows. This level of control supports consistency but increases employment obligations.
Contractors: Contractors retain some autonomy, but risk increases where the practice controls fees, rostering, delegation, or exclusivity. In many medical practices, contractor arrangements operate closer to employment in substance than in form.
Serviced facility: Control should be limited to clinical governance, safety standards, and accreditation requirements. The practitioner controls their own business, pricing, hours, and patient relationships.
Employees: Practitioners are paid wages or a salary, regardless of patient billings. Commercial and collection risk sits almost entirely with the practice.
Contractors: Practitioners are commonly paid a share of billings or fixed amounts. Despite being labelled as contractors, the practice often continues to bear most commercial risks.
Serviced facility: Practitioners earn patient fees directly and bear the commercial risk of their own practice, including patient volumes, billing, and debt recovery. The clinic earns a service fee rather than clinical income.
Employees: PAYG withholding applies, superannuation is compulsory, payments are generally subject to payroll tax, and practitioners are covered under the practice’s WorkCover policy.
Contractors: Contractors are responsible for their own income tax, but many doctors are subject to Personal Services Income rules. Superannuation may still apply where contractors are paid mainly for labour and lack genuine delegation rights. Payroll tax and WorkCover exposure are high for medical practices using this model.
Serviced facility: Practitioners manage their own tax, superannuation, and insurance arrangements. Payroll tax and WorkCover exposure are generally lower where the model reflects genuine independence and when service fees are properly structured.
Recent High Court decisions confirm that where a comprehensive written contract exists, the rights and obligations set out in that contract are central to determining the nature of the relationship. This makes well-drafted, up-to-date agreements essential across all models.
Different regulators apply different tests. A practitioner may be treated as an independent contractor for income tax purposes, but as an employee for payroll tax or WorkCover purposes. Serviced facility models are increasingly reviewed to ensure they reflect genuine independence rather than contractor arrangements in substance.
Employee risks include award compliance, underpayment, and workforce inflexibility.
Contractor risks include fixed hourly payments, lack of delegation rights, practice-controlled fees, exclusive arrangements, payroll tax assessments, and WorkCover deeming provisions.
Serviced facility risks arise where patient fees are collected by the clinic, service fees are calculated as unjustified percentages of billings, or the clinic exercises operational control beyond clinical governance.
Myth 1: Calling someone a contractor makes them a contractor
Labelling a practitioner as a contractor does not determine their legal or tax status. Regulators look at the substance of the arrangement, including control, payment flows, and risk allocation. Poorly structured contractor arrangements are a common source of payroll tax, superannuation, and WorkCover liabilities.
Myth 2: Contractors are always excluded from payroll tax
Payroll tax is assessed under state legislation and uses different tests to income tax and employment law. In medical practices, payments to contractor doctors are frequently assessed as taxable wages, even where the contractor model is otherwise valid.
Myth 3: Contractors always pay their own superannuation
Superannuation law contains an extended definition of employee. Contractors paid mainly for their labour, and who lack a genuine right of delegation, may still be entitled to superannuation contributions from the practice.
Myth 4: Serviced facility models automatically eliminate risk
A serviced facility model can significantly reduce risk, but only where it is properly implemented. If the clinic collects patient fees, controls pricing, or sets service fees without commercial justification, regulators may treat the arrangement as a contractor model in substance.
Myth 5: WorkCover only applies to employees
WorkCover and workers compensation legislation often deem certain contractors to be workers. Medical practices using contractor models commonly face unexpected WorkCover exposure if arrangements are not carefully structured.
| Factor | Employee | Contractor | Serviced facility |
|---|---|---|---|
| Who earns patient fees | Practice | Practice | Practitioner |
| Payment method | Wages / salary | Share of billings or fixed fees | Service fee paid by practitioner |
| PAYG tax | Withheld by practice | Contractor responsible | Practitioner responsible |
| Superannuation | Compulsory | May still apply | Practitioner responsible |
| Payroll tax | Generally applies | High risk in medical practices | Lower if correctly structured |
| Workcover / workers compensation | Covered by practice policy | Often deemed worker - high risk | Practitioner maintains own cover |
| Control over work | High | Moderate | Low (clinical governance only) |
| Commercial risk | Practice | Mostly practice | Practitioner |
| Regulatory scrutiny | Moderate | High | Increasing |
There is no one-size-fits-all engagement model for medical practices. Employee, contractor, and serviced facility models can all be appropriate when correctly implemented.
The key issue is not how practitioners are labelled, but whether the chosen structure reflects commercial reality and is actively managed in line with current regulatory expectations. Regular reviews and professional advice are essential as practices grow, diversify, or expand across states.
This document contains general information and does not constitute legal or taxation advice. If you need legal or taxation advice, we recommend you speak to a qualified advisor.
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