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Simplifying super: are they an employee or independent contractor?

16 August 2019 | Sonya Black, LLB (Hons), B.Com, Special Counsel - Employment Law, Avant Law, QLD

You are surprised to receive a letter from Dr Smith, a former contractor, demanding over $100k for unpaid super. Dr Smith worked at your practice as a contracted doctor for over a decade and now claims he’s entitled to unpaid superannuation.

Where does the practice stand and how do you respond?

Court decision guides distinction

We often receive calls from practices and doctors seeking advice about whether a doctor is an employee or independent contractor, and what it means for the doctor. This determination is particularly significant when it comes to superannuation entitlements.

This vexing question was recently considered in a case involving a dentist. While the court found the dentist was not an employee, the practice was still required to make superannuation contributions on his behalf.

The dentist sought unpaid long service leave entitlements and unpaid superannuation contributions.

Long service leave

The court first considered whether the dentist was an employee for the purpose of long service leave entitlements. After considering all the relevant factors, the court decided he was not an employee for this purpose.

The key points arising from the decision to assist practices to determine whether a doctor is an employee or contractor are as follows:

  • Ultimately, is the doctor a servant in the practice’s business or conducting his or her own business? A practice must consider the “totality of the relationship” and the “reality of the situation” to determine whether a doctor is an employee or contractor.
  • The terms of any written agreement between the practice and the doctor are relevant, but not indicative of whether the doctor is an employee or contractor.
  • A significant factor in favour of a finding that a doctor is an employee is the level of control the practice exercises over the doctor. This includes factors such as determining the patients a doctor sees, procedures performed, the work hours and leave.

The decision sets out a range of factors which can assist in determining whether a doctor is an employee or contractor. However, the list below is not exhaustive and shouldn’t be used as an automatic checklist to determine a doctor’s employment status. Depending on the particular case, other features of the relationship may be relevant in making the determination.

Factors to consider in determining whether a doctor is an employee or contractor

  1. Does the employer exercise, or has the right to exercise, control over the work performed, place or hours of work etc?
  2. Is work performed for others (or is there a genuine and practical entitlement to do so)?
  3. Is a separate place of work used and/or services advertised independently?
  4. Are significant tools or equipment provided and maintained by the worker?
  5. Can work be delegated or subcontracted?
  6. Is the employer entitled to suspend or dismiss the person engaged?
  7. Does the employer present the worker as part of the business?
  8. Is income tax deducted from remuneration paid to the worker?
  9. Is the worker remunerated by a wage or salary, or by completion of tasks?
  10. Is the worker provided with paid holidays or sick leave?
  11. Does the work involve a specific skillset or profession on the part of the person engaged?
  12. Does the worker create goodwill or saleable assets in the course of his or her work?
  13. Does the worker spend a significant portion of his remuneration on business expenses?

Superannuation

Superannuation legislation is complicated. Many are surprised to hear the legislation does not actually require employers to make superannuation contributions on behalf of employees to a superannuation fund.

Rather, the legislation requires an ‘employer’ to pay a tax known as the superannuation guarantee levy. An employer can avoid this tax if it makes appropriate superannuation contributions on behalf of its ‘employees.’

The term ‘employee’ is defined in the legislation to include a person who works under a contract that is wholly or principally for the labour of the person.

In past cases, the courts have found the legislation operates broadly and is intended to cover “employment like relationships in which work is performed for remuneration or payment”.

In this case, the court found the agreement between the dentist and the practice was “wholly or principally for the labour” of the dentist and therefore, the practice was required to make superannuation contributions on his behalf. As we understand it, the dentist was engaged under the agreement to provide services to the practice. This differs from a services agreement where the doctor engages a medical practice to supply services to the doctor.

Key lessons

  • Medical practices should consider their entire arrangement with a doctor in order to determine whether they are an employee or contractor.
  • A doctor may bring a claim seeking employment entitlements during their engagement or after they leave the practice. The practice can be ordered to pay compensation to the doctor (for example, leave entitlements or public holiday entitlements) if the doctor is found to be an employee.
  • If the doctor works under a contract that is “wholly or principally for the labour” of the doctor, the practice may have an obligation to make superannuation contributions for both past and future service. Practices should consult their accountant to determine whether a liability arises.

More information

Read our article, ‘Casual or permanent? Know your employees’ work status to avoid disputes.’

If you require information or advice on this or any other issue, please contact us on 1800 128 268 or email us at nca@avant.org.au

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