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Payroll Tax Concerns? Real Life Observations from Kelly Chard

Barely a workday has gone by over the last 11 months when a client, prospective client or colleague hasn't asked me a question about payroll tax, engaging with practitioners and health practices.


Social media, online publications and workplaces continue to buzz on the latest appeal news, the various tax risk areas or the everyday processes that don't ring true for a service entity or tenant doctor arrangement. It is good to keep the topic front and centre…..but what are practices doing on the ground? I find that is what people want to know.


So, let me give you an "On The Ground" update based on the conversations and experiences we are having with our GrowthMD clients. Before we get started, please remember that this isn't specific advice for your practice or service entity – this is general information presented from our own real-life experience.


Change of Banking Arrangements

Within our client group, around 12% of practices have already taken steps in changing practitioner banking arrangements, with an estimated 25% planning to make changes over the coming months. These changes involve all patient receipts being deposited directly to the practitioner's business bank account.


The operational hurdles by those that have made the change include the following:

  • Communicating the new banking workflow to practitioners and support staff - resistance has been shown at the practitioner level in a small number of cases

  • Devising a service fee invoicing and collection system that is easy to administer and keeps practice cash flow viable, e.g., payment terms, auto payments, credit card payment options

  • Implementing a procedure for receipting and tracking of non-Medicare/point of sale invoices

  • Reconfiguring current systems and integrations (e.g. telehealth/online payment collection, Surgical Partners) to allow continued use with the new banking workflow

  • Considering reports provided to the practitioner to assist with their tax and reconciliation obligations.

  • Working with practitioners and customers to update banking details

While this has been time-consuming (particularly for the Practice Managers!), it has overall, to date, been an achievable process. Interestingly each practice I have worked with on this change has implemented slightly different systems to overcome the hurdles listed above.


Some practices are taking a more "hands-on" role by accessing the practitioner's bank account to ensure reconciliation of cash banking to services invoiced; others believe the practitioner (as the business operator) bears the responsibility to reconcile and check the cash receipts. Both approaches have their pros and cons.


Legal and Accounting Reviews

The overwhelming majority of our clients have undertaken additional accounting and legal reviews of their business post the Thomas and Naaz decision. The outcomes here have been most valuable when the accountant and solicitor are jointly involved in the review process. Areas of consideration and review have included:

  • Is the business running a legitimate service entity?

  • Service and Facility Agreements

  • Websites, promotional materials, terminology

  • Operational and policy review (particularly any involving leave, rosters, obligations)

  • Income streams, type of goods and services offered by the business

  • Overall business structure/s

  • Invoicing, cash/banking flow and tax status review

Employee Practitioners

In the last few months, we have had two clients decide to switch to engaging with all practitioners as employees. These practices join a small group of clients who had already engaged under an employee/employer model. The deciding factor for all of these practices in choosing this model was their desire for simplicity and certainty in the obligations of both parties. While I often hear that this is "just not affordable" for the service entity, I am finding that those that have proceeded down this path have been able to come to mutually advantageous arrangements. It is still very much the minority arrangement, however.


Know your Customer

With our clients operating under a service entity/tenant doctor type arrangement, we have been advising owners/PMs to prepare a "Practitioner Customer Register". This register should be kept on file and updated regularly and includes:

  • Customer/Practitioner Trading Entity

  • ABN number and GST registration status

  • Trading Entity Bank Account Details

  • Copy of signed Services and Facilities Agreement

  • Sample invoice generated from PMS (e.g., BP/ Medical Director) with trading entity ABN

  • Practitioners' other regular services provided outside this practice setting (e.g., other locations where services are provided if known)

Business Restructures

In the last nine months, we have seen an increased appetite for restructuring business operations and entities. We have heard some accountants and lawyers are pedalling restructures to "get rid of your old payroll tax liability". I like to exercise a degree of caution about restructures. A restructure purely to avoid a tax liability or obligation is unlikely to be effective. Quality lawyers and accountants should be engaged to ensure the restructure is completed with a commercial purpose. Restructures are also expensive, and once a business is restructured to a new entity, you will want to ensure your accounting and legal systems are optimally set up moving forward (so your money isn't wasted!).


My Final Thoughts

I want to express that I feel (and experience with you) your pain in this period of change. It is never lost on me that my clients are in business to provide health care and support to our community. Dealing with financial, legal, and taxation intricacies is an added burden on your already overloaded team and resources. I hope that our team at GrowthMD and our excellent partners are helping practices navigate these issues and changes with the least amount of stress possible.


If you feel your practice's accountant doesn't understand or address these issues with you, please reach out to me here: https://www.growth-md.com/working-together