Linkedin
Facebook
Email
more
For many general medical practices, engaging General Practitioners (GPs) as independent contractors has long been a common and commercially practical model.
However, increasing scrutiny from the Australian Taxation Office (ATO), state and territory revenue authorities and recent case law means practices can no longer rely on labels alone. The real question is whether the written agreement and the way the arrangement operates support the GP being genuinely independent, or whether the relationship is closer to employment.
The consequences of getting the classification wrong can be significant. A practice may face unexpected liabilities for PAYG withholding, Superannuation Guarantee (SG), payroll tax, interest and penalties. The financial exposure can quickly become material, particularly where arrangements have been in place for several years or where a practice operates across multiple sites.
Why the issue of contractor vs employee is attracting attention
Superannuation obligations may apply to contractors
If a contractor is paid mainly for their personal labour and skills, and the work cannot be genuinely delegated, the contractor may be treated as an employee for SG purposes even if they have an ABN and invoice the practice.
The contract and the practical relationship must align
Where the parties have entered into a comprehensive and effective written agreement, the characterisation of the relationship will generally be determined by the rights and obligations established by that contract (in line with the Personnel Contracting; Jamsek court case). However, practical conduct remains relevant where the contract is incomplete, varied, not followed in practice, or where specific statutory tests (such as payroll tax or superannuation guarantee provisions) require examination of the actual arrangement.
PAYG, SG and payroll tax exposure can be significant
If a GP is misclassified, the practice may be liable for unpaid SG, PAYG withholding, payroll tax, interest and penalties.
Superannuation cannot simply be contracted out of
A clause stating that a GP is responsible for their own superannuation will not override the law if the arrangement gives rise to an SG obligation.
There are a number of practical considerations for practices when negotiating, documenting and managing GP arrangements. The objective is not merely to choose a label, but to ensure the commercial model, contractual terms and day-to-day operations are consistent.
The following issues should be considered when engaging a new GP or reviewing existing arrangements.
What are the key differences between contractor GP agreements and employee GP agreements?
Calling a GP a contractor does not, by itself, make the arrangement a contractor relationship. Similarly, having an ABN, invoicing the practice or using a company or trust will not be enough if the underlying relationship is employment in substance.
A well-drafted agreement should make clear whether the GP is:
- a contractor GP operating their own independent medical business
- an employee GP providing personal labour as part of the practice’s business.
A genuine contractor GP agreement should reflect that the GP is conducting their own independent medical business and is using the practice’s facilities, administration and support services under a commercial service arrangement.
The contract should focus on the commercial services provided by the practice and the GP’s independent clinical practice, rather than simply attendance, hours worked or labour supplied.
Employee GP agreements, by contrast, usually require the GP to perform work for the practice and typically specify duties, hours, leave entitlements, supervision and remuneration for labour.
If an agreement is primarily concerned with attendance, workload and compliance with practice directions, it may suggest an employment relationship rather than an independent contractor arrangement.
1. Remuneration structure
How a GP is paid is an important contractual indicator.
In a contractor model, patient billings are generally treated as the GP’s income, with the practice retaining a service fee for providing premises, administration, nursing support and other facilities. This structure supports the position that the GP is running their own practice from within the medical centre.
Employee GPs are more commonly paid a salary, hourly rate, sessional amount or guaranteed minimum. Their remuneration is usually linked to the work they perform for the practice rather than to the commercial risk and reward of their own independent practice.
2. Control and operational independence
In healthcare, contracts should be reviewed for operational and administrative control.
Contractor GP agreements should generally allow doctors to determine their own availability, subject to reasonable clinic requirements, and preserve clinical and operational independence. Practice policies applying to contractors should be directed primarily at safety, regulatory compliance, patient care standards and the orderly use of facilities.
Employee GP arrangements are more likely to involve set working hours, rostering, direction on administrative and reporting matters, formal performance reviews and integration into practice management processes. The more control the practice exercises over the GP, the greater the risk that the arrangement will be characterised as employment.
3. Ability to delegate or arrange locums
The right to delegate is a key contractual distinction.
A key distinction is whether the GP has a genuine right to delegate work or arrange a suitably qualified locum. In a contractor arrangement, the GP should have meaningful responsibility for arranging a substitute where appropriate, subject to professional registration, credentialing, insurance and patient safety requirements.
Employee GPs are generally expected to perform their duties personally, with the practice arranging cover when they are absent. If the practice controls all replacement arrangements and the GP has no practical ability to delegate, that may point towards employment.
4. Integration into the practice
Contracts need to make clear whether a GP is genuinely working as part of the practice’s business or if they’re operating independently alongside it.
For contractor GPs, indicators of independence include being described as an independent practitioner, maintaining their own professional indemnity insurance, having the ability to work at other practices and not being subject to broad exclusivity or restraint provisions.
Employee GPs are more likely to be presented as part of the practice team, subject to the same management structures as other employees and restricted from working elsewhere. High integration into the business can increase the risk of an employment characterisation.
5. Use of entities such as companies or trusts
Sometimes, GP agreements involve paying a company or trust that is controlled by the GP.
While these structures may be commercially appropriate, they should not be treated as a complete answer to employee or contractor risk. The arrangement still needs to demonstrate genuine independence.
Where the GP is the only person providing services through the company or trust, and the arrangement is effectively for that individual’s personal labour, tax and revenue authorities may look closely at whether the interposed entity reflects a genuine business structure or simply masks an employment-like relationship.
In short, the use of a company or trust does not change the true nature of the relationship if the surrounding facts and documents do not support genuine independence.
6. Termination provisions
Termination clauses can provide key insights into whether a GP is considered an employee or a contractor.
Contractor GP agreements should usually include commercial termination rights, such as termination for breach or termination on notice, and should avoid dismissal-style language where possible.
Employee GP agreements generally include employment law concepts such as notice periods linked to service, leave entitlements, misconduct provisions and disciplinary processes. If a contractor agreement reads like an employment contract, it may undermine the intended classification.
Please see our detailed breakdown, for more information on determining whether a worker is an employee or a contractor
Payroll tax considerations when engaging GPs as contractors
Payroll tax has become one of the most significant risk areas for medical practices engaging contractor GPs specifically after the well-discussed payroll tax court cases Thomas and Naaz and Optical Superstore. Several jurisdictions now treat payments to contractor GPs as potentially taxable wages where the arrangement falls within the relevant contract provisions, unless a specific exemption, rebate, amnesty or exclusion applies.
The position is not uniform across Australia. Each state and territory has its own payroll tax legislation, thresholds, grouping rules, contractor provisions and GP-specific relief measures.
As a result, practices should avoid assuming that a structure accepted in one jurisdiction will produce the same outcome in another. The key differences are now largely driven by GP-specific relief settings, especially for bulk-billed or fully funded services. Please see the state-by-state breakdown of payroll tax exemptions below:
In practice, GP clinics should review the written agreement, payment flow, service fee structure, billing profile, grouping position and any state-specific exemptions before concluding that contractor GP payments can be excluded from payroll tax.
Payments to contractor GPs may be taxable under the relevant contract rules. From 4 September 2024, eligible medical centres can claim a payroll tax rebate for contractor GP wages where prescribed billing thresholds are met, generally 80% in metropolitan Sydney and 70% in other areas.
Contractor arrangements can fall within the relevant contract provisions. From 1 July 2025, wages paid to contractor and employee GPs are exempt to the extent they relate to fully funded GP work, including bulk-billed services.
From 1 December 2024, wages paid by a medical practice to GPs, whether employees or contractors, are exempt from payroll tax. The exemption is not limited to bulk-billed services.
Contractor GP payments are generally considered under the relevant contract framework. From 1 July 2024, a bulk-billing exemption applies to eligible GP services, with prior-period amnesty relief available where conditions are met.
From 1 July 2025, designated medical practices are exempt from payroll tax on wages paid to GPs, whether employees or contractors, for bulk-billed services, DVA Part V services and workers compensation services.
Tasmania has not adopted the same GP-specific relief settings as some other jurisdictions. Contractor GP arrangements should be reviewed under the ordinary payroll tax, contractor and employment principles.
There is no equivalent GP-specific payroll tax concession. The ordinary payroll tax rules apply, subject to the Northern Territory’s threshold and grouping rules.
WA does not currently apply equivalent relevant contractor provisions to medical practices in the same way as some eastern jurisdictions. The focus is instead on whether the GP is properly characterised as an employee or contractor under the totality of the relationship.
Practical checklist for medical practices
- Review current GP agreements and check whether the terms support the intended contractor or employee classification.
- Confirm that the payment flow reflects the commercial model, including whether the GP receives patient billings and pays a service fee to the practice.
- Assess whether contractor GPs have genuine independence, including flexibility, ability to work elsewhere and a meaningful right to arrange locum cover.
- Check whether SG obligations may apply, particularly where the GP is paid mainly for personal labour and cannot delegate the work.
- Review payroll tax registration, grouping, thresholds and GP-specific concessions in each relevant jurisdiction.
- Document the review process and retain evidence supporting the classification and payroll tax treatment adopted.
When to seek advice
There is no single clause that determines whether a GP is a contractor or an employee for PAYG, SG or Payroll tax purposes. It is important to note that these three taxes all have their own legislative framework with some common themes, but could result in different outcomes. It is possible that the same person can be treated as a contractor for PAYG and or SG purposes but be an employee for payroll tax purposes. The agreement, commercial model and practical operation of the relationship must be considered together.
This article provides pointers and reference materials, but there are additional elements to consider. Medical practices should seek advice when entering into new GP arrangements, changing their billing or service fee model, expanding into another jurisdiction, receiving questions from a revenue authority or reviewing historical payroll tax and SG exposure or if your arrangements have not recently been reviewed.
Regular reviews are also important because a relationship that starts as a genuine contractor arrangement can drift over time if operational practices become more controlled, integrated or employment-like.
The best way to minimise risk is to ensure that the legal documentation, tax treatment and day-to-day conduct all point in the same direction.
For assistance reviewing GP engagement models, contractor agreements, payroll tax exposure or SG obligations, please get in touch by filling out the form below.
