Contracting vs employing practitioners for your private practice
Over the last few years, there has been increasing uncertainty around how a contractor model can continue to work for allied health private practices. The contractor model has and continues to be the preferred option for private practice owners over an employee model but with no clear understanding of how legal or appropriate that model is or might be in the future.
However, in February this year (2022) the High Court of Australia ruled on two cases that go to the heart of the matter and we feel the significance is worth unpacking.
Employment vs Contractor
Before we dive into the findings of the high court, let’s recap the main options first. For private practices looking to increase the number of practitioners, there have been two methods of engagement. Retaining practitioners as part-time or full-time employees or entering into a contractor agreement for a practitioner to operate under the practice banner.
The Employee Model
While the employee model provides practitioners with earning security and wage certainty, it also creates some cost issues for the practice such as superannuation, holiday leave, sick leave, personal and carer leave, and others. It also creates some longer-term exposures such as long service leave and it can contribute to cash-flow headaches when the practitioner wants to move on after some years of service. But an employment model can create productivity challenges as well. The practitioner is paid the same amount of money regardless of the number of sessions they conduct. This makes it very hard to maintain a viable return per session for the practice. If, as the owner, you base your profit on a practitioner seeing 5 clients in a day but for one reason or another the practitioner only sees 3 clients, your cost to provide each session goes up significantly. Many allied health practices operate at a much tighter margin than most people realise and people costs are by far the largest component.
The Contractor Model
Contractor arrangements on the other hand are much easier to balance as the contractor is paid an amount of money for each session that is delivered. Contractors also don’t accrue leave or other entitlements and it makes it much easier to part ways without undue financial burden. At the same time, you can still work certain provisions into the contractor agreement for the length of a notice period and any other provision that is reasonable to both parties.
Employee or Contractor?
Over the last few years, there has been increasing pressure for private practices to move to an employee model over a contractor model on the basis that in many cases the contractor might be deemed to be an employee. If for example, they work the same hours each week, work exclusively for one practice or if they are required to be identifiable as a member of a particular practice team either through wearing a uniform or via other means of identification, then you may have had cause for concern. The fear is that if a contractor was deemed to be an employee after some years of service there could be a backlog of entitlements the practice is liable for. This could result in having to raise a relatively large amount of money not to mention the potential legal costs associated with it. If you have a large team then you could also find yourself liable for entitlement costs of all contractors, not just the one that raises the issue with you.
In February of 2022, the High Court of Australia ruled on two cases that go to the heart of these concerns and those rulings are significant.
So what were the cases?
ZG Operations Australia Pty Ltd v Jamsek
The first (ZG Operations Australia Pty Ltd v Jamsek) was a case involving two truck drivers. Initially, the drivers were employees but in the mid 1980’s the company they worked for said it would no longer employ them although they could contract their services back to the company. The two truck drivers then entered into contracts to move goods for the company and they continued to do so for about the next 30 years. The two drivers had no other customers and worked exclusively for the company they initially worked for.
In 2017 the contracts were terminated and the two contract drivers commenced legal action against the company. They were seeking money for entitlements they claimed were owed to them on the basis they had essentially been employees for the 30 years given they had worked exclusively for the company. They also argued they had carried company signage on their trucks, wore company uniforms and were occasionally asked to perform other tasks for the company unrelated to their contracted roles.
The court ruled that while it acknowledged the ongoing relationship and the difference in bargaining power between the company and the contractors, they were in fact contractors, not employees. The ruling came down to the terms included in the contract. While the drivers worked exclusively for the company, the agreement between the parties allowed for the drivers to have performed the same service for other companies. The court took the view that the written terms of the agreement outweighed the “substance and reality” of their daily work routine.
Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd
The second case (Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd) involved a construction worker and was spearheaded by the CFMEU on behalf of the contractor V a labour hire company that contracted the labourer. In this case, the labourer was contracted to the labour hire company and then directed to specific construction sites to perform specific tasks. The company he worked for had absolute control over who the man worked for and what tasks he could perform and he was required to comply in all instances.
The Court found that the man had no control over where he worked or what tasks he carried out and that control was a key asset of the company that contracted him. On that basis, the court ruled that the contract was a contract of service rather than a contract for services and therefore he was deemed to be an employee and not a contractor.
What does it mean for private practice?
Well, in essence what it means is that the wording of the contract is critically important to get right. The contractor model for private practice is, most likely, going to be more sustainable than we all may have thought, but the wording of the contract is essential in making this stack up.
Watch for developments
It’s also important to remember that this is a constantly changing area of law and should be watched carefully for developments. While the two cases discussed in this blog help to clear up some of the grey area, this is going to continue to be a topic that may be difficult to navigate without some guidance.
Consult the governing bodies
One way to keep up to date with developments in this area is to seek advice from the governing bodies of your profession. Reach out for guidance or keep an eye on their member communications and events such as newsletters, webinars and professional development resources.
Lean on the community
Another way to keep up to date is to join online groups or forums such as Facebook groups designed to facilitate conversations between professionals in your discipline. Participating in such discussions is a great way to keep an eye on the changes as well as gain insight into what other private practice owners are doing.
Regularly review your contractor agreements
The single most significant takeaway from these rulings is that contractor agreements need to be regularly reviewed and updated according to the current legal standard. It is recommended that contractor agreement reviews are scheduled as part of your annual process and policy review. Your private practice coach or advisor will be able to support you with this, or guide you to an appropriate legal advisor if and when that becomes necessary.
Remember that contractor agreements, like any other private practice policy document, are not ever really finished. Constant review and revision is the key.
Summary of Tips
To help navigate through the process, here is a summary of tips to keep in mind when approaching contractor agreement reviews:
- In light of these High Court rulings, review your contracts to make sure they comply
- Keep an eye on developments in this area, as more changes are likely
- Review your contractor agreements regularly for compliance as part of your overall annual process and policy review
- Seek guidance from your private practice coach or advisor about your contractor agreements
Lead your practice with confidence
Are you ready to LEAD your private practice towards success and sustainable growth? Chat with the K&W coaches to find out how you can become a confident and competent leader!