Payroll tax: How recent changes impact the medical services industry

What has happened recently in the payroll tax space? 

There have been significant recent developments in relation to payroll tax obligations for medical practices. 

Recent cases and rulings confirm that, in certain circumstances, practitioners engaged by a medical practice can be treated as employees for payroll tax purposes, even if they are engaged as independent contractors. If these practitioners are employees, this means that the medical centre may be liable for payroll tax in respect of certain payments made to these practitioners.  

When does payroll tax apply? 

In Australia, payroll tax obligations are state-based and the payroll tax rates and thresholds vary between states.  

Generally, payroll tax is only payable on wages that exceed the applicable threshold for the relevant financial year. As of 1 July 2024, the annual thresholds per state generally range from $900,000 to $1.5 million (with a higher threshold of $2 million in the ACT).  

What are the key issues to consider for a medical services business? 

Whether a medical practice will be liable for payroll tax will depend on the specific arrangement with its practitioners and the state in which the services are provided. 

If practitioners are engaged as employees (at law), their wages are generally subject to payroll tax. If practitioners are engaged as independent contractors, or via an employment agency, payments to those practitioners may still be subject to payroll tax in certain states. 

In a recent NSW case, a medical practice was found liable for payroll tax in respect of payments to its practitioners.¹ A key factor in this decision being that the arrangement involved patients’ Medicare benefits being paid to the medical practice on the practitioner’s behalf. The medical practice retained a percentage of the Medicare benefits (as fees for services it provided to the practitioners) and then distributed the rest to the practitioner. 

Given payroll tax legislation is generally harmonised across all states, this case may have implications for businesses in other states as well. Also, whilst this case involved a GP practice, it may apply more broadly to other medical services businesses, such as physiotherapy clinics, dental clinics, etc. 

Certain states have announced payroll tax exemptions for payments for bulk-billed payments to contractor GPs or where the medical practice meets certain bulk billing thresholds (e.g. at least 80% of services are bulk-billed for practices located in metropolitan Sydney). 

How to navigate the payroll tax changes 

There are a number of ways that practice owners set up payments with their providers, including: 

1. Practice owners contract with each provider who is independent and settlements are paid to the individual bank accounts of providers; and 

2. Practice owners employ providers and use a central bank account where all funds from Tyro settle centrally. 

While Tyro Health can support a range of models, we have developed our Multi-merchant functionality to specifically support model 1. 

Multi-merchant is a key feature of our EFTPOS solution, enabling practices to add multiple providers to a single EFTPOS machine. Payments, including Medicare benefits, are processed against each provider, and then settled directly to their nominated bank account. This means that practice owners do not have to receive Medicare benefits on behalf of their providers and then re-distribute these to each provider, which was a key factor in the recent NSW payroll tax decision (see above). 

Tyro EFTPOS Multi-merchant enables: 

• The business of each provider to be set up as a unique Tyro customer – unlimited number of health provider accounts can be linked to one EFTPOS machine
• A single Tyro EFTPOS machine can continue to be used to raise Medicare or Private Health Insurance claims against each provider practicing at that location
• Card payments processed on the Tyro EFTPOS machine can settle directly to the nominated bank account of that provider
• Streamlined transaction processing for practice staff at no extra cost to practice or providers
• Individual Tyro invoices for fees payable to Tyro can be sent to each provider just for their portion of card payments and also their portion of the EFTPOS machine rental

Learn more 

It is important that you talk with your accountant about your business needs, and which Tyro EFTPOS option is right for you.  

To learn more about how to get started with Tyro Multi-merchant for Tyro EFTPOS machines, please contact us at these addresses: 

• New Tyro EFTPOS customers contact us on healthsales@tyro.com 

• Existing Tyro EFTPOS customers please contact us on healthonboarding@tyro.com  

Disclaimers

Tyro Health provides this article for general information and educational purposes and does not take into account the financial situation or need of any reader. The information provided must not be relied upon as  legal, tax or financial advice. 

¹ Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2023] NSWCA 40