5 tips for Associate Dentists to tackle SFAs and Payroll Tax changes
Grow Community
26 September 2024
5 minute read
Recent changes to how the tax office interprets Service Facility Agreements (SFAs) means it is important for Associate Dentists to understand the legal implications and contractual rights that come with SFAs. To ensure that you are covered from a legal, financial and marketing perspective, we’ve reached out to experts within the Grow Community for their insights about what you need to have in place.
What is an SFA?
An SFA is a contract between a dental practice and a dentist who operates out of the practice. Unlike an employment contract, where the dentist works for the practice owner, under an SFA the dentist operates as an independent business, who contracts out of the practice. The practice charges the dentist a fee for access to an operatory, equipment, supplies, a dental assistant and administrative services including scheduling of patients and patient billing. How the patient billing (flow of funds) is drafted in the SFA, and actioned by the practice, is a critical factor in how the tax office interprets the relationship between the practice and the dentist.
Under a correctly structured SFA, 100% of the patient fees would be paid directly to the Associate Dentist. The Associate Dentist then pays the service fee to the practice. However, in most Australian dentist practices this is still not the case – and this is where it has become a potential payroll tax issue.
Where does payroll tax come into it?
Payroll tax applies to gross wages paid by businesses (such as dental practice owners) to employees and relevant contractors. As an Associate Dentist working at a practice under an SFA, you are responsible for paying your own tax and statutory withholdings or contributions.
From a payroll tax point-of-view, the incorrect drafting of an SFA, or implementation of an SFA as an independent practitioner, or incorrect operation of the flow of patient funds means that if the practice is audited, you may be classified as an employee by the ATO, instead of an independent business merely utilising the services and facilities of the practice linked to the SFA. If this is the case, the dental practice owner is at significant legal and financial risk with the potential for hefty fines and tax payments.
What does this mean for Associate Dentists?
Associate Dentist and Founder of the Associate Dentists Academy, Dr Jamie Workman, says, “From an Associate perspective, it’s really important that dentists understand their legal rights, but that they balance these carefully with the commercial reality of running a practice. If you push too hard on your absolute rights, owners may choose another candidate if you are applying for a position or decide that the relationship is too much effort if you are consistently making it difficult for them to run their business effectively.”
Unfortunately, many Associate Dentists lack knowledge about the contractual agreements they enter into and this puts them at risk of being disadvantaged when it comes to understanding their legal rights and responsibilities under those contracts.
With dental practice owners under pressure to review existing SFAs and potentially restructure the flow of patient fees, now is the time to brush up on your understanding of contract terms and entitlements.
“As an Associate you rely on the practice for almost everything, from mentorship to staff to administrative, even your Patient list. It’s a synergistic relationship that allows both parties to thrive, but there are a lot of grey areas as we adapt these legal structures to our profession. It is a complex area that requires a collaborative effort as these changes lead to many dentists needing to renegotiate their contracts,” Dr Workman said.
Here are 5 tips to protect yourself when implementing an SFA with a dental practice:
1. Seek advice from legal and accounting experts with experience in SFAs
SFAs and payroll tax are incredibly complex, so it pays to engage industry-experienced professionals with knowledge of SFAs, to make sure you have the right contracts and financial structures in place for your business.
For example, as a business owner, you need to have an ABN and make sure that you have your GST and accounting practices in order.
“I always recommend getting a legal opinion before signing any contract. Yes it costs money, but with it comes understanding and peace of mind. These contracts can be overwhelming when you aren’t used to looking at them, so there is a tendency, particularly amongst young dentists, to simply trust and accept the terms that are being presented. This can come back to bite you. The next time you enter a contract you already have a base knowledge and some experience that you can then apply. As a business owner you really do need to understand this,” Dr Workman said.
2. Know the rules and what to look out for
For the most part, the responsibility of being compliant with tax rulings on SFAs lies with the practice, but as a business in your own right, it is important to know the rules and what is and isn’t reasonable.
Julian Whitehead, of Whitehead Legal, recommends to be cautious of certain warning signs in contracts: “Watch out for any sections that make you responsible for covering any tax or fines the practice might face due to wrong handling of SFAs or flow of funds. Also, avoid agreements where you have to pay more if the practice is audited and found to be breaking payroll tax laws.”
3. Respect the relationship
“The ideal situation is that there is a collaborative approach to negotiating a contract where you can say, ‘I’m not comfortable with this’ or ‘I’ve sought a legal opinion and they have advised that’. By putting yourself in the owners shoes it will help you to navigate the commercial – legal line appropriately, which is ultimately in everybody’s best interest,” says Dr Workman.
If you are working at multiple practices, you may be exposed to different contracts and practice guidelines which can add to the confusion but need. Viewed another way, this will give you a perspective on how different dental practices are run.
Most Associates who join a practice are given patients or a patient base to treat. These databases are very valuable to the practice owner as they have likely spent a lot of money to acquire or develop them. As such, expect your contract to have clauses relating to database ownership and privacy that you will need to abide by.
4. Marketing matters
“For practice owners, it’s also important that their website reflects how your agreement is set up,” said Chaz Puett, Regional Manager, Great Dental Websites (GDW).
Depending on how the dental practices you work from approach the practice-associate relationship on their website, you may be required to have your own website. This is something that the practice should guide you on.
5. Stay on top of potential changes
With the support of your professional services team and professional networks like Grow Community, you can stay ahead of future changes to tax laws and engage with a community that works to keep its members ahead of the curve.
To find out more, or to connect with any of the Grow Community partners, please contact us on info@growcommunity.com.au and a Grow Community Team Member will be in touch.
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