The independent practitioner compliance crisis: navigating compliance and structure under new laws
Most medical practices today operate using some form of independent practitioner model. For many years, these arrangements have been seen as commercially efficient, flexible and relatively low risk.
However, practice owners are increasingly coming to us with the same question: “Are our agreements still compliant?” In many cases, the answer is no; not because the agreement structure was inappropriate, but because the devil lies in the detail of the specific terms and conditions of the agreement.
The increase to the 12% Super Guarantee, the introduction of the high-income threshold, and the updated sham contracting “reasonableness” test, has fundamentally shifted how practitioner arrangements are assessed. These changes have already been implemented and are now being actively enforced by regulators.
This shift is not just about compliance. Practitioner arrangements directly affect how revenue flows through a practice, how costs are allocated, and how the business is assessed in a sale or succession context.
Many practices continue to rely on practitioner services agreements drafted several years ago. These agreements often reflect an earlier legal position and no longer align with how relationships are assessed in practice. The result is a growing disconnect between contractual terms and operational reality, where regulatory risk, financial inefficiencies, and valuation issues can emerge.
Below we explore how these changes impact practitioner arrangements in practice, the key risk areas emerging for clinics, and the steps required to align your structure with current legal and commercial expectations.
1. Your agreements rely on labels rather than operational reality
One of the most significant changes introduced by recent reforms is the move away from relying solely on written contracts to determine whether a practitioner is an employee or genuinely operating as an independent practitioner.
The current approach requires regulators to assess:
the real substance of the relationship;
how the arrangement operates day-to-day; and
the totality of the working relationship, not just the written agreement.
This means that describing a practitioner as “independent” is no longer sufficient if the operational reality suggests otherwise.
Common indicators we see in clinics include:
practitioners working fixed hours set by the practice
central control over appointment scheduling and billing
limited ability for practitioners to determine how services are delivered
contractual restrictions that go beyond protecting legitimate business interests
One of the most common issues we see is a mismatch between documentation and reality. For example, a practice may have a well-drafted practitioner services agreement, but still require practitioners to work set sessions, use clinic systems exclusively and follow internal protocols in a way that resembles employment.
Where this occurs, the practice may unknowingly be exposing itself to claims which result from the misclassification of the parties’ relationship.
2. The new “reasonableness” test has raised the compliance standard
The reforms to sham contracting provisions have significantly increased the compliance obligations for practice owners.
Previously, the defence focused on whether the practice knew or was reckless in misclassifying a relationship. The new test requires a reasonable belief that the arrangement was not employment.
This shifts the focus to whether the practice’s position is objectively defensible, taking into account:
the size and sophistication of your practice
whether you have obtained appropriate advice
whether your agreements and operations align
For larger or multi-site practices, the expectation is higher. Relying on legacy documents or assumptions is risky and may expose your practice to liability.
Warning signs include:
agreements that have not been reviewed for years
reliance on generic templates
no clear reasons for how practitioners have been classified
Many practices assume that long-standing arrangements are “safe” because they have not been challenged. Under the current framework, that assumption creates risk rather than reducing it.
3. The high-income threshold is being misunderstood
The introduction of the $183,100 high-income threshold has led to widespread misunderstanding across the sector.
Some practice owners believe that practitioners earning above this level are effectively exempt from scrutiny or can opt out of compliance requirements. That is not correct.
The threshold interacts with specific provisions, particularly around unfair contract frameworks, but it does not replace the core legal test. The fundamental question remains:
What is the true nature of the relationship?
We are seeing practices rely on income levels as an indicator for compliance, particularly for high-billing GPs or specialists. In reality, higher income often increases scrutiny, especially where revenue flows are not clearly aligned with an independent practitioner model.
Indicators of misunderstanding include:
assuming higher-earning practitioners carry less risk
failing to update agreements where practitioners exceed the threshold
relying on opt-out concepts without implementing the required processes
This is an area where incorrect assumptions can quietly pose risks for practices.
4. Superannuation exposure is expanding
The increase to the 12% Super Guarantee has brought renewed attention to superannuation obligations within medical practices.
A key issue is that superannuation liability is not determined solely by whether a practitioner is labelled as independent. If a practitioner is paid the entirety or majority for their labour, super obligations may still arise.
This is particularly relevant in medical practices where:
practitioners are paid a percentage of billings
there is limited separation between practitioner income and practice revenue
the arrangement does not clearly reflect a service-based model
Misclassification in this context can lead to significant financial consequences, including backdated superannuation, interest and penalties.
Many practices choosing to expand into allied health or psychology inadvertently increase this risk, as different service models are layered onto existing structures without reviewing how payments are characterised.
5. Payroll tax risk is driven by structure, not intention
Payroll tax remains one of the most active areas of enforcement for medical practices.
A common mistake is to approach payroll tax as a classification issue; focusing on whether practitioners are independent. In practice, revenue authorities assess how the service is structured.
This includes:
who controls patient relationships
how billing is conducted
how fees are collected and distributed
For example, where a practice collects all patient fees and then distributes a percentage to practitioners, this may be viewed as a wages model, regardless of how the agreement is drafted.
We regularly see exposure where:
billing is centralised with limited separation between practice and practitioner income
agreements do not reflect how money actually flows
practitioners have limited financial independence within the structure
This is where documentation and operational design must work together. A well-drafted agreement cannot overcome a structure that creates payroll tax risk.
6. Your service model may be reducing profitability and practice value
While compliance risk is the immediate concern, these legal changes also have a direct impact on profitability and valuation.
The structure of your practitioner arrangements determine:
how much revenue the practice retains
how predictable income streams are
how costs and liabilities are allocated
Where agreements and operational structures are misaligned, practices often experience:
inefficient revenue flows
unnecessary tax exposure
reduced margins across service lines
From a valuation perspective, this becomes critical. Buyers and advisors will assess:
whether practitioner arrangements are compliant
whether there are contingent liabilities (payroll tax, superannuation)
whether revenue streams are stable and defensible
In this sense, compliance and valuation are directly linked. A non-compliant or poorly structured model does not just create risk; it can reduce what your practice is worth .
Why periodic agreement reviews matter
Practitioner services agreements do more than document relationships. They define how your practice operates, how revenue flows and how legal risk is allocated.
When the regulatory environment changes, those agreements must be revisited. More importantly, they must reflect the actual operational reality of the clinic.
If your documentation and your day-to-day operations are not aligned, regulators will assess the reality, not the wording of your agreement.
Regular reviews allow practice owners and managers to:
align legal structure with operational practice
manage payroll tax and superannuation exposure
support expansion across multiple service lines
protect and enhance long-term practice value
This is why many practices are now undertaking comprehensive reviews of practitioner services agreements, employment arrangements and governance structures.
If your practice has not reviewed its practitioner arrangements since the recent legislative changes, now is the time to do it. Our senior lawyers at You Legal work closely with medical practices to review and redraft practitioner services agreements, assess payroll tax exposure and align service structures with current legal requirements; book a call to discuss your practice.
Related Articles:
https://youlegal.com.au/you-legal-blogs/independent-practitioner-vs-employee-doctors
https://youlegal.com.au/you-legal-blogs/medical-practice-case-study-employment-v-contractor
https://youlegal.com.au/you-legal-blogs/contractor-vs-employee