Allied Health Contractor vs Employee — What Practice Owners Need to Know
Contractor vs employee misclassification is one of the most common — and most costly — compliance mistakes made by allied health practice owners. The ATO is actively auditing these arrangements, and the consequences of getting it wrong can include back-payment of superannuation, PAYG withholding, and significant penalties.
Why This Matters More in Allied Health
Allied health practices frequently use contractor arrangements for clinicians — physiotherapists, occupational therapists, speech pathologists, psychologists, and others who work on a percentage of billings or a fixed rate per session. These arrangements are common, but they are not automatically legal.
The ATO’s definition of employment is based on the substance of the working relationship, not the label on the contract. Calling someone a contractor doesn’t make them one.
ATO Alert: The ATO has significantly increased its focus on contractor arrangements in the health sector following changes to the contractor definition in 2024. If your practice uses contractor arrangements, a review is not optional — it’s urgent.
The Key Tests the ATO Applies
The ATO uses a multi-factor test to determine whether a worker is an employee or contractor. For allied health practices, the most relevant factors are:
1. Control
Does the practice control how the clinician does their work — what hours they work, which patients they see, what treatment protocols they follow? If yes, this points toward employment.
2. Integration
Is the clinician integrated into the practice’s operations — using the practice’s systems, equipment, and brand? If yes, this points toward employment.
3. Ability to Subcontract
Can the clinician subcontract their work to someone else? If no, this points toward employment.
4. Equipment & Tools
Does the clinician provide their own equipment and tools? If the practice provides everything, this points toward employment.
5. Risk
Does the clinician bear financial risk for the outcome of their work? If the practice bears all the risk, this points toward employment.
Common Contractor Arrangements in Allied Health — and Their Risks
Percentage of Billings Model
- Clinician receives 40–60% of billings
- Practice provides rooms, equipment, admin
- Practice controls scheduling
- High risk of ATO reclassification as employment
Room Rental Model
- Clinician pays fixed room rent
- Clinician controls their own schedule
- Clinician uses their own systems
- Lower risk — but still requires careful structuring
What Happens If the ATO Reclassifies Your Contractors
If the ATO determines that your contractors are actually employees, you can be liable for:
- Back-payment of superannuation (11.5% of all payments made)
- PAYG withholding that should have been deducted
- Superannuation guarantee charge (SGC) — which includes interest and an administration fee
- Penalties for failure to comply
- Potential payroll tax liability (state-based)
For a practice that has used contractor arrangements for several years, this exposure can be substantial — often exceeding $100,000.
How to Structure Your Allied Health Workforce Correctly
There is no one-size-fits-all answer. The right structure depends on the specific nature of your working arrangements, your discipline, and your practice model. What we can say is:
- Every contractor arrangement should be reviewed by an advisor who understands the ATO’s current position on health sector contractors
- The contract itself is only one part of the picture — the actual working relationship matters more
- If you’re unsure, the cost of a review is a fraction of the cost of an ATO audit
Get Your Contractor Arrangements Reviewed
Shuriken’s allied health advisors review contractor arrangements across all disciplines. Start with the free CARE Assessment to understand where your practice’s risk exposure sits.
