Home »
FACT SHEET: Service Agreements for Medical Practices
- Key Takeaways
- Service and Facilities Agreements (SFAs) define the relationship between a medical practice and independent practitioners, outlining how facilities, services, fees, and responsibilities are managed.
- Well-drafted SFAs are critical for legal protection and compliance, particularly in reducing disputes, managing operational responsibilities, and supporting practice valuation or succession.
- Regularly reviewing SFAs is essential due to payroll tax risks and regulatory changes, ensuring agreements accurately reflect how the practice operates and protect the business from financial or legal exposure.
Stay Up-To-Date
Subscribe to receive updates specific to your preferences
What they are, why they matter, and how to get them right
Running a medical practice involves far more than delivering quality patient care. Behind the scenes, your legal and commercial arrangements play a critical role in protecting your business, managing risk, and ensuring compliance - particularly in today’s evolving regulatory environment.
One of the most important (and often misunderstood) documents in any medical practice is the Service and Facilities Agreement (SFA).
This fact sheet explains what an SFA is, why they matter, and why medical practices should be reviewing their agreements to remain compliant and protected.
What is a SFA?
A SFA (sometimes referred to as a Practitioner Services Agreement or simply a Service Agreement) governs the relationship between a medical practice and the practitioners who operate their own independent business utilising services offered by the medical practice.
A common point of confusion for medical practices is the difference between the relationship between a practitioner engaged under an SFA and employed under an Employment Contract. Some of the key factors that distinguish an employment contract from an SFA include:
| Employment Agreement | Service and Facilities Agreement | |
| Role and relationship of the parties | The relationship is that of employer and employee.
The practitioner is providing labor to the medical practice in consideration of the remuneration (e.g. wage, salary) paid to the practitioner. |
The relationship is that of service provider and practitioner.
The medical practice is providing services and facilities necessary for the practitioner to operate their own independent medical business in consideration of the service fees payable to the medical practice.
|
| How are the practitioner and medical practice paid? | The medical practice collects patient fees and then pays the practitioner a salary or other agreed remuneration. | The preferred approach is for practitioners to collect fees into their own bank account and are invoiced by the medical practice for service fees, rather than the medical practice collecting fees on the practitioner’s behalf.
|
| Duties of each party and control over performance of work | The medical practice determines the nature of the medical services available at the practice, and practitioner must comply with the policies and instructions of the medical practice while performing medical services. | The practitioner has discretion as to the operation of their medical practice without rigorous oversight from the medical practice. |
| Obligations regarding employee entitlements
|
The medical practice is responsible for superannuation, annual leave, sick leave, long service leave, and other employee entitlements of the practitioner. | The practitioner is responsible for superannuation, annual leave, sick leave, long service leave, and other employee entitlements. |
| How patient records are handled | The medical practice will claim control and ownership of patient records and other confidential information at all times. | The medical practice does not control or own the patient records, except to the extent needed to provide the services to the practitioner.
|
| Does the practitioner represent him or herself as being part of the medical practice’s business? | The medical practice is advertised as the provider of medical services and the practitioner is a part of the business. | The medical practice is advertised as a place for patients to visit the practitioners. |
SFA’s typically set out:
- how the practitioner uses the medical practice’s facilities and services;
- how and when fees are collected and distributed;
- what services the medical practice provides (rooms, staff, IT, equipment, administration);
- what services the medical practice will not provide the practitioners (specialist equipment);
- the obligations of each party;
- insurance requirements of each party; and
- termination and exit arrangements, including the handling of patient records.
For many medical practices, and SFA underpins the entire business model.
Why SFA’s Matter
A well-drafted SFA helps to:
- clearly define the legal relationship between the practice and practitioner;
- support compliance with payroll tax and revenue laws;
- reduce the risk of disputes during, and after, a practitioners engagement;
- align operational, financial and regulatory obligations;
- support practice valuation and future sale or succession; and
- poorly drafted or outdated agreements can expose practices to significant financial and legal risk.
Service Agreements & Payroll Tax - A Critical Connection
Payroll tax has become one of the most significant issues affecting medical practices across Australia.
Recent various state revenue rulings have made it clear that the substance of the relationship matters more than the label.
Payroll tax risk may arise where:
- patient fees are collected by the practice and later distributed to practitioners;
- the medical practice controls billing, pricing or appointment systems;
- practitioners are not operating independently, but rather for or on behalf of the medical practice; and
- agreements do not reflect the reality of how a medical practice operates as a service entity.
Even where practitioners are engaged as independent contractors, state revenue authorities may still treat payments as “wages” if the agreement and practice structure do not support genuine independence.
Each state has its own payroll tax thresholds, exemptions, amnesty regimes, and reporting requirements, making regular review of Service Agreements essential. For more detailed information on a specific state’s requirements, please visit the Hillhouse website’s Knowledge Hub: https://hillhouse.com.au/knowledge/
Key Elements Every Medical Service Agreement Should Address
A well-drafted Service Agreement should clearly deal with:
- Nature of the relationship - confirming the practitioner is an independent contractor, not an employee
- Fee collection and payments - how patient fees are received, service fees calculated, and funds distributed
- Services provided by the practice - rooms, reception, IT systems, nursing support, equipment and administration
- Practitioner obligations - professional standards, compliance, insurances and use of practice systems
- Leave, absence and locum arrangements - how absences are managed
- Termination and exit - notice periods, handover obligations, restraint provisions and patient continuity
- Data, records and confidentiality - ownership of records, privacy compliance and information security.
Common Issues We See in Practice
Some of the most common risks we encounter include:
- outdated agreements that no longer reflect how the practice operates;
- template agreements not tailored to medical practices;
- inconsistencies between agreements and actual operational and billing arrangements;
- poor alignment with payroll tax requirements;
- unclear exit provisions leading to disputes; and
- misalignment between Service Agreements and shareholder or lease arrangements.
These issues often only come to light during:
- payroll tax audits;
- practice sales or restructures;
- Partner or practitioner exits;
- disputes between medical practices and practitioners; and
- ATO or state revenue reviews.
What Medical Practices Should Do Now
To protect your practice, we recommend:
- reviewing all current Service Agreements;
- ensuring agreements reflect how the medical practice business actually operates;
- assessing payroll tax exposure with legal and accounting input;
- checking consistency across service, lease and shareholder documents;
- updating agreements to reflect legislative and regulatory changes; and
- reviewing agreements whenever there is a change in ownership, structure or billing practices.
Proactive review is far more cost-effective than addressing issues after a problem arises.
How Hillhouse Legal Partners Can Help
Hillhouse Legal Partners has over 30 years’ experience supporting medical and healthcare practices across Australia. Our team regularly advises on the drafting and review of Service Agreements, payroll tax risk management, practice structuring and restructuring, medical practice compliance, and practice acquisitions and exits.
We understand the commercial realities of running a medical practice and provide clear, practical advice focused on solutions - not legal jargon.
Need a Service Agreement Review?
If your Service Agreements haven’t been reviewed recently or if you’re unsure whether they align with current payroll tax and compliance requirements NOW is the time to act.
Let our experienced team help ensure your agreements protect your practice, support compliance, and position your business for long-term success.
