Associate employment status change – what owners and associates need to know

Neil Richardson HR and Team Development Leave a Comment

Neil Richardson, Senior Financial Consultant at Wesleyan explains the potential implications of the associate employment status review on practice and associate finances…

The HMRC review into the employment status of associates is likely to have far-reaching consequences on both practices and practitioners. From new contracts to implications on individual and commercial finances, the review could mean some of the biggest changes to the sector for decades.

What does it mean for associates?

Associates currently class as self-employed and have a ‘contract for service’, which means there are certain freedoms around work responsibilities, working hours and location that are left to the discretion of the individual.

Should this change, it would mean that associates are classed as employees and have a ‘contract of service’ in place rather than a ‘contract for service’. In practice this would mean more restrictions in setting hours and work location, which could impact on income. Individuals may also be eligible for benefits such as maternity and paternity leave and holiday entitlement.

Any changes to employment status would likely have a considerable impact on personal finances too.

The main thing to watch out for is that a change to employment status could mean additional tax liabilities. Currently, associates benefit from reduced tax liability. If an associate on £80,000 was deemed to be employed, they would be responsible for National Insurance contributions at 12% – or £9,600 a year.

The review may also have different implications depending on how much work the associate does for the NHS or private practice. Anyone who is unsure of what to do next should take professional advice to make sure they are clear on what the review could mean for their income.

What do practices need to know?

The consequences of a change in employment status could mean some potentially expensive financial implications for practices too.

As it stands, principals currently don’t pay employer’s National Insurance contributions on associates’ earnings. For a practice with three full-time associates earning £80,000 each, National Insurance contributions at 13.8% would cost £33,120 per year, and it is possible that HMRC could backdate this for up to five years too – potentially sticking practices with a huge payment.

Another nuance of the existing contract is that practices don’t have to provide employee benefits such as NHS pension contributions, sick pay, locum cover, or maternity or paternity leave, which reduces the overall cost of running a practice. Any change could put the responsibility on the practice owners to provide these benefits, costing money and man hours to implement.

Any changes to monthly running costs will need to be carefully managed and practices should speak to a financial adviser in the first instance to make sure they understand the potential impact to their cost-base.

Next steps

While the outcome of the review is still to be determined, we’d expect more details to come to light in the coming weeks and months. For regular updates you can visit the British Dental Association’s website, or call us on 0800 0921990.

*This article is provided for information only and not advice. No liability is accepted for any consequence arising from any action or decision taken or not taken resulting from the content of this article.

Interested in reading more on this topic? Check out Nigel Jones’, Sales and Marketing Director of Practice Plan, blog on the employment status review.