The classification of hospital doctors as either employees or independent contractors is one of the most important and persistently contested issues in Philippine tax law and practice. The answer determines withholding tax rates, deductibility of expenses, liability for employer SSS/PhilHealth/Pag-IBIG contributions, VAT or percentage tax exposure, and even the applicability of labor standards.

Despite occasional labor law cases suggesting otherwise, the Bureau of Internal Revenue (BIR) has consistently treated the overwhelming majority of hospital-based physicians — particularly consultants, attending physicians, and visiting specialists — as self-employed independent contractors for income tax and withholding tax purposes. This position has been maintained across decades of revenue issuances and remains unchanged as of December 2025.

I. Legal Tests for Classification

The BIR applies the same tests used in labor law to determine the existence of an employer-employee relationship for tax purposes:

Selection and engagement of the employee
Payment of wages
Power of dismissal
Power of control over the means and methods of work

The fourth element — the control test — is the most significant and decisive (Sonza v. ABS-CBN Broadcasting Corp., G.R. No. 138051, June 10, 2004; Francisco v. NLRC, G.R. No. 170087, August 31, 2006).

In the medical profession, the exercise of professional medical judgment is inherently personal and non-delegable. A hospital cannot dictate how a surgeon should perform an operation or how an internist should diagnose and treat a patient without violating medical ethics and the Medical Act of 1959 (R.A. 2382, as amended). This absence of control over the core professional act is the primary reason the BIR classifies most hospital doctors as independent contractors.

II. BIR’s Long-Standing Position (1980s–2025)

The BIR has issued numerous rulings since the 1980s consistently holding that professional fees paid by hospitals to doctors are subject to creditable withholding tax (CWT) under Section 57(B) of the Tax Code (now Section 78 of the NIRC as amended), not to withholding tax on compensation under Section 79.

Key issuances include:

BIR Ruling No. 35-87 (1987) – Fees paid to doctors are professional income, not compensation.
BIR Ruling No. 134-99 – Payments to attending physicians are subject to 10% (later 15%, now 5%/10%) CWT.
BIR Ruling DA-489-03 (2003) – Reaffirmed that hospital consultants are not employees.
BIR Ruling DA-191-04 – Even when hospitals collect the professional fees from patients and remit the net amount to the doctor after deducting the hospital share (the prevalent “fee-for-service + hospital share” model), the gross professional fee is income of the doctor, subject to CWT and percentage tax or VAT.
RMC No. 44-2005 – Clarified withholding rates on professional fees paid to physicians.
RMC No. 23-2013 and subsequent circulars under the TRAIN and CREATE laws – Maintained the same classification.

As of 2025, there has been no Revenue Regulations or Revenue Memorandum Circular reversing this position. Hospitals continue to be required to withhold 5% or 10% CWT (depending on whether the doctor submitted BIR Form 2307 sworn declaration of gross receipts ≤ P3 million) on professional fees paid to non-employee physicians.

III. Common Hospital-Doctor Arrangements and Their Tax Classification

Pure Fee-for-Service Consultants / Visiting Physicians
- Doctor is accredited by the hospital’s credentials committee.
- Patient is billed separately for professional fee (PF).
- Hospital often collects the PF and remits net to the doctor after deducting hospital share (typically 30–50%).
  → Universally treated as independent contractor. Gross PF is doctor’s income; hospital withholds CWT.
Retainer + Percentage Arrangement
- Doctor receives fixed monthly retainer plus percentage of PF.
- Still classified as independent contractor unless the retainer is clearly salary in exchange for full-time exclusive service with hospital control over schedule and clinical decisions (very rare).
Hospital-Employed Medical Director / Chief of Clinics / Department Heads
- Receives fixed monthly salary, reports administratively to hospital management, performs administrative duties.
  → Treated as employee for the administrative salary portion. Professional fees from patients may still be treated separately as self-employed income.
Resident Physicians in Private Hospitals
- This is the grayest area.
- Most private hospitals pay residents a monthly “training allowance” or “stipend” and treat them as non-employees (no employer SSS contribution, withholding only 5–10% CWT).
- However, in labor cases (Calamba Medical Center v. Espiritu, G.R. No. 166620, June 27, 2008), the Supreme Court has ruled that resident physicians are employees because of control over duty hours, on-call schedules, performance evaluations, etc.
- The BIR has not aggressively reclassified residents for tax purposes, but some hospitals have shifted to treating senior residents as employees to avoid labor risks.
Exclusive Hospital-Based Specialists (Radiologists, Pathologists, Anesthesiologists – “HARP” doctors)
- Often paid a percentage of departmental revenue (e.g., 40–50% professional component).
- Historically treated as independent contractors (BIR Ruling DA-077-04 for anesthesiologists).
- However, if the contract contains exclusivity clauses, fixed minimum guarantee, prohibition from practicing elsewhere, and hospital billing control, the BIR has in some private rulings treated the arrangement as employer-employee (especially post-2018 audits).

IV. Tax Consequences of the Classification

A. If Independent Contractor (Self-Employed Professional)

Income tax: 8% on gross receipts if ≤ P3 million (or graduated rates with 40% OSD or itemized deductions); graduated rates only if > P3 million or opted out of 8%.
Percentage tax: 3% on gross receipts if non-VAT registered.
VAT: 12% if gross receipts > P3 million (mandatory VAT registration threshold under CREATE Law as amended by EASIER Law 2025).
Withholding: Hospital withholds 5% CWT (if doctor submits sworn declaration) or 10% (if not).
No employer obligation to remit SSS, PhilHealth, Pag-IBIG contributions.
Doctor may claim business expenses (clinic rent, staff salaries, CPD, etc.).

B. If Employee

Income tax on compensation: Graduated rates 0–35%, withheld by hospital.
Exempt from percentage tax and VAT on hospital salary.
Hospital must pay employer share of SSS, PhilHealth, Pag-IBIG.
Doctor entitled to 13th month pay, SIL, retirement benefits, overtime/holiday pay (if applicable).
Limited deductions (only personal exemptions phased out, de minimis benefits).

V. Risk of Reclassification by the BIR

While the BIR has never issued a blanket reclassification of hospital consultants, individual hospitals have been assessed deficiency withholding taxes, penalties, and employer contributions when the BIR finds indicia of control:

Doctor prohibited from having outside practice
Fixed monthly salary regardless of patient load
Hospital dictates consultation fees
Doctor uses hospital letterhead exclusively
Performance of administrative duties without separate compensation

In such cases, the BIR issues a Preliminary Assessment Notice reclassifying the payments as compensation income and holding the hospital liable for under-withheld tax plus 25%/50% surcharge and 12% interest.

VI. Current Best Practice (2025)

Most major Philippine hospitals (The Medical City, St. Luke’s, Makati Med, Asian Hospital, Cardinal Santos, etc.) continue to treat consultants and attending physicians as independent contractors. Doctors issue Official Receipts (ORs) or BIR Form 2307 is accomplished for CWT.

Doctors are advised to:

Register as non-VAT or VAT as appropriate
File quarterly percentage tax or VAT returns
Submit sworn declaration of gross receipts to avail of 5% CWT
Maintain separate books for professional income

Hospitals are advised to:

Ensure accreditation agreements emphasize absence of control over medical practice
Avoid guaranteed minimum monthly payments
Withhold correct CWT and issue BIR Form 2307

Conclusion

Under prevailing BIR doctrine and practice as of December 2025, hospital doctors in the Philippines — particularly consultants, attending physicians, and most specialists — are independent contractors, not employees, for income tax, withholding tax, and social contribution purposes. This classification has been consistently upheld for over three decades and shows no sign of reversal.

The only common exceptions are salaried medical directors, some resident physicians, and rare cases of exclusive hospital-based specialists with significant control elements.

Misclassification risk exists but is low when contracts and actual practice clearly preserve the doctor’s professional independence — the very essence of the medical profession.