Accounting & Business
Taxation services
Financial Planning services

 

Tax Advice for Doctors

 

As a medical professional in Australia you generally are classified as a high-income earner and as such, the rate of tax applied is also high with almost half of earned income going to tax.

For doctors who are also in business this can be extremely frustrating because you are not eligible for the 30% tax rate on 'personal services', which leaves you with a marginal tax rate of  up to 46.5%.

Our specialist accountants and tax advisors at Clarke McEwan can outline for you some of the many options  from which to choose to make sure your income is protected through legal and easy to manage methods.  

There are some easy and effective ways to reduce tax if you are a Medical Practitioner or a Medical Practice business owner. A consultation with us can help you determine which method is the right one for your lifestyle, needs, employment or business.

To give an idea of some of these are methods, we've compiled a list of the more common yet often overlooked allowable tax minimization strategies geared specifically to medical practitioners.

Specialised tax deductions

Most practitioners will know that allowable deductions are the expenses incurred in producing income. In Australia once these allowable deductions have been applied to assessable income, what remains is your 'taxable income'.  Basically, if the cost was paid in the medical practice of your profession, you can make a tax deduction claim by maximising your "allowable deductions". Some of these deductions may include:

  • Medical supplies, equipment, medicines and materials
  • Education – as long as it is relevant and/or related to your current employment or income
  • Professional subscriptions, accreditations, memberships and literature
  • Computer and office equipment
  • Professional Indemnity Insurance.

At Clarke McEwan we have tax bookkeepers who can assist you to maintain an orderly record keeping system either electronically or manually that clearly indicates your expenses for the year. This will make reviewing your expenses easier, reducing accounting fees and eliminating those ambiguous claims which could lead to an audit by the ATO.   For further information, refer to our post about outsourcing your bookkeeping.

Transitioning to retirement | Early retirement

Doctors over the age of 60 can  consider beginning the process of transitioning into retirement in the form of a pension that uses money from your super fund.

Specialised business structures

A legitimate business structures in the medical field is legal as long as you thoroughly follow the rules, regulations and guidelines.  Advice from your accountant or business adviser is critical to pass an audit from the ATO. 

 If you are thinking of undertaking one of these business structures contact Clarke McEwan.  We specialise in the medical sector and understand its unique landscape.

Use of a Service trust

This arrangement allows doctors to distribute some of their income to family members who work within the practice. For example, a partner who maintains the books or manages administration within the business. As they have a lower marginal tax rate, they can be paid a moderate salary.

Use of an Investment trust

This business structure is set up so that medical professionals don't have to buy their assets in their own name. They can also distribute income and capital to beneficiaries such as a partner on a low or income. Beneficiaries can also be companies, of which operate to store the income generated from the medical practitioner's. However this income excludes personal services income earned specifically by the doctor.

To make sure that you have the best structure in place to legally minimise tax and grow your wealth, we highly recommend you get appropriate advice before putting them in place.  Again, proper consultation and prudent counsel will ensure your structure is completely legal.  Without advice, these set ups can leave your business vulnerable, or to appear out of line with the Australian Tax Office's legalities. 

 

Why Doctors Should Think about Outsourcing the Bookkeeping part of their Business

Running a one-man-band type of business sounds great on paper, because if you do everything yourself, you don't need to pay anyone. That's the main reason why so many doctors choose that kind of approach when it comes to running their offices.

But ... is this path really the best one to take considering that being a doctor of medicine typically doesn't involve any kind of business training

 

Doctors tend to be rather dedicated people, that goes without saying. The training process that takes place before they receive their licenses can be long and tedious, and it takes a substantial amount of willpower to make it that far. Regardless of that, however, understanding medicine is only one aspect of the business that doctors need to know.

Truth be told, it's hard to be an expert in more than one field, and running a successful business typically requires you to either know multiple things, or start outsourcing the tasks you're simply running out of time to do or lack the skills they require. Luckily, hiring someone else to do them for you is the answer to both of these situations.

Expenses don't need to be sky-high, especially if you do your due diligence and search the market to find an employee who has all the needed skills and is willing to share them for a reasonable price. And by hiring someone to take care of the tedious part of your business like bookkeeping, finances, and dealing with insurance companies, you will be able to devote more time to doing the things you love, and your patients will appreciate it as well.

Given the fact that there are only a limited amount of hours in each working day, it's important to manage them wisely. If you're trying to tackle too many things at once, especially those that don't exactly fall under your main field of expertise, how are you going to manage them all?    Furthermore, things such as bookkeeping and finances really have little to do with the field of medicine.  It's not realistic to expect a doctor to be proficient at both. But by sacrificing just a little bit of monthly profits by hiring an employee who's going to handle it all for you, you're not only gaining additional time for yourself, but also getting a massive stress relief.

Bookkeeping can quickly get very technical, and trying to do it all yourself (and doing it incorrectly as a result) can open you up to several penalties if the inspection decides to visit your medical practice one day. You want to avoid this at all costs, because these kinds of actions against you can quickly end up costing you a lot of money, likely much more than you would have paid for your employees in the entire year.

Doctor's are better off outsourcing elements of the business, like bookkeeping and finances.  Not sure where to begin?  Call us at Clarke McEwan and we will put you in touch with a qualified tax bookkeeper who knows the ropes.

Encouraging clients to establish corporate trustees

 

Statistics from the Australian Tax Office show that corporate trustee structures are not favoured by  self managed super funds, but in many cases the benefits of this structure outweigh the short term cost savings of an individual trustee.

 

This trend can be seen to correlate with the increase of online providers in recent years which can include outsourcing accounting functions to foreign countries (such as Sri Lanka or Vietnam to name a few) offering "free SMSF set-up" and the lack of advice of the benefits of corporate trustee.   In many cases these online providers focus on low cost establishments costs however do not provide guidance or advice on the best structure based on a client's individual situation.

 

In the opinion of Clarke McEwan a corporate trustee is always the best choice and any accountants or advisors recommending individual trustees should be made to justify this decision to the client.  When deciding whether an SMSF is right for your client, practitioners are faced with their first question - will an individual or corporate trustee structure be best for the client and their SMSF?

 

When setting up an SMSF, individuals must appoint either two or more individuals or a company to act as the trustee of their fund. The trustee structure the client chooses is critical for the long-term operation of their fund and will influence how their fund is administered and the cost of setting up and running their fund.  It's important the practitioner helps the client choose the structure that best suits their needs and the needs of the other members in their fund.

 

Under superannuation  law, an individual trustee structure means there cannot be a single member in a fund; there must have at least 2 members and a maximum of 4 members. Generally, subject to certain exceptions, all members must be trustees of the fund and all trustees must be members of the fund.

 

While establishing an SMSF with individuals as trustees may save the client a few dollars in the short term, the benefits of registering a corporate trustee for their SMSF far outweigh the short term savings. Here are the key reasons why we believe you should advise clients to use a corporate trustee

 

The key reasons to use a Corporate Trustee are for asset protection, and the separation of asset;  reduced ATO penalties, in the event of borrowing to purchase property; succession upon death; and ownership of SMSF assets.

For further information about establishing a self-managed super fund contact Clarke McEwan.

Investments & SMSF

Prudent investing for long-term wealth is about investing our money wisely, but with all the investment choices available it's hard to know where to invest and what to invest in. It's no longer a simple case of shares, property, fixed interest or cash.  With hundreds of combinations of asset categories, across different countries, themes and sectors the choice is staggering.

Not only that, but each person's needs and goals are different and will change over time.

A Merit Wealth Investment Adviser can talk to you about your investment objectives, both short and long term, assess your current financial position, and recommend appropriate investment options to help you achieve those goals. Over time as your circumstances change so will your Adviser's recommendations. Financial advice should be ongoing and a Merit Wealth Strategist should be part of your everyday life.

Clarke McEwan and Merit Wealth provide fee-for-service investment advice, independently owned by its principals and not associated with any financial institution.  Therefore no financial institution can pressure us to recommend its investment products or services to you. As it is our strongly held belief that investors should receive advice which is totally free of influence, all of our investment advice is provided on a fee for service basis rather than accepting commissions from financial institutions, as we believe commissions have the potential to compromise the quality of the advice. This means we are working for you, not for a financial institution. We are committed to providing an extremely high level of financial planning, financial strategy, investment advisory and superannuation services to our clients, as well as the ongoing management of investment portfolios.

Why not maximize your investment potential?  Take the time now to get your money working as hard as you are by implementing sound, tax-effective investment strategies with Clarke McEwan and Merit Wealth.

Financial Planning for Doctors

Financial planners are often the first point of contact for doctors seeking advice on investment.  A specialist medical financial adviser has the expertise to help you achieve your goals and objectives by tailoring strategies to specifically address your needs.

At Clarke McEwan we have the knowledge and skills to provide you with assistance and guidance on:

  • Education – By building your knowledge and confidence we can help you achieve a better understanding of your investments and other key financial matters.
  • Budgeting – Part of our strategies are to identify opportunities to manage debt and save money. For a review of your finances and how these measure up, contact us now.
  • Estate planning – We will also work proactively with our network of estate planning professionals to show you how best to structure your assets to benefit your estate.
  • Insurance – One of our most sought after services is assistance is in guiding clients through the maze of insurance options available to protect you, your family and your assets in the event of illness, injury, disability or death.
  • Retirement planning – helping you find answers to those complex questions such as: "Will I be able to retire comfortably now?"  "How much money do I need to retire?" and "What do I need to do before I retire?"

A well-qualified financial planner for doctors can help alleviate the worry and stress associated with your finances, leaving you with more time to enjoy life. To book an obligation free appointment about financial advice click here or call Clarke McEwan on 07 5475 4300, and our specialist financial advisers will begin to assist you in planning a better future for you and your family.

Choosing An Accountant

 Looking to Change Accountants ?  It's not just a numbers game.  

Accountants have the power to change the lives of business owners, but most of them aim for average. We're here to change all that.

How many business owners do you know that actually say "I really like working with my accountant!"?  They are out there – but more often than not, their accountant has done a shocking job at serving their customers' actual needs.

It's not a light decision to make the leap to another accountant, but if you've been meaning to change accountants for a while, make it your priority now!

We've put together some important questions that you should ask yourself when evaluating your current accountant, or choosing a new one.

Who does the accountant normally work with? 

This is important to know: Are you a good fit to the accounting firm?  Are they a good fit for you?

It's a two way street, and unfortunately most accounting firms will usually say "Yes"  to anyone – whether they can provide them with value for their money or not.

Be sure you ask for leads within your industry, and even look at their marketing material.  Don't try to be a square peg in a round hole!

What services does the accountant offer?

You need to make sure their experience and skill set matches the service that you're after.

Are you looking for business advice at an accounting firm that just pumps out tax returns? Do you need bookkeeping assistance?

In most cases, if the accounting firm cannot do what you're after, they will most likely work with someone who can.  It's also best that if you need a second adviser, for an international tax matter for instance, that you keep your accountant in the loop, or let them manage the business relationship.

What does the accountant specialise in?

What is the one thing that the accountant would provide you over all other things?

Where is there best value to you as the customer? Look for statements like "we work with you, providing insight into your business and its numbers" rather than "we're really, really good at tax returns". 

After all, any firm can churn out a tax return. Business acumen and advice is another matter. 

How will the accountant charge me?

How do the dollars work?  Do they charge in a way that rewards inefficiency, or do they charge for the value that they provide and the access to knowledge? It's not always what they can do,  but rather what they know.

It's a different conversation and focus for both you and the accountant.  The attention shifts from 'be quick to reduce the fee' to 'let's focus on where the value is'.

Some questions to pose might be:

  • What does the project or subscription include?
  • Do they price each job before they start, so you can both agree to the scope and terms?
  • Do they allow you to pay by the month to spread out the burden on cash flow?

Be sure to get a good understanding of the charges and how they work – it avoids unwanted surprises and you have clarity before moving forward.

What is the response time to my questions?

How quickly will you expect to hear back from your accountant, and who will answer that query?  We regularly hear from new clients that a former accountant takes weeks to get back to them, or doesn't respond at all!

Response time is key number that we focus on – and we measure it in hours, live on our website or by return phone call the same day.

Make sure you ask for a clear understanding of how and how quickly your accountant will return your call or email.

How long does it take to get your work done?

"Turn-around time" is a common complaint heard when businesses are talking about their existing accountants.

If, after an honest look at how you provided information and followed up their queries, your accountant still takes months to finish your work without a valid reason, maybe it's time that you moved on.

What would your standards be if you ran a business that took that long?

This is one of the key numbers that we measure as the Clarke McEwan team – one that we see is important in the eyes of our clients. 

What technology does the accountant use?

It's important to know how you'll be interacting with your accountant on a regular basis.  It's all very well to throw ideas around on a whiteboard in the boardroom, but what about for the "in-between" times?

Do they use the internet, a website and technology to communicate with you or enhance web meetings to describe concepts and run scenarios? 

Be sure that the technology they use makes sense to you.

How often does the accountant talk to you each year?

At Clarke McEwan, what we really love about working with our clients is that we get to learn about their business and their lives.  Accountants can't do that if they only speak to you once or twice a year. 

This is how an accountant will be able to provide you with real insights into your business. It's important that you understand how often you'll be in touch with your accountant, and that you're comfortable with this.

Is the accountant a member of an association?

It's best to choose an accountant that is part of an association.  The three main associations in Australia are:

  • CPA Australia
  • Institute of Public Accountants Australia
  • The Institute of Chartered Accountants

All three have different levels of requirements to join, different membership levels – but all have a set of standards that members must adhere to.  If you've got a problem with an accountant, you can usually take it to their association.

Can you have a coffee or a beer with them?

It's important that you can hold a conversation with your accountant, outside of your business.  Ask whether they will meet you for a coffee to get acquainted.

By the way, John likes his coffee with a dash of milk.

How to kick-start your motivation

 

Even the most committed professionals can suffer from lapses in motivation or the strength to stay focused on monotonous but essential tasks. 

This easy five-step checklist will help boost your motivation and bring your team along with you.

1-Identify your personal motivators

Examine those factors that stimulate the desire in you to continually be interested and committed to a goal or desired outcome. Sometimes this will be a combination of both conscious and unconscious factors. It is reasonable to say that motivated people usually act in a way that goes beyond what a reasonable person would do.

So for you personally, what are your true, sustained and most powerful personal motivators? Is it achievement, recognition, competition, variation, winning or proving others wrong that fuels your desire?

2-Identify your underlying goals

Behind every motivational impulse lies a contributory factor. You may feel a great urge to do, or not to do, a particular behaviour and you continue to act this way despite the obvious disadvantages.

So why are you reluctant in these situations when it is a genuine opportunity to position yourself ? Do you, for example, have an underlying fear of not knowing what you need to know, or a fear of providing feedback that may be inaccurate? Or perhaps you are uncomfortable with sharing an opinion that is unpopular and which goes against the grain of what is considered conventional wisdom? 

3-Address the gaps between your current and ideal motivational mix

Now that you have identified what may be stopping you, this new awareness is the basis for change and will provide you with the insight to understand what adjustments you need to make.  

These gaps can occur for several reasons and over a lengthy period, but once the issue is identified and appropriate is action taken, the solution to bridging this gap can occur quickly and successfully.

4-Identify the valued alternative outcomes that these missing motivators will bring you

Start to envisage the alternative outcome that a behavioural change will provide over time, and how these new outcomes will benefit and drive greater achievement and success for you and your team.

Once it becomes apparent that the processes being followed are the right ones to gain future success regardless of what they might be, you can move to the final step.

5-Establish your new behaviours

Behavioural science has clearly demonstrated repeatedly that around three to four weeks of continuous focus on a new behaviour will lead to it becoming ingrained as new habits that delete and replace earlier, unwanted habits, be they professionally based or otherwise. Therefore, as you establish your new behaviour sets to these revised motivations, and focus on the value that those alternative outcomes will provide you over time, your motivations become a self-perpetuating process.

It is important to always remember that people are different and will have different types of motivation and to different degrees. There should be no judgement made here as there is no right or wrong, however you can make simple observations of those outcomes and a logical analysis made of how well, or otherwise they align to your stated goals.

 

How Successful People Spend Their Weekends

 

Successful people know the importance of shifting gears on the weekend to relaxing and rejuvenating activities. They use their weekends to create a better week ahead. This is easier said than done, so here's some help.

The following list contains 10 things that successful people do to find balance on the weekend and to come into work at 110% on Monday morning.

 1. Wake Up at the Same Time

It's tempting to sleep in on the weekend to catch up on your sleep. Though it feels good temporarily, having an inconsistent wake-up time disturbs your circadian rhythm. Your body cycles through an elaborate series of sleep phases in order for you to wake up rested and refreshed. One of these phases involves preparing your mind to be awake and alert, which is why people often wake up just before their alarm clock goes off (the brain is trained and ready). When you sleep past your regular wake-up time on the weekend, you end up feeling groggy and tired. This isn't just disruptive to your day off work, it also makes you less productive on Monday because your brain isn't ready to wake up at your regular time. If you need to catch up on sleep, just go to bed earlier.

2. Designate Mornings as "Me" Time

It can be difficult to get time to yourself on the weekends, especially if you have family. Finding a way to engage in an activity you're passionate about first thing in the morning can pay massive dividends in happiness and cleanliness of mind. It's also a great way to perfect your circadian rhythm by forcing yourself to wake up at the same time you do on weekdays. Your mind achieves peak performance two-to-four hours after you wake up, so get up early to do something physical, and then sit down and engage in something mental while your mind is at its peak.

3. Schedule Micro-Adventures

Buy tickets to a concert or play, or get reservations for that cool new hotel that just opened downtown. Instead of running on a treadmill, plan a hike. Try something you haven't done before or perhaps something you haven't done in a long time. Studies show that anticipating something good to come is a significant part of what makes the activity pleasurable. Knowing that you have something interesting planned for Saturday will not only be fun come Saturday, but it will significantly improve your mood throughout the week.

4. Pursue Your Passion

You might be surprised what happens when you pursue something you're passionate about on weekends. Indulging your passions is a great way to escape stress and to open your mind to new ways of thinking. Things like playing music, reading, writing, painting, or even playing catch with your kids can help stimulate different modes of thought that can reap huge dividends over the coming week.

5. Disconnect

Disconnecting is the most important weekend strategy on this list, because if you can't find a way to remove yourself electronically from your work Friday evening through Monday morning, then you've never really left work.

Making yourself available to your work 24/7 exposes you to a constant barrage of stressors that prevent you from refocusing and recharging. If taking the entire weekend off handling work e-mails and calls isn't realistic, try designating specific times on Saturday and Sunday for checking e-mails and responding to voicemails. For example, check your messages on Saturday afternoon while your kids are getting a haircut and on Sunday evenings after dinner. Scheduling short blocks of time will alleviate stress without sacrificing availability

6. Minimize Chores

Chores have a funny habit of completely taking over your weekends. When this happens you lose the opportunity to relax and reflect. What's worse is that a lot of chores feel like work, and if you spend all weekend doing them, you just put in a seven-day work-week. To keep this from happening, you need to schedule your chores like you would anything else during the week, and if you don't complete them during the allotted time, you move on and finish them the following weekend.

7. Exercise

No time to exercise during the week? You have 48 hours every weekend to make it happen. Getting your body moving for as little as 10 minutes releases GABA, a soothing neurotransmitter that reduces stress. Exercise is also a great way to come up with new ideas. Innovators and other successful people know that being outdoors often sparks creativity.

Whether you're running, cycling, or gardening, exercise leads to endorphin-fueled introspection. The key is to find a physical activity that does this for you and then to make it an important part of your weekend routine.

8. Reflect

Weekly reflection is a powerful tool for improvement. Use the weekend to contemplate the larger forces that are shaping your industry, your organization, and your job. Without the distractions of Monday to Friday busy work, you should be able to see things in a whole new light. Use this insight to alter your approach to the coming week, improving the efficiency and efficacy of your work.

9. Spend Quality Time with Family

Spending quality time with your family on the weekend is essential if you want to recharge and relax. Weekdays are so hectic that the entire week can fly by with little quality family time. Don't let this bleed into your weekends. Take your kids to the park, take your spouse to his or her favorite restaurant, and go visit your parents. You'll be glad you did.

10. Prepare for the Upcoming Week

The weekend is a great time to spend a few moments planning your upcoming week. As little as 30 minutes of planning can yield significant gains in productivity and reduced stress. The week feels a lot more manageable when you go into it with a plan because all you have to do is execute it.

The risks of dropping personal insurance

People often take out personal insurance early in their working career, but if it is done without adequate advice and knowledge, a significant proportion will then drop their coverage later in life at the very time they are most likely to need it.

When paying off debt, funding lifestyle needs and saving for retirement are competing with the cost of holding personal insurance, the former are often treated as a priority, particularly as the cost of some personal insurance premiums rises substantially in later years.

Many only realise in hindsight that different personal insurance planning decisions made earlier in life would have made a significant financial difference.

Long-term understanding of premiums

In the early years of a working life, understanding how best to fund personal insurance can significantly affect the ability to retain cover while still being able to save for a quality retirement, or meet other expenses.

The two most common premium-funding options are level premiums and stepped premiums.

With a level premium, the cost of the cover remains the same of over the lifetime of the policy except for CPI increases in cover.

With a stepped premium, the cost of cover starts lower than level premium, however the rates increase each year based on the insured person's age plus CPI increases in cover.

Under either funding option, the insurer can also increase the rate charged over and above the annual rate change.

While a level premium seems more expensive than a stepped premium when first starting out, a long-term view shows a significant difference over the life of a policy.

For instance, as the table below shows, the year-on-year increase in a stepped premium policy in the early years is not as steep as in later years.

Average year-on-year increases for stepped insurance premiums, nil indexation

 

       (TPD = Total and Permanent Disability, IP = Income Protection)

In addition, the percentage increases will have more of an impact at an older age when the premiums are higher. For example, a 5% increase on a $100 per month premium is $5, which is more palatable than a 15% increase on $600 per month, or $90. What's more, with a 15% year-on-year increase, the premiums will double every five years.

The total stepped premiums for a 40-year-old male taking out $1,000,000 Life and TPD cover (with nil CPI increases) until age 65 will cost $266,249 while level premiums will cost only $74,461.

The following chart illustrates graphically the difference in cost between stepped and level premiums over the lifetime of the policy. After age 52, the age when people are most likely to need cover, the cost of the stepped premium rises dramatically.

 As a general rule, for a 40-year-old with Life and TPD cover for $1,000,000, not indexed to inflation, it will take eight years for stepped premiums to catch up to level premiums, and another five years on top of that to reach the break-even cumulative point.

For example, a specific insurer provides this table although the general principles apply.

 

 

If all cover is held to age 65, the savings on a level premium can be hundreds of thousands of dollars.

Minimising the burden of insurance policies

Steps can be taken to ensure insurances are retained that might otherwise become such a financial burden that the cover is reduced or given up entirely when most needed. They include:

  • Life cover and TPD – in early years with a young family, ongoing income and mortgage debt is higher than it is as children get older and debt is paid down.

Solution: place a portion of cover on stepped premiums and maintain for 15–20 years, with the remainder on a level premium ensuring this cover remains affordable in later years.

  • Income protection – generally the cover will be required across an entire working life.

Solution: maintain a level premium until policy expiry at either age 65 or 70.

  • Trauma cover – in the early years of greater family financial commitments, cover may need to be higher than in later years.

Solution: place a portion of the cover on stepped premiums to manage cash flow with some cover on level premiums for the longer term.

Risks with level premiums

Level premiums offer long-term financial benefits but other factors must be considered:

  • Product may become obsolete: the insured person is locked in with a single insurer and product series and could be left in an old or closed product. Medical definitions and premium rates for the policy may not be up to date with the current market.
  • Rates are not guaranteed: Insurers always reserve the right to increase base premium rates at any time (this is applicable under both stepped and level options).
  • Inflation cover can change the original premium rate: If inflation-proof cover is chosen with CPI increases in cover each year, some insurers will charge the original level premium rate when the policy commenced but a new level premium rate for each age range for the increased portion of cover.

Nevertheless, forward planning of insurances and a sensible approach of using a blend of stepped and level premiums could have good financial outcomes.

When obtaining advice it is important to be furnished with the complete illustration of the stepped and levels options of the insurer to enable an understanding of the long-term overall cost.

Insurance discussions with adult working children

As people grow older and their children make their own way in life, they do not give much thought to the impact as a parent if the child became disabled due to sickness or accident. What often happens is the parent steps in to support the child. The financial burden could be huge and impact significantly on retirement savings.

Increasingly, we are seeing parents step in and fund the personal insurances for their adult children, at least in the early years. If a 25-year-old is earning $50,000 a year, the income could be insured for as little as $40 per month. In the event of a disability, if the benefit period was to age 65, they could receive $2,800,000 with claims indexation of 3%. This is a small price to pay to ensure retirement assets are protected, and the child can take over the premium payments at a later stage.

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How to Steer Clear of Office Drama

 

Many young professionals, no matter how hardworking and dedicated, find it hard to avoid the inevitable water-cooler chitchat. They're often caught off-guard when colleagues use these talks as a forum to criticize others and office drama ensues. Gossip and drama occur for many reasons: frustration with the boss or peers, the need for human connection, the desire to belittle others to feel better about oneself, boredom, or the need to talk about something.

What's more, added Dave Molenda, business coach of Positive Polarity, most professionals spend more time at work than home, with people they might not choose to interact with in other settings. "When two personalities clash, whether in a relationship outside the office or inside the office, you tend to have drama and disagreements, and tend to have conflict," he said.

But if left unchecked, office gossip and drama can lead to professional discord, reduced productivity, lower morale, and a breakdown of teamwork, collaboration, and good customer service. Office gossip can also derail a person's career if  s/he becomes known as a rumour-monger or someone who talks badly about others. "It's like a cavity or cancer-if you don't deal with it or address it, it rarely gets better by itself," Molenda added.

So how can you steer clear of-or manage-office drama and gossip? Here are some tips from Molenda:

Know yourself.

Many professionals do not realize their role in perpetuating workplace gossip or drama and have blind spots when it comes to their own character traits. Ask yourself tough questions: Are you ever an instigator? Do you try to stop gossip or communicate with the person starting it?

Recognize gossip, then refrain or redirect.

Friendly banter happens at most organizations, but sometimes banter can turn negative and critical. It's important to identify when someone crosses the line and goes too far.

If gossip or drama is making you uncomfortable, leave the conversation or attempt to change the subject. Tell your colleagues you are busy and have work to do. Having the courage to remove yourself from these situations is a behavioural trait of great leaders.
 
Be professional and painstaking.

Colleagues are unlikely to gossip about you if you work hard for the benefit of the organization, your colleagues, and yourself.  Always be courteous and professional when talking with colleagues or clients, and listen more than you speak. Be polite and respectful of differences in opinion.

Try to find the right outlet.

If your co-worker complains about or criticizes a colleague and you feel compelled to weigh in, find a different way to route that energy.

Ask for advice.

If you are the subject of gossip, or if office drama is affecting the organization or a colleague in a serious way, it may be time to talk to a manager or supervisor whom you trust. Ask your superior how you should approach a situation and how you can possibly resolve it. "If it's something you can't work through, then that's the point where you've got to start getting somebody else involved," Molenda said.

Managers, set the stage.

Gossiping and drama cause stress and division within teams, so supervisors must act as examples in terms of how to handle such problems in the workplace.

Establish a no-gossip policy early on  and talk with any gossipmongers directly, rather than in a roundabout way, to nip the problems in the bud. State you have heard them talking about someone and that it makes you uncomfortable.


Contact Clarke McEwan