There are many advantages to working as a locum physician. Higher hourly rates, flexible shifts and a wide and varied caseload are just some of the reasons more doctors are opting for this route. But as is with any contracted work, the biggest challenge can be managing ones finances.
The first step is knowing about all the different payment options that are available, and the potential pros and cons for each one. The second step is ensuring you get paid on time.
‘Pay as you earn’ or PAYE, is the national withholding system on income payments to employees. Tax and national insurance (along with any other relevant fees) is deducted at the source by the employer, who must then remit the deducted amount to the proper government authority. At present, that authority is HMRC.
HMRC will supply the employer with a tax code, which is then used to deduct the correct amount from each wage packet. It is common for employees in a new job to receive an ‘emergency tax code’ until a permanent one is given. Any over-paid tax will be reimbursed in the next wage packet.
Plus points: Working through the PAYE system means you don’t have to worry about tax and national insurance etc., as this responsibility falls with the employer. It also usually guarantees regular payment.
Negatives: As soon as you are employed by more than one organisation, the tax code system can become a little complicated and you may end up losing out financially.
As a rule, agencies are obliged to operate PAYE or alternatively, pay a limited company. Many locums therefore set up their own limited company to take payment, so as to gain more control over their earnings. The biggest advantage of being a limited company is that it allows locums to claim legitimate expenses such as insurance, travel and professional fees. For this reason it is more tax efficient – just so long as the locum does not fall into the IR35 legislation.
Essentially, IR35 affects all contractors who do not meet HMRC’s definition of ‘self employed’. For locums, some posts may fall into this legislation and others may not. Which makes is essential to check with the agency that the contract is ‘IR35 proof’, so as to avoid any nasty penalties further down the line. The best course of action is to work alongside an accountant who will advise on everything.
Plus points: Working as a limited company gives you full control over your paycheque, allowing you to maximise your earnings. There is very little paperwork actually involved.
Negatives: You are fully responsible for keeping account of your earnings and ensuring you are paying the correct amount of tax and national insurance etc. It can also be a little costly if you only locum for a short period of time before returning to permanent employment.
An umbrella company acts as an employer to agency contractors who are working under a fixed term contract. In the UK, this is often done via a recruitment agency. Working under an umbrella company means receiving payment through the PAYE system, whilst still being able to claim expenses.
Since the new IR35 legislation was rolled out, umbrella companies have become more prevalent in the UK. They allow for full employment rights as well as giving the assurance that employees’ contracts remain within the IR35 guidelines.
Although they are ideal for all placements, locums can only use umbrella companies if they are working for more than one client. There is also a chance that they may take a small cut of earnings as well as charging for their services.
Plus points: Umbrella companies are easy to use and take away the worry of IR35. Tax and NI are dealt with on your behalf, and you can still claim expenses.
Negatives: It is less tax efficient than a limited company, and you may be charged for the service.
Getting Paid on Time
Regardless of your chosen route of payment, you must still take responsibility to ensure you are paid on time. This is especially important in regards to the 10-week deadline for pension contributions. Some simple tips include:
- Agree on how and when you are paid, in writing
- Complete your invoice ahead of schedule
- Get the ‘GP Locum Form A’ signed before you leave the practice, and make copies for your records
- Keep accurate records and be prepared to chase people for payment