Bring up the subject of locums and, in the next few sentences, you’re more or less guaranteed to find the phrase “HOW much?” – either from the indignation of those who hire locums or employees jealous of the locum’s day rate.
The standard reaction for many people seems to be to take a locum’s day rate, multiply by 5 (days) then 52 (weeks), and come up with something astronomical as an annual salary. A few years of that, you might be thinking, and I can buy a small island, retire and only need to encounter animals in the form of furry companions.
Sadly, the numbers leave one or two details out. Since nowhere seems to go into these details, it’s probably worth trying to make things a little clearer to tackle this perception gap.
We are very bad in the veterinary profession – and in the UK in particular – in talking about money. It is like the first rule of salary club is that you don’t talk about salary club. Most contracts do have more or less this exact rule written in, even though this is illegal.
I will use this article to simply try to get the ideas across, rather than a list of calculations, which only make sense if you already know why they make sense.
So why, then, is the blindingly obvious calculation wrong?
In the interests of keeping this simple, I am going to leave out discussions on VAT and have simplified tax/National Insurance (NI) to some degree because firstly, I’m not an accountant and these things tax my brain; and secondly, unless you are an accountant, you will probably want to curl up in a ball weeping softly if we got granular on tax and NI contributions (NIC).
You also need to bear in mind I have used average rates for salaries and locum rates, whereas those with more experience or skill can command higher rates. Filling shifts in unsocial hours, such as overnight, will also attract a premium. The rates and taxes are correct for 2022-23.
Recent changes
Recently, the supply and demand of free market forces due to the recruitment and retention crisis in the profession (you can read about this in other articles I’ve written) has led to rapid inflation of staffing costs. Yet practices can only have income if vets are there to do the billable work.
Permanent employees need holidays, days off for CPD, illness and injury, and rota gaps where recruitment has failed to find replacement permanent staff are increasing.
In the past couple of years, employee salaries and locum rates have increased greatly. As locums are on short, temporary contracts, the average upward trend in rates happens much faster than for employees who generally get a smaller annual salary increase, and can frequently only negotiate significantly higher salaries when they move practices. Therefore, the rate increase for locums has been faster than that for permanent staff in the past couple of years.
Fairly generous tax advantages used to exist with being self‑employed, especially through personal service companies (limited company locums), but these have been reduced and the margin over a pay as you earn (PAYE) permanent employee has narrowed. Once the additional expenses have been considered, this difference is mainly wiped out.
Taxes applicable to employees are often overlooked when looking at locum versus employee rates of pay – did you know employers pay NI at a rate of 15.05% of your salary direct to the Government? Businesses don’t pay employer’s NI on locum rates (for limited company locums and sole trader locums, but they do for locums via zero-hour/casual/bank contracts).
Since April 2021, significant changes in the off-payroll working rules (IR35) were brought in, which aimed to ensure individuals who work like employees, but operate through their own limited company (known as personal service company; PSC) pay broadly the same tax and NIC as employees.
The responsibility for carrying out the assessments and risks of wrongful application shifted from the locum to the medium or large company engaging them (that is, most corporate practices). Small businesses were exempt from this change and the locum remains liable as before the April 2021 change.
To negate the risk, these types of practices began to insist locums be engaged either via zero-hour/casual worker/bank contracts, or umbrella companies, even if the locums were not operating through a PSC. This stance has been relaxed by some corporates in some circumstances, allowing locums to be paid as sole traders, but then retracted in recent months by cancelling already contracted and booked work with a locum, and requiring them to sign a zero-hours/casual workers contract if they want the booked work.
Who’s quoting the rate?
The first point to consider when a locum day rate is being considered is what does that rate include? I have found some people quoting the day rate of locums inclusive of 20% VAT. But VAT is irrelevant for a veterinary practice as it is a VAT-registered business and hiring a locum is an allowable expense, so the VAT cost of the locum is just written off against their quarterly VAT bill. This is nil sum and so it should not be included in a locum rate quote.
The next crucial aspect is if the locum is being hired via an agency. An agency works like a dating service, matching locums and practices with each other. Some agencies also act as an umbrella company, which is used to pay the locum, but we will discuss this separately.
For this matching service, the agency charges the practice; this is £40 to £50 per day, but can be up to £60 a day. This is money the practice pays, but the locum does not see – it goes straight to the agency for the services they provide.
Neither practices nor locums need to use agencies, but some choose to due to convenience, or filling urgent calendar gaps that might otherwise mean the practice has to close or the staff member not go on holiday. Some locums even find they get booked via an agency to the same practices they have previously contacted directly and got no response from.
I mentioned umbrella companies. These companies employ short-term contractors (that is, the locums), and act as an intermediary between the practice and the locum.
Some veterinary practices, in particular the corporate groups, will only employ locums via umbrella companies as the risks of these locums being seen as employees is taken on by the umbrella company, which acts as the locum’s employer. Some locums also choose to be contracted via umbrella companies as it can be convenient; however, they have a cost – a huge cost. Because the umbrella company is employing the locum on the practice’s behalf, all the costs an employer would normally have to pay to have employees (over and above the salary, such as employer’s NI, holiday pay, sick pay and an apprenticeship levy), get passed to the locum, together with administrative fees from the umbrella company for the pleasure of using them.
In effect, the locum is subject to double taxation and additional deductions, with the end result being a loss of 40% to 50% of the gross daily rate involved. Plus, using an umbrella company is not tax efficient and very few expenses can be taken into account. This means the costs to a locum of using an umbrella company are far higher than a locum paid by any other means – by about 30%.
Now, most of us would not be happy taking a 30% pay cut for a middle-man and neither is the locum. So, the locum passes some of the extra costs to whoever hires them – that is, the practice. Most of the time, the practice does not have to employ the locum via an umbrella company, but because corporate companies don’t like risk (IR35 related), they continue to require locums to be paid via umbrellas – so the locum passes some of the extra cost to the practices.
The increase in locum daily rates – and the rate of these increases in recent years – could, in part, be due to an increasing proportion of locums using umbrella companies and the need to offset the extra loses involved.
The locum’s point of view
The biggest factor for those choosing to locum is the ability to work flexibly, not for a supposed higher salary (see my previous article “Why are vets turning to locuming?”, VT50.41; and the Recruit4vets locum pay rate survey, 2022). This is down to deficiencies in the employee jobs being offered, not always a direct drive to want to locum.
I can, however, see two groups of veterinary employees who can earn significantly more as locums than as employees – these are early career vets and nurses at all levels of experience.
The latter is not surprising, as most of us are aware of how poorly paid nurses are – an employee nurse would expect a mean of £13 per hour for a £26,000 salary, whereas a locum nurse can expect £20 to £25 per hour with a mean of £23.50 (SPVS, 2023). So, it is not surprising nurses are turning to locum work to give themselves a realistic living wage.
A locum has costs to consider that an employee doesn’t, such as their Veterinary Defence Society (VDS) cover, RCVS fees, x-ray badges and uniform costs, an accountant…
As we all need to do CPD, a locum also needs to pay for this, but they also cannot earn on the times they are doing CPD (whereas the norm is for employees to have five days’ salary paid to allow them to do CPD). A locum also doesn’t earn while on holiday, whereas an employee gets paid time off.
There’s admin time – invoicing, chasing up debtors, looking for contracts. Locums often have to drive or travel further to the work, which means more fuel for the car, and wear and tear, plus the extra time taken in travelling.
A locum takes on a great many risks in their line of work – risks an employee just doesn’t have. They have no job security at all, no employment rights and can be dismissed with no or little notice, as evidenced by what happened at the start of the COVID pandemic. Locums get none of the additional benefits or securities that employees enjoy, such as sick pay, enhanced maternity pay or employer pension contributions. Locums are also going to struggle to get any career progression. Some locums have self-funded certificates to give career progression, but this is not usual.
The higher potential rate of income that locums can achieve relies on locums being able to fill their entire calendar, minus holidays they allow themselves. This just doesn’t happen – there are quiet times of the year, short‑notice cancellations and so on. Some of this time could be taken as holiday, but if not planned by the locum it affects their income.
How would an employee take it if they turned up to work to find it so quiet their boss sent them home and with no pay? I’m sure the boss would be happy, but the employee not so much – yet this is what locums are asked to do daily. It is up to the locum to find new roles and fill their gaps in their schedule, and this takes a lot of time and effort.
Employee’s point of view
Employees get a total compensation package of salary and benefits that locums don’t. You’ll usually spot these listed in job ads as fantastic benefits of working for a given practice – annual leave, pension contributions, CPD of £x and five days off, and so forth.
What about your professional indemnity insurance (VDS cover) and RCVS membership? Perhaps you also get an association membership or two? As an employee, perhaps you haven’t worked out how much these are worth? (Vets: Stay, Go, Diversify has a video that explains these; bit.ly/3qyWvXr).
Annual leave isn’t time that the practice is kind-hearted enough to give you off, it’s legally required time during which you still receive a full salary. In other words, you work for (say) 46 weeks a year, you get paid for the full 52, and the practice is picking up the tab for getting someone else to cover those extra weeks you have as holiday.
A locum, on the other hand, doesn’t get paid if they don’t show up. The same goes for sick days, which, according to the Office for National Statistics, was about 3.8 days on average in 2020 after filtering out COVID effects.
Similarly for the pension, an employee is entitled to it regardless of whether the practice likes it (it is a legal requirement), and that’s an additional cost to them that’s not included in your salary, which is likely to be worth somewhere between £1,000 and £2,000 a year.
An employee (almost certainly) gets a CPD allowance of probably a few thousand pounds that a locum would have to pay for themselves, again a cost to the business above your salary.
In this recruitment crisis, more and more employers are offering enhanced benefits, such as sick pay beyond the legal requirement, enhanced maternity pay, private medical insurance (worth £1,000 to £3,000 a year), and discounted staff pet care. Guess what? Locums don’t get any of these.
Employer/hirer point of view
Hiring a limited company locum, a sole trader locum or an umbrella locum has no extra costs to a practice, whereas a zero-hours/casual worker locum attracts employer NI, holiday pay and potentially pension contribution costs. An employer has those and a great many – and mounting – additional costs to consider as part of the salary benefits package (aforementioned), and the costs of having employees.
Locums do not give ongoing HR headaches or have employee rights, and are able to be dismissed with little or no notice if business needs change.
Another cost that doesn’t need to be paid if you have locums are the recruiting and training costs. Hiring a regular employee requires the practice to invest time and resources into recruiting, interviewing and training new employees. This can take weeks or months, during which productivity by the new employee and those doing the training is lost. With a locum, there is typically little to no training required as they are experienced professionals who can quickly adapt to the practice’s protocols.
Certain expenses exist that are either fixed or very similar, and paid by the business. That’s CPD, pension, insurance, memberships and employer NIC. These together come to nearly £15,000 a year on a £50,000 annual salary (Figure 1). The difference is that for an employee, your employer pays all this for you out of their pocket. For a locum, this comes out of their pocket.
Looking at the figures and figuring out how much the intangible costs are for a business, perhaps it might actually be cheaper to have your practice staffed entirely by locums? I am being facetious here, but it makes you think…
Summary
Using a very simplistic spreadsheet based on a whole load of assumptions, I have worked out that a locum needs to charge a day rate about 80% higher than an equivalent salaried rate just to have the same amount in their pocket at the end of the month as an employee. Probably more surprising is the cost to the practice is similar to the “cheaper” employee.
The takeaway is that a salaried employee costs a vet practice way more than their salary, while a locum not only has those charges to pay themselves, but also a load more costs and taxes to pay on top of that. They also have the uncertainty of not knowing if they are going to be able to book work or actually get to do the work that was booked, plus the hassle and costs of running a company. The trade-off for a locum’s flexibility is the lack of stability and a massive increase in risks.
That aforementioned day rate that made you wince isn’t what it seems. Achieving a fair and reasonable rate for all is a process of negotiation, with underlying understanding of why the bottom-line price is not all that need to be considered.
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