Managing Your Finances as a Locum Doctor
Understanding the financial implications of being a locum doctor can be very difficult, especially when you’re just starting out.
Although your rate and your earning potential will be much higher. Not being in a stable full-time job does bring with it some financial uncertainty.
What happens if you become ill and can’t work? or what happens if the locum shifts dry up in the hospitals you are working in?
In this article, we’ll explain what financial considerations you’ll need to make to ensure you’re able to reach your financial goals and budget correctly, and share our top tips to help you manage your finances as well as your tax position, National Insurance, NHS Pension, as well as how to reclaim your tax-expenditure.
Financial Planning for Locum Doctors
Locuming doesn’t guarantee you regular shifts and work can dry up quickly in competitive areas. Due to this financial uncertainty, it’s worth doing some financial planning before you start working.
In this section, we’ll run you through the process of coming up with a robust plan to successfully reach your financial goals. Be it a house deposit, 3 months holiday, or just saving for a rainy day, the process will be exactly the same.
1️⃣ Calculate your monthly expenditure
Work out your fixed expenses, these include: utilities, council tax, mortgage or rent, groceries, travel costs and other expenses (Internet, phone contracts, gym memberships etc).
On top of this calculate how much you tend to spend on going out, buying clothes, or any other expenses.
This is your base, and the minimum number of shifts you should aim for should always cover this at a bare minimum.
2️⃣ Calculate what your goals cost
Next, you need to work out the cost of whatever it is you’re saving for. This will obviously vary considerably depending on what it is, but you should have a think about how realistic it is to achieve these goals within a given time frame.
So if you want to go on a 3 month holiday in 6 months’ time, you’ll need to factor in saving enough, after all your monthly expenses, for the cost of the holiday and for 3 months’ worth of expenses whilst you are away and not working.
3️⃣ So how many shifts do I need to work to afford everything
If you’ve already been in contact with a locum agency or bank then you’ll have an idea of how much your hourly rate will be based on your own circumstances. You can use this information to calculate how many shifts you’ll need to carry out each work to reach your goals.
However, if you’ve not yet had the opportunity to do so, or you would like to find out how much you could earn working in another specialty, grade, or region, then check out our ‘Locum Doctor Salary Calculator’. This is our little creation that uses the data based on over 30,000 real locum jobs to give you an estimate of your gross annual and monthly salary, as well as how much you could earn per hour based on these parameters. You can also adjust it to match how many days you’d like to work, and whether you’re willing to work unsocial hours (which pay a little bit more) to give you a more accurate answer of your earning potential.
Our Top Tips
☂ Save for a rainy day. This might be cliché advice, but having 3-6 months’ worth of savings to cover your monthly expenditure in case of an emergency such as sickness can be crucial. As a locum doctor, you’ll normally only be entitled to Statutory Sick Pay (£99.35 per week), which won’t be enough to cover rent alone in most places. So try to factor these savings into the equation when you calculate how many shifts you need to work. You can find out more about your rights as a locum doctor in this article here.
🥅 Set realistic goals. You need to be realistic about how much you’re willing to work, how far you’re willing to travel and the types of shifts you’re willing to do. So if your goal requires you to work 7 days a week for 52 days. Then the chances are you’ll need to use the SPIKEs framework to break the bad news to yourself that the goal is most likely unachievable.
📚 Read more about this. We’ve written a full article on the concepts in this section, you can find it here.
How Should I Choose to Get Paid
As a locum doctor, you’ll almost always be paid through Pay As You Earn (PAYE) regardless of whether you are working through an agency or staff bank.
PAYE is HMRC’s own system for automatically collecting tax and other deductibles from your Gross salary, such as pensions and student loans, prior to you receiving it in your bank account (Net Pay).
👑 Limited Companies
Some locum jobs will be advertised as billable through an Ltd. Companies, however, we would thinking long and hard about this and even recommend seeking help from an accountant or financial advisor prior to agreeing to be paid this way.
This is because since 2017, with the introduction of IR35 (legislation), Trusts now have to examine your contract to decide if you, as a worker, have the “hallmarks of an employee.” This means that a PAYE and National Insurance contribution liability arises.
As such, most locum roles will be subject to income tax and National Insurance deductions. Failure to pay the correct amount could result in an incredibly large amount of unpaid tax and National Insurance contributions later down the line that you'll need to pay back to HMRC.
But there are some circumstances where locum work could be considered to operate outside of IR35. Examples of this include locum GPs and locums in the private market.
To find out more about PAYE and Ltd. Companies, read our full article on it here.
🌂 Umbrella Companies
An umbrella company is a UK limited company operated by a third party acting as an “employer” on behalf of its employees. The umbrella company will provide a payroll service to the locum doctors and pay a salary after allowing for deductions. It has become far less common, as a lot of the advantages previously associated with this method have stopped since the introduction of IR35. We’d advise you to think very, very, carefully about this route as it is easy to fall into complications.
Financial Issues for locum doctors to be aware of
👩💻 Tax codes
Every employee will have a tax code, which is calculated by HM Revenue and Customs (HMRC) and is used by your employer’s payroll to determine how much income tax you should pay. This only applies to employees (not if you're self-employed or take dividends from a company).
The tax code is made up of a number followed by a letter and, at its most basic, is simply the personal allowance divided by ten followed by the letter L.
The personal allowance for the tax year ended 5 April 2023 is £12,570. This means the first £12,570 of your income in the tax year is tax-free.
For most of you, your tax code will be 1257L (you’ll see this on your P60 and payslip). This assumes you have only one job and have no other income source or allowances, which would in turn change the letter.
You may also see the word “CUMU" after your tax code, which means that you get a chunk of your personal allowance each month. This £12,570 is split evenly throughout the year, so you'll get £1,047.5 of your pay tax-free each month.
🚨 Emergency tax codes
A big problem for doctors is that it's not uncommon for HMRC to tell your payroll to apply the wrong tax code. As we switch jobs in, say, August, we'll usually receive a payslip from our old employer and our new employer, confusing HMRC into thinking that we're working two jobs. If they suspect this, they'll apply something called an emergency tax code, which usually results in the tax-free personal allowance being taken away. Doctors may see:
- BR NONCUM – This will automatically tax all income at the basic rate of tax, currently 20%
- D0 – This does the same thing, but taxes all income at the higher rate of 40%
- 0T NONCUM – This takes away your personal allowance, but unlike the above does not apply a flat rate.
Being emergency taxed can be a temporarily costly issue, but you will get the money back once your tax code is corrected. So bring this up with HMRC at your earliest convenience.
💰 Claiming tax back on expenses
No matter how you’re employed as a doctor, some of your expenses will be tax-deductible. These could include your:
👉 Professional indemnity fees
👉 GMC fees
👉 Royal College fees
👉 BMA fees
👉 Cost of cleaning uniform (scrubs)
👉 Exam fees (and resits!) if you had to take these as part of a training contract
👉 Mileage to work
Medics Money have a useful tool for working out how much you can claim back and how to get the ball rolling with doing so. Check this out here.
🌴 Holiday pay
All locum doctors will be entitled to the statutory paid annual leave of 28 days per annum, regardless of whether they are working for the bank or an agency.
This is normally too difficult a task for employers to work out, so instead, they will pay you in lieu of these entitlements at the agreed rate of your services. This means that if you work a shift for £45 an hour, this will also be the rate for the holiday pay that you accrued for the period of time that you worked at this rate.
Legally, this must appear separately on your payslip, as is the case below.
Should this not be the case, raise this with your employer. If they state that your holiday pay has been rolled up into your standard rate, then this is actually illegal and you may have grounds to raise this at an employment tribunal. However, in our experience, trusts and agencies are very quick to correct this issue once you have raised this with them.
🏦 Employer and employee National Insurance contributions
National Insurance contributions are a complex topic that we won’t go into a great deal about in this article. However, if you want to read more about it then check out the GOV.UK guidance here.
As a locum doctor, you will pay employee NI contributions. However, a common misconception is that you’ll additionally also pay employer National Insurance contributions, which is not true.
Instead, what actually happens is that the hourly rate you are quoted will often also include the Employer National Insurance contributions that the trust would have to pay for your services. This unfortunately falsely inflates the rate, thus when you receive your payslip, the rate is normally about 15.05% lower, as this is the cost of the employer contribution element.
To find out how to avoid this issue with pay, and many others. Check out the “Things to watch out for” section in our payslip article here.
👵 Your Pension
For those hospital locum doctors who are paid via the hospital payroll, pension contributions will be deducted at source (like your tax) and dealt with by the Trust. You can opt-out of the NHS pension scheme and not pension your earnings if you wish, but you should think about this very carefully as it may have a detrimental impact on your final pensions benefits (for example, from losing your employer contributions), and others such as Death in Service benefits. Click here for a detailed description of the NHS pension scheme for 2015, and see page 26 for the other benefits of the NHS Pension Scheme.
You may also like to take a look at this helpful resource from Medics' Money for further guidance.
If you operate via an agency, they should deal with the relevant pension contributions, letting you know your pension position and your contributions. If you trade through an umbrella company or trade through your own limited company the income is unlikely to be pensionable.
Watch this space. We’re planning on writing articles that will answer questions such as:
👵 NHS Pensions - Should I opt out?
👨🎓 Should I repay my student loans off early?
This article is part of a wider series of resources and guides that are designed to support you as a locum doctor, covering areas such as getting your first job, managing your finances, understanding your rights, and many more. Visit our Locum Doctor Hub for everything you need to know about locuming today.
Additionally, if you're considering an F3 year, you might also find it useful to look through the selection of resources we've put together in our F3 Resource Hub.
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