A Locum Payment Guide

There are a few different payment options available to clinicians when they enter the locum world. It can often be confusing to know which option is best for you personally. What is the difference between PAYE vs Umbrella Company vs Limited Company? We are covering each method of locum payment and the pros and cons of each so you get a complete understanding of which is best for you.

Is PAYE‌ making you lose?

“Pay as you earn” is the national withholding system on income payments to employees. Any form of tax and relevant fees are deducted by the employer prior to payment. This means tax, national insurance and other owed fees are not your responsibility. Your tax code will determine how much you pay the government and the correct amount will be taken from your earnings in accordance with this.

This tax code system can often cause problems when it comes to working with different companies. As a Locum you will work within different establishments meaning gaining payment through PAYE‌ will inevitably cause complications and in the long run you may not come out with as much as you should financially. Although PAYE does guarantee regular payment and the hassle of tax and government owed fees is the employers’ responsibility, it is debated that this payment scheme is not the most favourable for Locums.

The pros:
• Tax and relevant fees are sorted by the employer
• Saves you time and paperwork
• The correct tax and deductions will always be taken due to your tax code
• Automatically compliant with IR35 legislation

The cons:
• You can’t claim expenses
• Doesn’t work well if you work across various sites
• You risk paying more tax

Can LTD give you more control?

Agencies are required to operate PAYE or pay a limited company. Most Locums find that setting up as a limited company is the best way to take control of their earnings. Functioning as a limited company gives you the opportunity to claim expenses such as, clinician insurance, travel fees and even training fees. It is argued that limited can be more efficient when it comes to tax, but this is only the case if you do not fall within IR35.

We have previously covered IR35 and how it can affect you as a locum. Essentially it will affect if you can be paid as self-employed or if you must be paid by the surgery you attend on a PAYE basis. It is absolutely essential that you check with the establishment prior to picking up the work as you may find yourself being taxed more than initially anticipated.

Working on a limited basis does give you control of your earnings and you have the opportunity to maximise your income. You do need to bear in mind that you are completely in control meaning all paperwork, taxes, national insurance etc has to be completed by yourself. If you only Locum on a short time basis it can be rather costly, it is recommended that you look into this method if you wish to Locum on a permanent basis.

AppLocum still works with multiple organisations which pay into Limited Companies. See our vacancies here and give us a call if you would like to enquire about payment method.

The pros:
• Helps you take control of your earnings
• Gives you the opportunity to claim expenses
• Can be more efficient when it comes to tax
• Potential to maximise your income
• IR35 is the responsibility of the employer not you as the employee

The cons:
• All tax must be completed yourself

• You may have to employ an accountant

• Doesn’t work if you are only a locum short-term

• Need to pay attention to IR35

• Some employers will not employ Limited Companies to avoid having to assess IR35 on a case-by-case basis

Could Umbrella be the way?

An umbrella company acts as an employer to agency contractors who are working under a fixed term contract. An Umbrella method means you receive payment through PAYE whilst still being able to claim expenses such as; travel and training.

Umbrella companies are becoming increasingly popular within the UK, this is even more so the case since the implementation of IR35. You can only use an Umbrella company if you place yourself within various different establishments and especially more than one client. Umbrella companies will take a small percentage of your payment to cover service charges.

The biggest advantage of using an Umbrella company is lack of hassle! All taxes and paperwork are covered by the Umbrella company on your behalf, yet you are still eligible to claim expenses. Although some may argue that it is less tax efficient than going limited, it is more lucrative than the PAYE method of payment.

The pros:
• Able to claim expenses
• Becoming increasingly popular
• Lack of hassle
• All paperwork dealt with while you get the most out of your income

The cons:
• You can only use an Umbrella company if you place yourself within various different establishments
• Umbrella companies will take a small percentage of your payment

No more confusion

We understand that choosing the right payment method for yourself can be confusing. Our consultants are happy to help you pick the right one for you. Should you need further information on payment methods you can call our team.

Which method do you find works best for you? Comment below to discuss this.