001 - Veterinary Locums - the difference between Independent Self Employed Contractors and Employees

This is the first in a series about locums – either working as one or hiring one in your clinic.   The info applies if you’re a LOCUM (or thinking about being one) and to CLINICS HIRING locums.  

Employees and contractors each have different legal rights.

It’s important you know what these are and that you’re being HIRED USING THE CORRECT CRITERIA AS IT RELATES TO YOU.

Hi – this is Julie South and you’re listening to Paws Claws & Wet Noses – the kiwi veterinary sector podcast.   This show is sponsored by VetStaff.   

If you’ve never heard of VetStaff, it’s NZs only full-service recruitment agency 100% dedicated to the veterinary sector.  

VetStaff has been around since 2015 and works nationwide from Cape Reinga to the Bluff and everywhere in between.  

As well as helping kiwis, VetStaff also help overseas qualified veterinarians find work in Aotearoa New Zealand.  Vetstaff.co.nz

So what’s the big drama about getting it right with being either an employee or an independent contractor?  

Does it really matter?

The answer to that is ABSOLUTELY!  

It matters to the IRD and it especially matters to the Employment Relations Authority.

It’s not a good idea to get on the bad side of either of these two organisations.

When you’re a self-employed locum, it means you hire yourself out as an independent contractor.

An alternative to being an INDEPENDENT LOCUM CONTRACTOR is being a CASUAL EMPLOYEE.

Regardless of whether you’re a contractor or an employee, in NZ you’re still covered under the same health and safety laws.  

These can’t be contracted out of.

Let’s look at the legal differences.   

As a SELF EMPLOYED CONTRACTOR LOCUM, you’ll be engaged by a principal to perform services under a Contract FOR Services.  

For example, here at VetStaff we engage our locums under a Contract for Services that exists between VetStaff Limited and the locum.   

As per our terms of trade entered into with our locums, when they send us their invoice we’ll pay it in our next fortnightly pay cycle.  We guarantee payment to our locums on receipt of their timesheet and invoice.  

Self-employed contractor locums earn their income by invoicing the principal – eg, VetStaff – for their services.

Self-employed contractor locums are responsible for paying their own tax and ACC levies.

As a comparison, clinics pay their employees’ ACC levies and PAYE tax – that’s Pay As You Earn - to the IRD.

In contrast, employees have a contract OF service – usually called an Employment Agreement - between themselves and their employer.

Contractors have a contract FOR service, employees a contract OF service.

Employees have minimum employment rights under employment laws which an employer cannot contract out of.  

Examples of these protections include but aren’t limited to

The Employment Relations Act 2000,

The Minimum Wage Act 1983, 

The Holidays Act 2003 and 

The Domestic Violence Victims Protection Act 2018  

As well as the protection of these Acts of Parliament, employees also have the right to take a personal grievance against their employer.

Independent Contractors – locums – aren’t protected under any of these Acts.

For example, locum contractors aren’t entitled to 

Annual leave

Sick leave

They can’t take a personal grievance out against a clinic

They’re legally obligated to pay their own tax and ACC levies.

In addition, self employed veterinary locums are responsible for funding their own professional-body memberships – eg, NZVA or NZVNA fees and, in the case of veterinarians, their own annual practicing certificates.

Rather than be protected under EMPLOYMENT LAWS, locums are protected by general CIVIL LAWS.

There are four EMPLOYMENT LAW legal TESTS which help determine whether someone is genuinely a self employed contractor or an employee.   

This test is regardless of whether an individual or a clinic refers to them one way or the other.

The Employment Relations Authority doesn’t take kindly to clinics trying to masquerade employees as self-employed locums as a way of contracting out of their legal obligations.

If the wrong ‘hiring arrangement’ is entered into then consequences can result:

If you’re hired as a contractor incorrectly rather than as an employee, then you may miss out on your minimum employment entitlements and, if you’re a NZ resident, your KiwiSaver employer subsidy.

You may also pay tax and ACC levies that you shouldn’t have to.

If you’re a clinic and hire someone as a contractor when they’re actually an employee, you may later be held liable for extra costs including:

unpaid PAYE tax

unpaid minimum wages

holidays and leave entitlements.

You may also be at risk of receiving penalties from Inland Revenue and/or the Employment Relations Authority.

Both of these could be costly and harm your clinic’s reputation as a good employer. 

You may also be declined approval to bring in overseas qualified veterinarians.

I mentioned earlier four tests – these are:

Intention

Control vs Independence

Integration, and

Fundamental / economic reality

Looking at each individually:

The INTENTION TEST – 

“intention” can usually be determined from the wording in the parties’ written agreement.

For example, an employee MUST have a written Employment Agreement – which may be Individual or a Union Collective;  an independent contractor has a Contract for Services.

Inside each of these contracts some things should be stated.

With reference to HOLIDAY PAY - a contractor does NOT get paid holidays whereas an EMPLOYEE WILL.

When it comes to entitlements for working statutory – or public – holidays, an employee MUST be paid AT LEAST time and a half for working on a public holiday and a day in lieu if it is an otherwise working day – that is the clinic is open - for them.

Unless it is stated in a contractor’s Contract for Services, a contractor won’t get paid time and a half for working on a public holiday or receive a day in lieu.

The SECOND test is the CONTROL vs INDEPENDENCE TEST and this relates to where the greater the control exercised over the worker’s work content, hours and methods, lies.  

The greater the control, the more likely (but not necessarily) the worker is an employee. 

A worker with greater freedom to choose whom to work for, where to work, when to work, the tools used and so on, is more likely to be a contractor.

In the case of veterinary sector locums, a true independent contractor is able to choose which clinics they want to work for (without limitations of restraints of trade) and when they want to work.  

For example, I’m often asked to find locums for Saturday work.  My locums often reply with “sorry Julie, I don’t work weekends”.  

Because they’re independent contractors I cannot force them to work just because I’ve asked them to.

Contractors are usually specialists – with a little S - in their field of work.  

Therefore, they don’t need to be closely supervised or instructed how to do their job.   

Because of this therefore, it is highly UNLIKELY a veterinarian or veterinary nurse with fewer than 3 or so years’ experience would be able to satisfy this part of the ‘independent contractor’ test because they’d still need supervision by a more senior colleague.

The third test is that of INTEGRATION.   

Because of the short term nature of most locum assignments, most veterinary contractors are unlikely to be invited to staff events or functions.  

One of the most striking examples I’ve seen regarding lack of locum integration was an incident that could possibly have resulted in an insurance claim.  

The locum had been locuming at the clinic for a considerable period of time – a few days a week for over a year.  

The locum thought they were part of the team and got a rude shock when they found out this wasn’t so.  

A near-miss incident drove home exactly how much management-of-the-clinic distanced themselves from the locum, who was suddenly dropped like a hot potato.  

It was obvious at the time there was no integration taking place by this clinic.

Another test is reimbursement of work-related expenses.  

An employee is more likely to get reimbursed whereas a contractor will be expected to absorb such costs as running expenses of their own business.

The final test is that of FUNDAMENTAL / ECONOMIC REALITY and relates to different financial aspects of the professional relationship. 

A contractor can set their own fee for services provided, whereas an employee has to be paid at least the equivalent of the minimum wage – either as a salary or hourly rate.

Who pays the tax?  

If you’re an employee, the clinic pays PAYE tax and ACC on your behalf.  

This means what you’re paid each pay period is nett wages or salary. 

If you’re an independent contractor locum, you’ll generally pay your own tax directly to the IR.

In special situations the company or clinic the contractor is contracted to may deduct withholding tax on the locum’s behalf.  

This is what happens with VetStaff locums.  

We deduct a minimum of 20% WHT on behalf of each of our locums.  

Some have instructed us to deduct 25% as a way to reduce the amount of tax shortfall they’ll be required to make up at the end of the financial year.

A locum contractor MUST register for GST if they’re earning more than $60kpa.

A locum contractor is responsible for paying their own ACC levies.

A contractor has the opportunity to truly profit from their working skills.  

Of course, you have to have a willing buyer and seller but a contractor can set their own fees for their professional services and decide how many assignments they’ll work each week, month or year.

One test which doesn’t apply to veterinary professionals is whether the task can be delegated to someone else.   

An employee cannot ask someone else to turn up to work for them.

Many contractors can subcontract to others.  

But, unless you were an organisation like VetStaff – which has a team of veterinarians and veterinary nurses, it is unlikely a stand-alone veterinarian or veterinary nurse, would be able to do this.  

For example, if you’re a self-employed companion animal veterinarian it’s unlikely a clinic would accept one of your university mates to work in your place if you couldn’t turn up as agreed in your contract for services.  

Another part of this economic test is who carries the most financial risk.  

For example, if you’re a charge-by-the-day veterinarian and you end up working a 12 hour day which results in your hourly rate being well below what you’d like, that’s just too bad.   

Contractors may work for more than one clinic at a time.  

Obviously, they can’t subcontract – unless they’re an agency like VetStaff – but they could work for five or six different clinics in one week if they wanted without any restraint of trade limitations being imposed by each clinic.

A contractor usually advertises or promotes their own services, whereas an employee usually responds to a job advertisement.  

A contractor gets paid by presenting an invoice for services rendered whereas an employee will get paid automatically (usually!) and should receive a payslip.

To summarise – if you’re an independent contractor you can decide when you work, when you take your holidays and how much you get paid and how.

You’ll also be responsible for your paying your own taxes, ACC levies, CPD, professional memberships and your APC.   

If you went for a spell without work (for example during Alert Level 4 Lockdown) you’d be using your own savings to prop up any expenses your self-employed business was incurring – for example, maybe you provided house calls and your vehicle was leased.  

You’d have to meet the lease payments on that vehicle out of your own pocket if your business account didn’t have sufficient to cover these payments.  

AS AN EMPLOYEE OF A VETERINARY CLINIC:

You have to do the work you’ve been employed to do – you can’t get someone with equal qualifications to do it on your behalf if you want to go fishing or skiing for the day.

You may have KPIs to achieve with ramifications for not achieving.

You could possibly have a restraint of trade clause in your Employment Agreement.

I hope you’ve found this helpful.  

The next video in this series will be whether you’ve got what it takes to be a self-employed locum.

If you’re watching this video on YouTube and you’ve found it helpful, you can help us by giving us the thumbs up on the video and subscribing to our channel.

If you’re watching this video on Facebook, then liking our page – VetStaff.NZ and commenting below this video also helps us out.

If you’d like to have a confidential chat and you’re in NZ then please feel free to call me toll free on 0800 483 869.  If you’re an overseas veterinarian who’s thinking about working in Godzone Aotearoa New Zealand then you can get hold of me via WhatsApp on +64 27 282 4155