003 Veterinary Locums - why do locums earn more than employees?

Why do locums earn more?

This is the third of a three part series about locuming – whether it’s for you or not – things to consider.  

This week we’re going to look at why it appears locums earn more per hour than employees doing the same job inside a clinic.

This episode is for you if you’re about to start out as a locum or you’re employed at a clinic and maybe feeling a little resentful because a locum might, at first glance, be earning a truckload more per hour than your clinic is paying you.

INTRO

After listening to this episode – hopefully - you’ll get to understand HOW a locum’s hourly rate is comprised AND some of the other considerations that need to be factored into being self-employed.

At first glance it appears self-employed locums earn significantly more than their clinic-employed colleagues.  However, in real terms - in actuality - that’s not true. 

There are multiple differences between being an employed clinician (veterinarian or veterinary nurse) and a locum clinician.  

A permanent (full or part time) veterinarian or nurse is guaranteed by their employer to earn X-thousand dollars per annum.  In exchange for that, an employee promises to work x-thousand hours per annum.

A self-employed locum cannot guarantee their income.  They can make assumptions, based on past history or future projections.  But then something like a pandemic rocks the planet and all of those assumptions get thrown out the window.

Many locums’ incomes dropped to zero through Alert Level 4, while employees were still receiving something. 

Let’s look at how a self-employed independent contractor locum’s hourly rate is made up and why it’s more than that of an employee.

Firstly, as a permanent employee, you get paid for 52 weeks work each year.   

I’ll say that again:  As a permanent employee you get paid for 52 weeks even though you don’t actually WORK 52 weeks.

Every year, by law, as an employee you’re entitled to four weeks paid annual leave.  Which mean you’re effectively getting paid every week for 52 weeks even though, by law, you only need to work 48 weeks of that year.  

The four weeks annual leave you’re entitled to costs your employer 8% of your annual salary.

Further, in NZ there are 11 days deemed to be statutory holidays.  

This means that if you’re an employee and your clinic is closed say on Queen’s Birthday Weekend Monday, you’ll still get paid your full week’s pay that week.

Those 11 paid days statutory holiday an employee is entitled to receive, costs their clinic 4% of their annual salary.

And then there are the minimum five days sick leave they can take each year, if they need to, and be paid for them.  Those five days cost their employer 2% of their salary.

But wait, there’s more!  There are “special leave” obligations an employer may be liable for, for some employees.

Of course, not every employee is going to take all the various statutory leave options an employer must honour, but still, an employer needs to factor these in, in some way.  

In the event an employee uses every leave option an employer is obligated to meet, they amount to around an additional 6% of their annual salary - plus or minus.

All of these costs have to be met by the employer even though an employee isn’t productive in any way during these absences.

This means, therefore, if you’re an employee, you’re “costing” (in air quotes) your employer an additional 20% (+/-) of your hourly rate when you’re being paid to NOT be at work.

But wait!  There’s even more to factor in.

You know the CPD training your employer picks up the tab for?  They’ve probably factored in an amount of somewhere in the region of 2-5% per employee’s annual salary for that.

And then there’s your APC and (hopefully!) your NZVA or NZVNA membership fees too – so let’s say between half to 1% for those two.

What about ACC levies?  Add on an additional 2% “cost” (air quotes) your employer needs to meet.

Oh!  Insurance – your employer is covering your ass with that as well.  For argument’s sake, let’s say it’s around 1%.

All of these are some of the invisible costs every clinic covers for its professional its veterinarians and veterinary nurses.

To recap:

• The different types of leave obligations amount to around 20%
• The APC + NZVA rego = 1%.   
• CPD at 2-5%
• ACC levies at 2%
• Insurance at 1%

This means an employer picks up the tab for an additional 26 and 29 per cent hidden employee costs.  

This 26 to 29 per cent is what a self-employed locum has to pay themselves.

Out of their own hourly rate.

That exact same rate some employees think they’re being diddled out of when their clinic hires a locum.

These are the statutory & obligatory costs.

VETSTAFF INTRODUCTION

So let’s translate all these % into some meaningful, real live numbers.

Say, you’re currently earning $50ph (because it’s a nice round number), you’re actually costing your clinic somewhere in the region of $63 - $65 per hour.  

This is because they’re legally obliged to pay you – for all those leave requirements I mentioned earlier - even when you’re not at work.

Locums on the other hand, have to cover – to fund - those leave costs themselves.  

On top of that, a locum also needs to take into count such things as the unpredictability of their earnings.

Now, here at VetStaff, I can pretty much guarantee a locum veterinarian as much or as little work as they want when they want if they’re prepared to travel and/or work out of town.

Some locums are prepared to travel, some aren’t or their personal situation means they can’t.

I know that during Level 4 lockdown, when employees were still being paid by their employing clinics, locums were receiving zero income.  

Therefore, locums need to allow some kind of unpredictability factor into their hourly rate because the chances are high, they’re not going to work even 48 weeks of the year, because they simply don’t want to.

So what does mean?

It means that the $15 or $20 per hour a locum appears to be getting paid more than a regular employee doesn’t amount to a mega salary.  It means they’re probably earning the same as you – maybe a little less, maybe a little more.

Self employed contractor locums may also have other expenses that employees don’t have – for example, accounting fees.

I mentioned in episode #2 that locums are responsible for paying their own tax and ACC levies.  If they want to be self employed but don’t want to be responsible for the financial administration of their business, then they’ll need to pay an accountant to do this for them.

So the next time you find yourself a little narked because you think locums earn wayyyy more than you … OR you get a little resentful because your clinic isn’t giving you a pay rise but is prepared to pay a locum wayyyy more than you, just remember that the clinic is picking up the tab for all these things you take for granted that a self employed locum contractor has no legal right to.

I mentioned in the first of this locum series the laws that cover employees and independent contractors and the privileges employees get in NZ over their self-employed counterparts.  I’ll put the link to that episode in this episode’s show notes.

One thing I would like to say here is that if you’re thinking of becoming a locum because you see it as a way of giving yourself a pay rise, think hard before you do that.

In fact, check out Paws Claws & Wet Noses episode #2 where I covered 11 considerations for you to weigh up about whether the LocumLifestyle is for you or not.

Obviously, if your pay level is wayyyyy behind that of your peers then have a chat to your clinic manager.  Don’t just resign because you think you’ll earn more.  Because that may not end up being the case.

You may end up HATE locuming.

Now, if you’re listening to this and thinking that because it’s already costing your clinic anyway for your annual leave entitlements and you’d like some of that as cash in the bank, let’s have a look at that.

As an employee you can ask your employer to pay out in cash, up to one week of your four weeks’ minimum entitlement to annual holidays per year for each entitlement year. 

You can do this all at once, or can make multiple requests to cash-up until the entire one week is cashed up.

An employer can’t:

• pressure an employee into cashing up holidays – because they’re too busy and can’t spare an employee not to be at work;
• raise it in wage or salary negotiations – for example, at your annual performance review
• make cash up a condition of employment – they can’t bribe you this way
• an employer can’t put a cash-up request into an employment agreement, but can include the process for making a request.

When it comes to requests to cash up annual holidays

They can’t be cashed-up unless the employee asks in writing and has completed 12 months employment. 

Employees may request to cash-up less than a week at a time and can make more than one request until a maximum of one week of the employee’s minimum annual holidays is paid out in each entitlement year.

For example, an employee with an anniversary date of 1 June can ask that up to one week’s holiday that they become entitled to on 1 June be paid out. Their request can be made at any point in the entitlement year that runs from 1 June to 31 May the following year. 

An employer:

• must consider a cash-up request within a reasonable time,
• has the right to say no,
• must inform the employee in writing,
• doesn’t have to give a reason for their decision.

An employer can have a workplace policy that covers all or part of the workplace. 

This policy can state that they don’t have to consider requests for annual holidays cash up. If that is the case, then the previous doesn’t apply.

Payment of cashed up annual holidays

If an employer agrees to pay out some of the employee's annual holidays, they need to pay as soon as they can, usually the next pay day (and keep a record of the date and amount paid). 

The payment must be at least the same amount as if the employee had taken the holidays.

If an employer agrees to pay out some of the employee's annual holidays, but the employer and employee can’t agree on the proportion or payment amount, a Labour Inspector may decide for them.

If an employer pays out a portion of the employee's annual holidays where the employee didn’t ask for the cash up or, if the employer has not been given a written request to cash up the annual holidays from the employee, the employee can both keep the cash up money and still take the portion of annual holidays cashed-up as paid holidays. 

The employer may also face a penalty.

Taking parental leave may have an impact on the amount that an employee is paid when they take an annual holiday and how much a cashed up annual holiday is paid out at.

Inland Revenue has for information about the impact cashing up annual holidays may have on superannuation payments, working for families, child support and income tax. 

Cashing up additional holidays in employment agreements

If their employment agreement provides annual holidays in addition to the minimum four weeks, it may also provide for the additional holidays to be cashed up, for example, if the employment agreement provides five weeks’ annual holidays per year and two weeks could be cashed up, this would be allowed. 

If the employment agreement provides five weeks per year and that all five weeks could be cashed up, then this would go against the Holidays Act 2003 and the employee would not be able to cash up more than two weeks’ annual holidays even with their employer’s agreement.

If you want information on cashing up your leave OR you’re a clinic and would like to know more, then please get in touch with your legal adviser.  

If you don’t have a legal adviser I’m happy to point you in the right direction for one.

This is Julie South and you’ve been listening to Paws Claws and Wet Noses.

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Links mentioned during this episode

Inland Revenue – cashed-up leave payments