Working as a health professional can be challenging, especially during these unprecedented times.

Reviewing and understanding your income and tax structure is not often high on your priority list at work.

But there are important income and tax factors for employees and locums to consider while working in the health sector.

Here are the main differences between working as an employee and a locum:

Working as a healthcare employee in a hospital

Working as an employee in a hospital provides security and certainty. As an employee, you will usually be engaged on a set salary package based on either permanent full-time, part-time or job-share arrangements.

You will be paid a salary on a regular basis, with some tax withheld from your salary and remitted to the Australian Tax Office (ATO).

You will be granted employee entitlements such as annual leave, sick leave and long service leave, as well as maternity or paternity rights.

Superannuation will also be paid by your employer and you will be covered under your employer’s WorkCover policy.

As an employee, you can also consider salary packaging benefits, ranging from phones to cars.

Salary packaging is where you agree to receive less income after tax in exchange for your employer paying for benefits out of your pre-tax salary.

Public and not-for-profit hospitals are some of the lucky employers who do not have pay to fringe benefits tax (FBT) on a list of eligible expenses paid for on behalf of employees using pre-tax salary up to a cap limit.

As an example, employees in public and not-for-profit hospitals may be able to reduce their taxable income by up to $9,010 per year by salary packaging that amount in living expenses such as groceries, power bills, and mortgage or rent repayments.

Working as a locum doctor in a hospital

The other common way to work in a hospital is as a locum, such as a locum doctor.

A locum doctor is someone who is temporarily placed to fill a vacant position in a hospital or practice, so they are essentially a self-employed contractor.

Locums normally charge a much higher rate than the normal employment pay rate, as they basically absorb all of the ‘employment costs’.

These are some of the things to consider when starting out as a locum doctor:

ABNs, GST and tax invoices for locums

You will need to apply for an ABN (Australian Business Number) to be able to work as a locum doctor. You will be required to issue valid tax invoices stating your ABN for services provided.

Furthermore, if you earn more than $75,000 per annum, you will be required to register for GST.

Once registered, you may have to charge 10% GST on your services to the hospital or locum agency.

However, some services are GST-free, so it’s best to check with your advisor to confirm whether your services are subject to GST.

Even if your services are GST-free, registering for GST will allow you to claim any GST on your expenses.

You will be required to account, report and pay your GST through quarterly Business Activity Statements (BAS) to the ATO.

Learn more about tax registrations for healthcare professionals here.

Cash flow and taxes for locums

As your taxes are not withheld automatically by who you are working for, it is important to ensure that you set aside sufficient funds to cover your taxes by the end of the financial year.

Your advisor can work through the impact of tax and how much to set aside for your year-end tax obligations.

As you are not going to be paid a regular salary as a locum, it is essential that you properly manage your time in order to keep a regular working schedule and income.

It is unlikely that you will receive sick pay, while some conditions like maternity or paternity rights may differ in some states.

Superannuation for locums

You are expected to pay your own superannuation, although in some circumstances you may be eligible for superannuation entitlements.

Superannuation contributions that you pay can be claimed as tax deductions up to a limit of $25,000 per financial year.

Indemnity insurance and WorkCover for locums

You may be required to take out certain types of insurance/indemnity cover before you commence a locum position. You may also be responsible for organising your own WorkCover.

It also important to note that independent contractors are classified differently according to the state or territory they are working in, so it is best to check any relevant laws before commencing work as a contractor.

LDB can help healthcare professionals and locums

The income and tax implications are vastly different for healthcare employees and locums, so it is essential that you consider all the relevant issues before deciding on which income structure is best for you.

At LDB Group, we have worked with numerous health organisations and professionals, and have expertise in advising on tax for medical professionals and how to structure a medical business.

To find out how we can assist you, please get in touch by calling (03) 9875 2900 or send us details via the contact form below.

This article was compiled by LDB Senior Manager Adam Betts and Senior Accountant Sylviana Martinus.