7 October 2015

Locums – What are the issues?

The use of the term “locum” can cause consternation. It is used in a variety of ways, lacks any legal definition yet remains a significant legal issue. The principle concern when adopting this term is how to ascertain the legal status of the role. This has implications for both taxation and legal rights and obligations. This article explores the various meanings of the term locum, investigating the potential pitfalls and the options are available to those engaging locums.

What is a locum?

In its basic form, the term locum means a person who stands in the place of another.  However, the term is not used universally. From a legal perspective, it can be used to describe various atypical working relationships.

The term itself has no special legal meaning save that it is generally used to describe someone who does not work on a permanent basis. It is, therefore, apt to cover a variety of recognised categories, notably: temporary, seasonal, casual and agency workers. This might suggest an informal relationship with little obligation on either side. However, the parties should not be lulled into a false sense of security. Locums can acquire employee status and thereby gain significant employment protection. Moreover, should HMRC decide the locum is an employee, it is empowered to recover the relevant tax and NI contributions based on employment status.   

To complicate matters, the status of a locum can change over time. Take, for example, the instance of a casual locum who suddenly commences a regular pattern of work and can establish a contract of employment. In this scenario it is possible they have moved from being self-employed to employed.

So responding to the question, “What is a locum”, one really would have to answer “it depends”.

What to be aware of

Given the impact outlined above, it is important when engaging a locum to identify their status. Are they an employee, self-employed contractor or a worker? This determination will in turn govern what rights a locum has and how they should be treated.

An employee works under a contract of employment and enjoys far more rights than a worker. For instance, employees can claim unfair dismissal, redundancy, maternity and statutory sick pay.

Workers have more limited rights. These include rights under national minimum wage and the working time legislation. They are also protected from discrimination because of various characteristics (e.g. race and gender).

Self-employed status is for those running a business on their own account and have no obligation to render personal service. Such individuals have no employment rights, although they are protected from discrimination.

It must be highlighted that locums sometimes supply services through an intermediary, usually a serviced company. The intermediary hires the individual to the practice in exchange for a fee, and the individual then receives remuneration, typically in the form of share dividends from the intermediary. It is important to note that this arrangement does preclude the individual from being an employee. To determine status the parties need to look at the factual arrangement as if the intermediary did not exist. If the individual would be an employee but for the intermediary, they will be classified as an employee.

The most common issue we see is where the parties want to treat, or have treated, the locum as self-employed but the working arrangements reflect something different.  The law is not concerned with the label given by the parties but how the contract was intended to operate.

Getting the status wrong is a risky step. For example, when the practice ends the contract, the locum may have acquired protection from unfair dismissal and may even claim for backdated employment rights such as holiday pay. Then, of course, is the prospect that HMRC come knocking. It is essential the parties properly structure the relationship to reflect what they’re aiming to achieve.

How to determine the working status of locums

In establishing the locum’s status, a tribunal will first look to see if the parties have contracted for what are termed the “irreducible minimums”. These are required to form a contract of employment:

  1. 1. Mutuality of obligation: Does the locum have an obligation to work for the practice and does the practice have an obligation to offer the locum work? It should be noted this can arise in respect of several discrete contracts which, if occurring every week, may convey employment protection;
  2. 2. Personal service: Does the locum have to perform the contract personally or can they provide a substitute in their place?

Beyond these minimums, the tribunal will consider multiple factors which can point towards and away from a contract of employment. The main considerations are:

  1. 1. Can the locum decide when, where and how they will work or does the practice control the locum?
  2. 2. Does the locum negotiate their own fees?
  3. 3. Does the locum work for more than one practice?
  4. 4. Do they provide their own equipment and cover their own expenses? This point is a practical consideration. In reality for self-employed status a tribunal will look to see if the individual has scope to make their own profit.

If, having gone through the above factors, the status remains unclear the parties can ask HMRC to make a determination. This, however, this will not be binding on an employment tribunal.

What to do when a locum is really an employee

If you realise that a relationship you have been describing as a self-employed is, in all reality, an employment relationship, there are a number of options available though time will likely be of the essence.

One option is to continue the status quo and maintain the relationship in its present form. The risk of tax and tribunal claims is relatively high for both the period before realising the true status of the relationship and for the continuing contract.

Alternatively, the parties can agree to change the arrangement so that it is a genuine consultancy agreement. For example, the locum could undertake work for other practises or they could set their own hours and way of working and provide a substitute if they are unable to work. There is still a risk of tax penalties with regard to the period before the arrangement was clarified, but you will no longer be in breach of the tax rules going forward.  In pursuing this option it will be necessary to bring the previous employment relationship to an end. This can be done by mutual agreement which does not constitute a dismissal. However, it will be sensible to have the locum sign a settlement agreement in respect of any accrued rights.

The final option is for the practice to dismiss the locum and offer to engage them on a new agreement as a self-employed contractor. The viability of this option will depend on the duration and circumstances of the contract; locum may already have acquired employment rights including protection against unfair dismissal (presently 2 years). This option would need careful consideration.

The contract

The most useful tool in dealing with this issue is the written contract. This will not only set out the parties understanding of the arrangement, but also the relevant contractual obligations from which status can be determined. This avoids ambiguity. It is also worth remembering that a contractual agreement has adequate protection for both parties. Although the arrangement may be casual and ad hoc, we would still recommend including;   

  1. A status clause expressly setting out the working status of the locum as a consultant and not an employee or vice versa;
  2. Consider the need for a substitution clause;
  3. Set out the parameters of the working relationship including how to end the relationship;
  4. What insurance or indemnities does each party require? Is the practice vicariously liable for the acts of the locum?   
  5. Confidentiality if, for example, the locum is dealing with sensitive material.
  6. Post termination conditions restricting the locum’s right to do work for competitors.

Prevention is always better than cure so it is worth considering these matters ahead of any locum engagement.    

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About the Author
Rachel Roberts, Senior Associate Solicitor
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