The distinction between locums that are an employee versus those that are a contractor is not very clear to most pharmacy owners. And many are potentially making errors in how they are being treated. In the past few months, there has been a lot of discussion regarding the distinctions between employee and contractor following the recent High Court decisions in 2022. These distinctions are not always clear in day-to-day pharmacy life. The impacts though in any misclassification will impact the way pharmacies do their reporting such as PAYG Withholding, GST, payroll tax and Single Touch Payroll reporting. In addition to the reporting, super guarantee (SG) is another important aspect that we need to mention.
Generally speaking, if you are working as a locum employee, you will have more rights such as minimum wages per the applicable awards (Pharmacy Industry Award (PIA) if you are national system employer pharmacies and Retail Pharmacist Award (RPA) if you are state system employer pharmacies), leave entitlements, mandatory notice periods, ability to report for unfair dismissal and many more. It also means that as a locum employee, you serve the pharmacy, your work will be a representative of the pharmacy and you have to follow the rules and duties as stated in your employment contract.
A locum contractor does not have those rights. A locum contractor is an independent party who normally have their own ABN and they only provide a service to the pharmacy. Locum contractors usually charge their own fees by issuing an invoice, can negotiate their own working arrangements and are responsible for paying their tax directly to the ATO. They also need to report the GST to the ATO if they are registered for GST.
In terms of reporting, if you are hiring a locum pharmacist as an employee, pharmacy owners are responsible to report the following:
· Single Touch Payroll (STP) - locum employees have to be paid through payroll system and their wages need to be reported through STP.
· PAYG Withholding – you will generally need to withhold tax from the wages that you pay to locum employees and report this amount to the ATO on your monthly activity statement.
· Payroll Tax – if you are liable for payroll tax, locum employees wages need to be reported under the gross wages section and not contractors section.
· Workers’ compensation insurance – you will need to include locum employees wages when you are declaring your pharmacies’ annual gross wages for workers’ compensation insurance.
Key indicators to differentiate between employees and contractors:
· Remuneration – employees are paid for the time they worked whereas contractors are paid to achieve certain results.
· Amount of control of the work – employees are responsible to provide their personal services to the pharmacy and they have to follow the direction and rules that are set by the business owners including the working hours, location and how the work is done. It also means that you can’t delegate your job to someone else. Contractors have autonomy and have more control of the work. They can delegate works to others and none to minimal direction from the owners.
· Tools and equipment: employees usually do not need to have their own tools and equipment to do their job as they are normally provided by the employer. As for contractors, they use their own tools and equipment to perform the job.
· Continuity of work: employees have an ongoing expectation to work for the business. On the other hand, contractors are only engaged to complete a specific job.
· Financial responsibility and risk: employees bear little to no risk if there are any liabilities or injuries caused by their work. The business is normally responsible for these issues. For contractors, they are exposed to any costs arising from their work and they normally have their own insurance.
Superannuation Implications
A person who works under a contract that is wholly or principally for the labour of the person is an employee of the other party of the contract according to the extended definition on Superannuation Guarantee Administration Act. It means that the pharmacy needs to pay super to their superfund on their behalf.
There are some common errors that we’ve seen on the treatment of Locum Contractors:
1. Locum contractor issues an invoice for the hours worked and the pharmacy only pays the invoice balance and no superannuation paid to the locum’s superannuation fund.
2. Locum contractor added the superannuation guarantee portion on top of their normal charges and expects the pharmacy to pay the superannuation portion to their bank account and not to their superannuation fund.
These 2 errors might cause some problems for the pharmacies such as Super Guarantee Charge (SGC). Pharmacies will be liable for SGC if they don’t pay their employees minimum superannuation guarantee amount to the correct superannuation fund by the due date. Once you are liable for SGC, you will have to lodge an SGC statement. SGC amount payable is made up of the super guarantee shortfall, nominal interest and administration fee. The nominal interest will keep increasing the later you lodge the SGC statement. The administration fee is $20 for each employee for whom the pharmacies failed to pay superannuation to by the due date. All these charges are not tax deductible. So it can be a rather expensive mistake.
The common arrangements that we frequently come across is locum pharmacists are treated as contractors of the pharmacy. They have an ABN, issue an invoice to the pharmacy and no superannuation are paid from the pharmacy to the locum pharmacists’ superannuation fund. They are normally paid for the time they worked, cannot assign someone else to do their work, have to follow the rules and directions of the pharmacy owners and all the equipment used are provided by the pharmacy. These arrangements are typical of employees, not contractors, yet most pharmacies are not treating them this way.
We recommend pharmacy owners review any arrangements that currently exists between your pharmacy and any locum pharmacists and ensure that written contracts for all workers – both employees and contractors clearly outline the nature of the relationship. We understand that each circumstance is different, so pharmacy owners, you need to make sure that you clarify with your accountant to make sure you are compliant, especially with Superannuation requirements.