The dos and don’ts of financial planning for locums
Taking on temporary work as a locum tenens is a common early career choice for physicians. It can provide a way for physicians to get experience, contribute to a community, balance work with family, and/or earn some money while seeking a full-time dream job.
Whatever your motivation, here are some tips to help you avoid common financial pitfalls while starting out with locum work:
DO be clear about how and when you’ll be paid
Locum agreements vary widely, depending on the location of the locum, type of practice and specialty. A contract should clearly state responsibilities and detail payment terms. These may range from fee-for-service billings to daily or negotiated rates, as well as potential income from uninsured services, on-call hours or other work. Check whether your provincial or territorial medical association offers a legal contract review service as a member benefit.
DON’T look like an employee
If you plan to claim income tax deductions as a locum, it’s important to stay on the right side of the Canada Revenue Agency (CRA) and establish your status as a self-employed professional. For instance, to be recognized as an independent contractor, you must submit regular invoices to your employer, carry your own professional liability/malpractice insurance, and not be included in a practice’s benefits plan or receive holiday pay.
DO keep track of work-related expenses
Document your work-related spending so that you can claim the tax deductions, including moving expenses, home/office expenses, costs related to a vehicle that is used for work, professional dues and memberships, and insurance premiums. Keep receipts as proof — either paper copies or digital images are acceptable, and mobile apps make it easy to keep track, on the go.
DON’T get hit with unexpected tax penalties
Your first cheque earned as a self-employed physician may feel substantial. But don’t forget that you’ll likely need to pay income tax directly to the CRA in your next income tax filing, and in quarterly instalments after that. Be sure to set money aside so you can pay the taxes owed, by the deadline, to avoid having to pay interest and penalties on the outstanding amount. You may already know that most insured health and medical services that physicians provide are exempt from GST/HST, but the exemption may also apply to other services you perform — it’s best to check with your accountant.
DO consider incorporation
As you start earning more, there may be advantages to incorporating your medical practice. This establishes your business as a separate legal entity. One benefit is that small business tax rates are much lower than personal tax rates. And any business earnings you don’t draw as income can be left to accumulate and grow tax effectively in a separate, corporate account. Whether incorporation is right for you depends on a variety of factors. An MD Advisor* can help you decide what’s best.
DON’T rush into your own practice
The business of medicine is evolving, and working as a locum may give you first-hand experience with different business models. You may see many different ways to administer and to manage billings, payments, staff and office expenses. Who knows, you might even find a great mentor or role model in a host physician!
DO verify your medical liability insurance coverage
In addition to your permit to practise in the province or territory of the locum, ensure you have the required practice-related insurance or Canadian Medical Protective Association coverage for procedures you may be expected to perform, such as assisting in surgeries or providing hospital emergency department coverage.
DON’T neglect your own security net
As a physician, your ability to earn future income is one of your most valuable long-term assets. You don’t get sick leave as a self-employed physician, so it’s a good idea to reinforce your financial security net. Disability insurance income can replace part of your earnings, if an illness or accident prevents you from working. Life insurance, which protects your dependants, is also important to consider. And the earlier you begin your insurance coverage, the lower the premium rate. It’s worth talking to a specialist about why you need life and disability insurance.
DO chip away at those debts
Even with variable income, you can work at reducing any lingering student debt. In fact, a locum placement might provide an opportunity for you to erase student debt through the Canada Student Loan forgiveness or a Return of Service program in your province or territory.
If you’ve had a line of credit since you were in full-time studies, review how its terms and conditions may change as you transition into practice. Plan to steadily repay loans when you can — and ease back in leaner months — to shrink any balance owing.
DON’T be afraid to use your line of credit
Cash flow may be unsteady as you ride out downtime between locums or wait to be paid. A line of credit can bridge the gap until your income steadies, and it provides a financial cushion in case of emergencies. It also provides a much less expensive way to borrow than using credit cards, which have higher interest rates.
DO establish good financial habits
The financial planning considerations of working as a locum will serve you well in the transition to your own practice. Self-employment will likely provide an incentive for you to take control of your finances and to budget day-to-day, while establishing short- and long-term goals for your life and your practice.
DON’T feel like you have to do it all at once
At this stage of your career, you may well be managing work expenses, repaying debt and coping with erratic income: you may feel that it’s a stretch to contribute much to a savings account or retirement savings plan right now — and that’s okay.
An MD Advisor can help you with all your financial planning needs as a locum and full-time physician. Financial planning is an ongoing process of setting priorities at each stage of your life and career, in line with your goals, your obligations, and what’s next.
* MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.