Physicians: Considering Locum Tenens? 3 Things Doctors Should Know…

By: Scott Sturgeon, JD, MBA, CFP®

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Are you a physician ready for a change of scenery, the potential for an increase in pay, or simply more flexibility from your work schedule? Locum Tenens may be the answer. Essentially contract work for doctors, locum tenens can be a great way for physicians who are burnt out working long hours for a big hospital or even for doctors who are nearing or currently retired to continue practicing medicine without the constraints of a “9-5” job. While there are numerous benefits to working locum tenens, it can also come with some unique considerations that employee physicians may not have encountered before. In this article, you’ll learn 3 major considerations that doctors should make when taking a locum tenens contract to ensure you’re avoiding some of the risks involved while simultaneously using the opportunity to grow wealth and enjoy the flexibility that comes with locum tenens.

In this article, you’ll learn about…

1. 1.Why having a business owner mentality is so important for working locum tenens

 

1. 2.Considerations & topics you’ll want to look out for with any contracts you sign

 

1. 3. Financial planning topics and tax planning you’ll want to address in performing locum tenens work

 

1. 1.Being Self-Employed: A Change in Mentality & Perspective

If you’ve ever worked as an employee, you’ve probably taken for granted a lot of things that go on behind the scenes when it come to the actual operations of your job. Everything from payroll, benefits, tax withholdings, retirement plans, the list goes on and on. When you decide to take the leap and work locum tenens, many of those things go away and you’re essentially left to fill in those gaps. This is where the mentality shift comes into play as you become your own employer. That’s right, taking a locum tenens contract is essentially starting your own business and taking on all of the pros and cons that come with it.

That mental shift is important because to really take advantage of many of the things that come with running a business, there will be a bit of a learning curve. Tracking expenses like mileage, continuing education, licensing, and insurance costs are just a few of the bookkeeping items you’ll need to monitor for tax and accounting purposes. The benefit to doing so is that many of those expenses can be written off against your revenue (i.e. your income) while you’re working.

The insurance element is especially important as your employer has likely taken care of that piece while you were an employee or working for a private practice. Malpractice insurance may be covered by your contract provider, but umbrella policies to cover personal liability, health insurance, and life insurance are all coverage areas you’ll likely be on your own to cover. Ensuring you’re getting that coverage established and choosing the appropriate amount of coverage is important as it can help protect from some of the risk you carry as an independent physician.

As previously noted, taxes are a big piece of doing locum tenens work. Since you’re no longer an employee, any revenue you’re receiving from your contract provider likely hasn’t had any taxes withheld. As a result, you may need to make quarterly estimated tax payments for both state and federal taxes. While that adds an additional element to plan for, there are a number of ways to reduce that tax bill which are discussed later in this article.

2. 2.Contracts are Key

Any time you’re entering a contract to work locum tenens, there are a few key points you’ll want to make sure are clearly defined. Your hope in entering a contract is that you’ll hopefully never need to refer to it as both parties adhere to the terms. In the event something goes wrong though, making sure the contract is drafted in accordance with your expectations is going to be important.

At a core level, your employment contract should define what it is you’re going to be doing, when and how much you’ll be compensated, and what benefits, if any, are being provided in addition to that base pay. Having those elements clearly spelled out is important so that in the event the contract provider doesn’t hold up their end of the agreement, you have more options and potential recourse for how you can proceed.

Speaking of recourse, it’s also important to have contract language that specifies what happens if either party breaks the agreement and what happens if either party wants to end the contract. Think of these as your “out” clauses, basically the ways in which you can mutually part ways without some kind of conflict resulting. Knowing what those terms are is important should you suddenly have to end the contract for some unforeseen reason. In doing so, you want to be able to make sure that if there is some penalty for doing so, it’s not going to be overly burdensome.

3. 3.Financial Planning (And It’s Benefits)

Arguably one of the more important elements of working locum tenens is since you’re effectively your own employer, you’re on your own to determine how the earnings from your new role can be harnessed to work towards your overall financial goals. If you’re looking to eventually become financially independent or retire, what steps will you take to get there using your locum tenens income effectively? If you’re retired, how will your additional income factor into your overall retirement plan? In either scenario, what tax planning can you implement to more efficiently grow wealth and more importantly, use that wealth to pursue what’s important to you?

Ensuring all of these questions have clear answers and are documented in a comprehensive financial plan are important to ensure you’re always working with your goals in mind. Implementing tax advantaged retirement strategies like a Solo 401(k), contributing to a Roth IRA (often called a Backdoor Roth Contribution), and contributing to a HSA (Health Savings Account) are all good strategies to consider implementing. The challenge in attempting to implement these solutions however, is that they aren’t a one-size fits all approach. Financial plans need to be created custom to your individual needs and while working locum tenens can provide a lot of advantages in creating tax advantaged wealth over time, ensuring you’re doing so efficiently and in accordance with your overall goals in life is what’s really important.

If you’re currently working locum tenens or are considering taking a locum tenens contract, we encourage you to schedule a no-obligation call with us. Working with a fiduciary, fee only financial planner can help navigate these kinds of decisions. We can act as your advocate and fiduciary to determine whether various strategies might make sense for you.

 

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