Pharmacy Locums & Payroll: What You Need to Know About PAYE vs Self-Employed
Locums play an essential role in the pharmacy sector, helping ensure that operations continue smoothly, even during periods of employee absence or high demand. However, when it comes to paying locums, pharmacy owners often face a key question: should they treat their locums as employees under PAYE (Pay As You Earn) or as self-employed contractors?
At Pharmatax, we understand the importance of getting this right to avoid unnecessary tax complications and potential HMRC scrutiny. In this post, we’ll explain the key differences between PAYE and self-employed locum arrangements, and provide guidance on which option might be best for your pharmacy.
1. Understanding PAYE Locums: What Does It Mean for Your Pharmacy?
What is PAYE?
PAYE (Pay As You Earn) is the system by which employers deduct income tax and National Insurance contributions (NICs) from employees’ wages before they are paid. Under PAYE, the employer is responsible for ensuring the correct amount of tax is deducted, reporting it to HMRC, and paying the tax and NICs to HMRC on behalf of the employee.
When to Use PAYE for Locums:
You should treat a locum as an employee under PAYE if:
There is an employment relationship: If the locum works regular hours, follows your pharmacy’s policies, and is controlled by you in terms of how and when the work is done, they are likely to be considered an employee.
You control the work: If you dictate when and where the locum works, as well as the terms of their work, they may not be self-employed.
You provide equipment or resources: If you provide the locum with equipment or work tools to do their job (like a computer, uniform, or a workspace), they may be considered an employee.
What It Means for Your Pharmacy:
Employer responsibilities: As the employer, you must manage payroll, deduct tax and National Insurance contributions, and provide payslips for PAYE locums.
Statutory entitlements: Employees under PAYE may be entitled to benefits such as sick pay, holiday pay, and maternity leave, depending on their employment contract.
Tax advantages for locums: PAYE locums may find that the tax deductions are straightforward and automatic, reducing their administrative burden.
2. Self-Employed Locums: How Do They Work?
What is a Self-Employed Locum?
A self-employed locum is an independent contractor who is responsible for their own tax and National Insurance payments. Unlike PAYE employees, self-employed locums do not have taxes deducted at source by you, the employer. Instead, they file their own tax returns with HMRC and pay their own tax and NICs directly.
When to Use Self-Employed Locums:
You should classify a locum as self-employed if:
They are free to choose their working hours: If the locum has flexibility over when and how they work, they are more likely to be considered self-employed.
They work for multiple pharmacies or employers: If the locum works for several businesses (not just yours), this is a strong indicator of self-employment.
They supply their own equipment: Self-employed locums typically bring their own equipment, tools, or supplies to do their job (like a laptop or medication dispensary tools).
You do not control their work: If you do not control how the locum performs their duties and they have the freedom to make decisions in their role, this is a sign of self-employment.
What It Means for Your Pharmacy:
No PAYE responsibilities: As the employer, you are not responsible for deducting income tax or National Insurance from the locum’s pay. However, you will need to ensure they are registered as self-employed and issue invoices for their work.
No statutory benefits: Self-employed locums are not entitled to statutory sick pay, holiday pay, or maternity leave from you.
More administrative work for locums: Self-employed locums need to handle their own tax filings and pay their own National Insurance contributions.
3. Key Differences Between PAYE and Self-Employed Locums
Here’s a quick overview of the differences between PAYE and self-employed locum arrangements:
PAYE Locum Self-Employed Locum
Tax and NICs: Deducted by the pharmacy via PAYE. Locum is responsible for paying their own taxes
Control over work: Pharmacy sets working hours and conditions Locum has control over working hours and method
Entitlement to Benefits: Eligible for sick pay, holiday pay, etc. No entitlement to statutory benefits from employer
Workplace Resources: Pharmacy provides equipment and resources Locum supplies their own tools and equipment
Employment Status: Considered an employee under employment law Considered an independent contractor
Why It’s Important:
The distinction between PAYE and self-employed status is important not only for tax purposes but also to ensure that you comply with employment laws. HMRC has specific criteria for determining whether an individual is genuinely self-employed or if they are, in fact, an employee. Misclassifying a locum could result in fines or penalties for your pharmacy.
4. The Risks of Misclassification
Misclassifying a locum as self-employed when they should be treated as PAYE, or vice versa, can lead to serious consequences. HMRC takes misclassification seriously and may impose penalties, fines, and require you to pay unpaid tax and National Insurance contributions.
To avoid risks:
Carefully assess each locum’s working arrangement: Are they truly in control of their work, or are you dictating the terms?
Consult with an accountant or tax professional: If you are unsure whether a locum should be classified as PAYE or self-employed, seek professional advice to ensure compliance with HMRC rules.
5. How Pharmatax Can Help
At Pharmatax, we specialize in helping pharmacy owners navigate the complexities of PAYE and self-employed locum arrangements. We can help you:
Determine the correct classification for your locums based on HMRC guidelines.
Manage your payroll for PAYE locums, ensuring you stay compliant with tax and NICs requirements.
Assist with tax filing for self-employed locums, ensuring they understand their responsibilities and deadlines.
By working with Pharmatax, you can ensure that your locum payroll system is set up correctly and compliant with all tax regulations, saving you time and avoiding costly mistakes.
Contact Pharmatax Today
📞 Call us at 02476017778
📧 Email us at info@pharmatax.co.uk
🌐 Visit our website at www.pharmatax.co.uk
