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: