Let's Talk about Locum Tenens

March 27, 2023

Let's Talk about Locum Tenens

Until recently, locum tenens was a little-known and niche option. Stability and growth within one company seemed preferable to most providers.

Knowledge of the termLocum Tenensand the implications of working locum tenens is still not widespread. This post will cover the main financial considerations of working as a Locum Tenens for those considering this exciting and potentially advantageous option.

KEY Learning Objectives:

·      There are pros and cons to being a locum tenens physician

·      As a business owner, a locum tenens physician has many more options for retirement savings than a W-2 employee

·      With greater opportunity also comes greater risk. Locum tenens physicians do NOT have access to group benefits and are responsible for their own risk management

What is a Locum Tenens Physician?

Locum tenens is a Latin phrase meaning “to hold a place.” A locum tenens physician fills a position in a hospital or private medical practice on a temporary basis. Periods range from a few days to a few months. Locum tenens physicians can help fill the gap and provide relief to Hospitals and clinics to help them avoid staff burnout. Locum tenens physicians can provide a great benefit to short-staffed hospitals and medical practices. But the position also comes with benefits of its own for the physicians filling these roles.

Advantages

·      Higher hourly rate compared to permanent positions

·      Ability to write off expenses as a business owner

·      Dramatically greater control over your own retirement planning and benefits

·      Travel across the country if desired

Working as a locum tenens physician can have major financial advantages. In most cases, hospitals are willing to pay more when they are desperate to temporarily fill a position. This typically results in a higher hourly rate than if you were a permanent full-time employee. It also helps that as locum tenens, you will be taxed as an independent contractor. This means many of your business and travel-related expenses are tax deductible.

In addition to the financial benefits, If you love traveling, working as a locum tenens physician allows you to travel and experience different parts of the country. Working in these positions also gives you added flexibility. You can decide when, where, and how much you would like to work.

Disadvantages

·      Time away from home & family

·      No Employee Benefits Package

·      Responsibility for all taxes and expenses

·      Revenue will differ from job to job and year to year

While working as a locum tenens physician comes with many advantages, there are several drawbacks. While travel can be fun and exciting, you may find yourself homesick after a few jobs. This is especially likely if you are a parent and unable to move your spouse and children around the country. If you only work near your home, traveling back and forth to different hospitals can be exhausting. All the driving time should be considered when weighing an offer. You will also have to meet new co-workers and learn new policies at each facility.

You must also remember that as an independent contractor, you will not have the typical employer benefits package. This can include a 401k/403b/457b; health, dental, and vision insurance; group life insurance; and group disability insurance. It will be your responsibility to create your own retirement account and make sure you are appropriately insured. It is important to get quotes for these additional costs and weigh them against the enhanced compensation.

Finally, your income and expenses are likely to fluctuate from one assignment to another. It is important to weigh these pros and cons before deciding to pursue a career as a locum tenens physician.

Saving for Retirement as a Locum Tenens

·      Solo 401k

·      SEP-IRA

·      Defined Benefit Plan

Although you will not have an employer-provided retirement plan such as a 401k/403b/457b, you will have several options and enhanced control when it comes to retirement accounts as an independent contractor. These include Solo 401k, SEP-IRA, and defined benefit plans, among others.

The Solo 401k (or individual 401k) is a terrific retirement planning tool for independent contractors. They operate similarly to 401ks provided by employers; except they are designed for businesses that have no employees (besides the owner’s spouse). In 2023, these accounts allow you to save up to $22,500 ($30,000 if age 50 or older) in “employee” contributions, just as a standard 401k. However, since you are technically both the employee and employer, you are able to make an additional “employer” contribution. As of 2023, this contribution can be equal to 50% of your net income, up to a maximum contribution of $66,000. If you are over 50, the maximum contribution goes up to $74,500.

You can also set up your solo 401k to allow for Roth contributions for your employee contributions — the employer portion of the contribution will always be pre-tax. However, given your significant income as a locum tenens physician, it is typically best to max out your pre-tax contribution to help reduce your taxable income.

Another option you have available is a SEP-IRA. These accounts are somewhat simpler to open than a solo 401k and have the same maximum contribution limit of $66,000 in 2023. However, you are only able to contribute up to 25% of your net income in any given year. Therefore, you would need to earn $264,000 of net income to be able to contribute the maximum of $66,000. An advantage of these accounts is that you are eligible to make contributions until Tax Day (typically April 15) of the following year, giving you a few additional months to max out your contribution. Please note, most Owner only (Solo) 401k plansALSO HAVE a SEP optionbuilt in from inception. But contributions must be made by Dec 31st.

Additionally, you can establish a defined benefit/cash balance plan, after maxing out your 401k and SEP contributions. This is a less common option for independent contractors looking to save for retirement as most do not have enough revenue to max out both a 401k and SEP. However, if you have significant 1099 income, this type of account can be a gem! This type of account can make significantly higher pre-tax contributions. These contributions can be as high as $166,000 per year, depending on your age and other factors.

Risk Management

One of your most significant concerns as an independent contractor physician is managing risk. There are 5 major categories of risk that most physicians will need to insure against at some point during their lives:

1.   Liability

2.   Illness/Injury

3.   Disability/loss of ability to work

4.   Premature Death

5.   Loss of expensive property

It is essential to cover both your professional and personal liability. Professionally, you need to have malpractice insurance, which will typically be provided by the locum tenens agency. To cover your personal liability protection, you will utilize several types of insurance. These include auto insurance and renter’s/homeowner’s insurance. It is also vital to have an umbrella policy that sits on top of the coverage provided by your auto and renter’s/homeowner’s policies to provide additional personal liability coverage. Umbrella coverage usually comes in increments of $1,000,000, and you want to cover your net worth in umbrella coverage roughly. Therefore, you will need to increase your coverage as your net worth grows.

Please keep in mind, as a medical provideryour single greatest asset is your income. With that in mind, it is critical to have disability insurance in place to protect your income in the event a disability left you unable to work. The key is to purchase a policy with an own-occupation,specialty-specific definition of disability. You also need to protect your loved ones in the event you were to have a premature death. This is typically best accomplished throughterm life insurance.

Choosing a Business Structure as a Locum Tenens

As an independent contractor, you are a separate business entity from the locum tenens agency and the facility where you work. As a separate business, you will have to get a federal Employer Identification Number (EIN). It is also important to open a separate bank account to keep your personal expenses and income separate from the business. You should also be aware that because no employer is withholding taxes for you, you may want to make quarterly estimated personal tax payments to the IRS. As a business owner, we strongly recommend hiring a CPA to handle your taxes.

Let’s talk about how to structure your business. The basic options are sole proprietorship, partnership, C corporation, S corporation, and limited liability corporation (LLC). Before making a decision on which to use, you should discuss these options with a CPA and business attorney in your state.

While this process may seem daunting, we are here to help you every step of the way! Would you like to know more? Schedule a complimentary meeting with Ryan today.

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.