Register an Assignment
Register as a LocumGetting paid as a locum
This is one of the most common questions we get asked in our daily work with locum solicitors, and very often the queries are around a) getting paid, and how to do it, and b) how to insist on regular and prompt payment.
This article looks at both of these issues, and is broken into two sections.
The best way of getting paid
We have about 1,500 lawyers registered with us for locum or consultancy work, and the easiest way of answering this question is simply to say that over 95% of these lawyers will work on a self-employed basis and invoice any firms they work for at the end of each week. Some of them will work via limited companies, but a good majority will simply work in their own name, as self-employed lawyers.
Self Employed Status
There are some very good reasons for this. Firstly, the administration involved in simply issuing an invoice at the end of each week, and then completing a self-assessment form at the end of the year, to declare the earnings to HMRC is very limited. Locums register with HMRC as being self-employed via an online form, and then just need to keep a record of all their invoices ready to submit via the self-assessment system for paying income tax. Secondly, it is one of the easiest ways of getting paid, because the firm simply pay you directly into your bank account, and the convention in the legal profession is that, after you’ve submitted your invoice, three days later, payment is made to you. The majority of our clients are very used to doing this, and there are not usually any issues when it comes to getting paid.
Limited Company
Working via your own limited company is pretty much the same, other than the invoices are in the name of your limited company, and you will need to do an annual return to Companies House, and a corporation tax return to HMRC, as well as self-assessment for income tax for yourself. You can now complete the corporation tax return yourself, and you do not need to use an accountant, but if you do decide to employ an accountant, and the majority of people do, just to be on the safe side, you can expect an additional cost, in the region of about £300 to £600, for a very basic limited company that has just been providing your services to external clients.
Umbrella Companies
The key method of payment that you probably don’t want to look at using is umbrella companies, which are, in essence, the same as having your own limited company, except somebody else runs it for you, and a good number of umbrella companies are set up in a way to ensure you pay the least tax possible. Umbrella companies are sold heavily by the companies who provide the service, because they do generate quite a lot of income for the finance houses who run them.
IR35 Fun
Our experience of them is a bit mixed, and we usually only recommend them in circumstances where a company or organisation are insisting on using one because of any issues with IR35. If an organisation decide that the services you are providing fall within the remit of the IR35 tax regulation, affecting the way your tax is done, then it is possible you will need to use the services of an umbrella company to get round this, rather than issuing invoices in your own name. A good number of the umbrella companies are set up to be IR35 compliant, so you may find, occasionally, that some larger clients, who have a blanket policy when it comes to IR35 compliance, will require you to use an umbrella company.
This would be the only circumstance we would usually recommend the use of umbrella companies, because, for the vast majority of our consultants and locums, they simply add an unnecessary expense and level of administration into the process. Not only that, but most of them can be a total nuisance when it comes to dealing with clients. We have had numerous complaints over the years about umbrella companies ringing up clients and their accounts departments, and pestering them for information, which of course means that, suddenly, recruiting a locum turns into a bit of a headache for the firm. Think carefully before you use an umbrella company, because it can affect your relationship with your firm and client.
Summary – Self-Employment is Best
So, in summary, we think the best way of operating as a consultant or a locum, wherever possible, is simply to work on a self-employed basis. It seems to be the most cost-effective and efficient way for a single, one-man or one-woman locum service to operate, and our clients seem to be quite happy with it.
Getting paid promptly
This is an occasional bugbear for locums. Firms take on a locum, the locum does lots of work, the firm don’t pay, or, in some really bad scenarios, the firm launch a complaint the moment the locum chases up their unpaid bill.
Blanket Policy
There are firms out there who seemingly have a policy linked to not paying locums, and you can almost expect the same response if you were to work for the same firm on more than one occasion. Each time you submit an invoice, they don’t pay. You chase the invoice, and the firm suddenly come up with a selection of complaints that have been made about the poor quality of your work.
Never Give Up
Our advice to any locums who face this situation is not to give up on the outstanding invoice, unless you are aware that your work has been below par, in which case you probably need to start negotiating with the firm quite rapidly in order to get some kind of payment off them. However, for the vast majority of locums. this is simply going to be a bargaining trick used by the firm to get out of paying you anything, in the hope that if they intimate that there has been a complaint, that you simply don’t push the invoice.
Letter Before Action
Our recommendation would be to always push the invoice, if you’re sure about the quality of your work, and stick to your guns. The easiest way of doing this is simply to issue a letter before action, outlining the money that’s owed, providing a copy of the invoice, indicating the payment terms that they have breached, and giving them 14 or 28 days to pay, depending on their structure.
If the firm then come back to indicate they intend to defend because there have been a string of complaints, you could ask them for copies of the complaints, or details of the complaints, so you can consider them. Do not hold up your proceedings to enable the firm to do this, as if they are doing it for nefarious purposes, then this is simply another way of stalling the payment to you.
Stick to Deadlines
Stick to any deadlines that you give to firms. If you give them any sign that you may waiver a deadline, and not stick to it, then any unscrupulous firm will immediately not stick to it, and see what you do next.
An example of this for us as company was a law firm in the South East who owed us a reasonable sum. We issued a letter before action for payment in full. The firm responded to say that they were very sorry and planned to respond to the letter before action in 10 days time. We then get to the end of the 14-day period without a response, so we chase up the firm who indicate they are very sorry and plan to pay in three instalments, which we agree to. Unfortunately the firm then fail to stick to the proposed instalment plan.
I give this particular example, because it demonstrates that where we showed a sign of flexibility and willingness to compromise, they immediately seized upon it as a weakness and decided not to pay. We ended up issuing proceedings on this one and the firm paid up.
Non-Payment of Suppliers
This type of operation is quite common, and we do see it from time to time with law firms, where the firm almost have a policy of not paying their suppliers until they absolutely have to. The key to dealing with this kind of operation is simply to make sure that, wherever you do issue a deadline, you stick to it rigidly, so that the firm know, if they miss a deadline, you will immediately issue proceedings against them.
Lovely (non-paying) Firms
Quite a few locums get in touch and say they’re almost embarrassed to chase the fee owed, because they worked with the firm, thought they were very nice, thought they were helping and doing a favour, and then the firm don’t bother paying them.
We always work on the principle that we have provided a service, as recruiters, or in whichever capacity we are working, you have provided a service, as a specialist locum, providing your time to help them to help a particular client, and then they have chosen not to pay you. This, in our opinion, is a breach of the trust between the parties, that a professional service is provided with the understanding that it is paid for.
Sometimes firms get in touch with locums to explain that they have not got much money, and are in need of further time in order to pay. We understand this, and some locums are quite flexible with firms, and will give them time to make payment, but our advice would be to give the firm a specific deadline for making payment, and ask for a part payment up front immediately, so at least you’ve had something from the assignment. The danger with letting the firm delay paying you is that if they go into administration, or are insolvent, you’ll get absolutely nothing back, and simply turn into a creditor in a long list of creditors.
Some firms, in the past, have been astonishingly effective at building up a massive debt with a whole load of different creditors, selling their firms to one of the national law firm buyers who take over the firm once it’s gone into administration because they’ve done a deal with the insolvency company, and the seller has walked away without actually paying any of their suppliers.
Summary
Our advice is that it is okay to think about the financial position of any clients you work for, and if they do ask for time to pay you, then we understand that some locums will feel an urge to help these clients. It is, after all, only human to want to help someone else. Our advice is, however, to be very strict with any clients who do not pay you in full immediately within three working days, and just keep reminding yourself that this was a business arrangement that they entered into, they knew they were going to have to pay you, and they knew that that payment would need to be within three days, at the end of each working week. The firm have breached your trust by failing to pay you when they were supposed to and they have left you to deal with your own financial situation without any support at all. For this reason, we would usually recommend pushing for action very quickly. Just keep thinking – if this firm go bust tomorrow, how much money will I get, and is it fair of them not to have paid me for work I have completed.
Finally, a quick note to say that we know some locums enter into locuming having never been in business, and so not understanding that when you are working as a locum you are operating on a business-to-business basis with any clients you take on. You are not an employee, and you have no protection if anything goes badly wrong, in terms of payments made to you. For this reason, you need to be very strict with your procedures for ensuring prompt payment.
