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What Cut Do Locum Agencies Take Of Your Pay?

This article is going to get me in a bit of hot water with my colleagues in the industry, because I am going to reveal how locum agencies are paid, and how much we charge. It was one question in a survey we conducted last week that has brought me to do this.

The survey was to gauge attitudes doctors had towards locum agencies. And even though I have been working in the industry over thirteen years now, some of the responses shocked me. One of the biggest surprises was the perception that locum agencies take a cut of what locum doctors make. In fact, more than 60% of respondents to the survey had this view. Here are some of what the participants had to say:

 

“The more people and organisations that are involved in the process, the more overheads that will come off my final salary.”

“Typically the agency’s “commission” is double your hourly rate plus some. There’s lots of need for doctors in regional areas. A locum agency is nothing more than a job ad site. Only difference is they leach off the knowledge and expertise of doctors for some coin.”

“It would be good to be able to remove them from the equation.”

 

So is there truth to the statement that locum agencies will take a cut of what you make? The answer, of course, is yes and no.

First, let’s have a look at how the locum industry currently works in Australia. I am going to focus on hospitals, because that is where the bulk of the work is, however the same structures tend to apply for locums in GP practices, and other situations like offshore work and mines. This is how things tend to happen:

  • Agency starts
  • Agency signs up clients (hospitals)
  • Agency signs up candidates (doctors)
  • Agency receives locum shifts from hospitals (usually by email, in their thousands per week)
  • Agency puts doctor forward for shifts
  • Doctor works, and gets paid
  • Agency gets paid

Ok, so probably no surprises there. Naturally, there is a lot that happens in between, but for now let’s focus on the payment part.

Most hospitals in Australia pay locums directly. That is, they are engaged as an employee, a sole trader (ABN), or company. So, the agency isn’t actually involved in the payment of the doctor. If the advertised rate is $150 per hour, the doctor gets $150 per hour.

The agency will charge a fee to the hospital based on a percentage (between 8% and 25% – usually around 12-15% on average) of the rate paid to the doctor. So, assuming the doctor works a 10 hour shift at $150 per hour, the agency gets paid a $225 fee at 15% (for the entire shift). Sometimes, the agency will charge a set agreed rate per hour, depending on the seniority of the locum, rather than a percentage. None of that comes out of the your pay, and it’s unlikely that the hospital would add the agency fee to your rate if you decided to work for them directly.

Having worked in the public health system as a health services manager, I can say from my experience that locum rates and agency fees are considered completely different budgets (actually, agency fees are rarely actually budgeted for, they just add to the deficit!). What this means for locums is that they will be paid the same regardless of whether they are with an agency or not (or even more in some cases, because we negotiate). So, it’s not the case that the agency fee is subtracted from what you are paid. In fact, almost 60% of respondents to our survey agreed with the statement “By working with a locum agency, I will make more money”.

There is another model (most common in QLD) where the hospital pays the locum agency a set rate, and the agency pays the doctor out of that amount. So, say the hospital pays $2000 per day, and the agency pays you $1800 per day, their fee is $200 per day. If you are working in QLD, and you are curious about how much your agency is charging, just have a look at the QLD policy, which contains all of the rates agencies are paid. If you think your agency is taking too much of a ‘cut’, discuss it with them and see if it is flexible. Keep in mind, though, that often the agency needs to cover the cost of your superannuation, payroll tax, insurance, payroll staff, etc on top of what is deposited into your account.

Before your outrage starts, and you say “I was right, you do take a cut! I am going to hospitals directly!”, consider that many hospitals in QLD prefer to work with agencies because we do a lot of the upfront admin work for them. Right or wrong, that is the system.

Recruitment agencies are businesses, and their reason for being is to make money. It may sound cold, but everything else is secondary to that. The costs of running a locum agency include:

  • Staff
  • Advertising
  • Insurance (very significant cost)
  • Accreditation
  • Ongoing staff education
  • Offices
  • Phones
  • etc

 

And, for the most part, locums receive a free service from agencies. Naturally, you don’t have to work with an agency, and it is your choice. Of course, there are benefits to working with a locum agency, but it depends what you want out of locum work. If you have ever worked with a great recruiter, you would know the value that they offer, especially when things become complicated, or you need someone to do the leg work for you. I agree that some recruiters are no better than a job board, and it is a downside to the variability in our industry.

 

 

 

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