Cost comparison – substantive v locum consultant

by TheEditor

Categories: Investigative, Management

The purpose of this analysis is to make sense of a comparison of substantive pay v locum hourly rates. [AC_PRO id=913]

Introduction

Recently at what was supposed to be a selection interview – set up by an Agency – the two interviewers focused on cost for 20 out of 30 minutes. That’s fine because no one expects a health service employer to have an endless supply of money. However, the way they went about this was to be strictly limited by what the annual salary of a consultant is on the NHS scales. The top band is around £126,000/annum [Figures are in the public domain]. The foundation of their understanding was flawed but I dared not inform them of that, to avoid causing upset. 

It was not my place to tutor them on the basics. It was a selection exercise – not a haggling session on hourly rate of pay. Why? I do not charge them. The Agency handles rate discussions and negotiations, allowing me the consultant (doctor) a more streamlined and focused professional practice. That leverages the agency’s expertise in dealing with the complex financial and administrative aspects of locum work, ensuring I receive a fair rate that accounts for all pertinent factors. If I was operating outside of an Agency, then it would have been more appropriate to get into horse trading. 

Comparative analysis

The following comparison assumes a top tier of £126,281/annum. None of the following figures are written in stone.

Financial Comparison: Substantive vs. Locum Consultant Roles in the NHS

Component

Substantive Consultant Role

Locum Consultant Role

Base Pay

£126,281 per annum (fixed) – at BMA agreed highest point on the scale.

The agency’s fee, which ranges between 5% and 20%, on top of the locum hourly rate, is part of the negotiation. This fee covers their services, including finding placements, handling negotiations, and managing administrative tasks.

Annual Leave

6 weeks (30 working days) + public holidays and extra NHS Trust days

Not paid; considered in hourly rate

Cost of Lost Productivity for 6 Weeks Annual Leave

£14,570.88

N/A (covered in hourly rate)

Sickness Pay

– 1st year: 1 month full pay, 2 months half pay

– 2nd year: 2 months full pay, 2 months half pay- 3rd year: 4 months full pay, 4 months half pay- After 3 years: 6 months full pay, 6 months half pay

Not included; compensated in hourly rate.

Cost of Lost Productivity for 1 Month Sick Leave

£10,523.42 [One month is taken as the lower end of average of the above range of sickness pay. Most doctors may not take as much as 2 weeks sick leave.]

N/A (covered in hourly rate). If locum is off sick, another locum can be found.

Travel Expenses

Reimbursed for business purposes (e.g 2500 mile => £1125/yr but usually more per annum for forensic and community jobs)

Self-funded; reflected in hourly rate

Accommodation Expenses Generally not covered

Self-funded; reflected in hourly rate

Continuing Education (CPD) Often partially/fully covered + 6 CPD days per year

Self-funded; included in hourly rate

Cost of Lost Productivity for CPD

£2,914.18 (for 6 days) + £1,000 CPD allocation = £3,914.18

N/A (covered in hourly rate)

National Insurance Contributions

Employer contribution: 13.8% of earnings above threshold

Paid by individual; higher for self-employed

Pension Contributions

NHS Pension Scheme: Employer contribution at 20.68%

Self-managed; needs higher hourly rate

EWTD Opt-Out Flexibility

Limited to 48 hours/week unless opted out

More flexible; often exceeds EWTD limits, reflected in rate

Overall Financial Implications

Stable income with comprehensive benefits

Potentially higher gross income but with greater financial responsibility for benefits/expenses

On-call

Partially included

Usually no on-call work.

The table means that an employer will need to make estimates of their overall costs of a substantive consultant at whatever tier they wish – and then compare with the rate they pay to an Agency (not the rate they pay to ‘the consultant’) over 6 months to 1 year. 

Factors affecting the cost of locums

Based on my long experience the following affect cost – in descending power from the top of the list:

  1. Demand and Supply Dynamics: The most significant factor. High demand in certain specialties or regions, particularly where there are shortages of consultants, can substantially increase rates.
  2. NHS Budget Constraints: As a major employer, the NHS’s financial situation significantly impacts what it can afford to pay, thereby influencing agency rates.
  3. Government Regulations and Policies: Caps on agency spending, and other regulatory changes like IR35, can directly limit or influence the rates agencies are able to charge.
  4. Market Competition: The level of competition among agencies can play a critical role in determining rates. More competition can lead to lower rates, while less competition can increase them.
  5. Qualification and Experience of Consultants: Higher rates for more experienced consultants or those in high-demand specialties can significantly influence the overall rate structure.
  6. Agency Costs: Operational costs of the agency, including administration and compliance, directly affect the rates they need to charge to remain profitable.
  7. Length and Terms of Contracts: Longer contracts may offer more stability at slightly lower rates, while urgent or short-term placements may command higher rates.
  8. Seasonal Variations: Times of the year with increased NHS service pressure can see heightened demand for locum staff, influencing rates.
  9. Geographical Variation: Regional differences in demand and cost of living can affect rates, though this is often a secondary factor compared to national trends.
  10. Economic Factors: Overall economic conditions and inflation may have a more gradual and less immediate impact compared to the above factors but still play a role in rate determination over time.

Factors 2, 3, 5, 7 are discoverable by health service employers. All factors will be better known by Agencies. 

Summary and takeaway points

In the complex area of healthcare staffing, particularly within the public sector, understanding the cost comparison between employing substantive and locum consultants is crucial. The dynamic interplay of various factors determines the financial implications of each employment model.

Substantive consultants, employed directly by the NHS, receive a fixed annual salary, in this case, considered at £126,281. This salary encompasses not just the base pay for standard working hours but also additional compensation for on-call duties. The NHS covers various benefits for substantive consultants, such as pension contributions (20.68% of the pensionable pay), national insurance contributions (13.8% above the earnings threshold), annual leave (typically starting at 6 weeks), and sickness benefits (ranging from 1 month’s full pay in the first year to 6 months’ full pay after three years of service). These consultants also receive support for Continuing Professional Development (CPD), often ranging from £500 to £1000 annually, along with allocated time off for CPD activities. When a substantive consultant is unavailable due to sickness or annual leave, their absence represents a cost to the NHS in terms of lost productivity, estimated at around £10,523.42 for a month of sick leave and £14,570.88 for 6 weeks of annual leave.

On the other hand, locum consultants, often hired through agencies, are paid at variable hourly rates, which need to cover a wider range of expenses as they don’t receive the benefits provided to substantive staff. These rates are influenced by several factors, including the demand and supply dynamics in specific specialties, the geographical location, and market competition among staffing agencies. While locum rates can initially seem higher, they are structured to compensate for the absence of paid leave, pension contributions, and other benefits, all of which the locum consultant must manage independently. Additionally, locums provide flexibility to the NHS, enabling it to manage short-term staffing gaps without the long-term financial commitments associated with substantive roles.

However, the rates charged by agencies to the NHS for locum services also include the agencies’ operational and administrative costs, plus their profit margins. These agency fees can vary but typically range between 5% and 20% of the locum’s rate.

In summary, while substantive roles offer stability and a comprehensive benefits package, locum positions provide flexibility but with a higher rate to compensate for the lack of structured benefits. For the NHS, the choice between hiring a substantive or a locum consultant depends on balancing these cost factors with the immediate and long-term staffing needs of the service. This understanding is essential for effective workforce planning and financial management within public sector health services.


Other posts that may interest you...