Richard Hough and Brendan McAleese provide an overview of the considerations under employment law that may determine the correct employment status of locum pharmacists…

The employment status of locum pharmacists represents a major issue for pharmacies, with the Company Chemists Association in dispute with HMRC over an estimated £550 million retrospective clawback, and HMRC reportedly investigating whether Lloydspharmacy owes it £33 million relating to the employment status of locums.

The engagement of locum pharmacists, while offering flexibility and convenience for pharmacists and pharmacies, often raises complex employment status issues that deserve closer examination. 

Under current employment law, there are three categories of individuals providing their services in the job market:

• Employee;
• Worker; and
• Self-employed independent contractor.

The primary challenge surrounding the engagement of locum pharmacists lies in determining their employment status. While some locums work through agencies or as independent contractors, others are directly employed by pharmacies. This distinction is crucial as it impacts various aspects, including taxation, employment rights, and entitlement to benefits.

1. Tax: Determining the tax status of locum pharmacists can be complex and depends on their status for tax purposes, as determined by HMRC, using similar but not identical tests to employment law tests. Self-employed locums are responsible for handling their own taxes and National Insurance contributions, while employed locums have their taxes deducted at source by their employer. Misclassification of employment status can lead to significant tax consequences for both pharmacists and pharmacies, including retrospective clawback and penalties. In October 2023, HMRC updated part of its guidance on agency and temporary workers in its Employment Status Manual. The examples of the application of supervision, direction or control to locum pharmacists were removed, indicating a change to HMRC's position on the significance of a worker being required to comply with regulatory (e.g. health and safety) standards or standards applicable to all service providers, which now seem to be relevant factors for supervision, direction and control. 
2. Employment Rights: Employment status dictates the rights and protections afforded to locum pharmacists. The distinctions between employee, worker and self-employed independent contractor are significant for the following reasons:

a) Employers and employees have obligations that are implied into the contract between them (e.g. the mutual duty of trust and confidence).

b) Some core legal protections only apply to employees, most particularly the rights on termination of employment granted under the Employment Rights Act 1996 (the right not to be unfairly dismissed and the right to receive a statutory redundancy payment). However, workers are also covered by some important protections (e.g. working time and minimum wage).

c) Only employees are covered by Acas’s Code of Practice on Disciplinary and Grievance Procedures.

d) Only employees will be automatically transferred to a purchaser of their employer's business under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (although workers may also transfer depending on the facts).

e) An employer is vicariously liable for an employee’s acts done in the course of their employment. Such vicarious liability is unlikely to extend to independent contractors or self-employed individuals.

f) An employer is required to obtain employer’s liability insurance to cover the risk of employees injuring themselves at work. Workers or independent contractors may not, in every case, be covered by such insurance and may want to consider obtaining their own insurance; and

g) Employers owe employees statutory duties relating to health and safety, which may not extend to self-employed independent contractors, but contractors will be covered under an organisation's common law duty of care in respect of occupier's liability.

3. Regulatory Compliance: Pharmacies must comply with regulations governing employment practices, including ensuring that locum pharmacists are appropriately classified and compensated. Failure to accurately classify locum pharmacists can result in legal repercussions, including fines and penalties.
4. Benefits: While employees are entitled to certain benefits (sick pay, holiday pay, pension contributions), self-employed individuals do not have these entitlements. Ambiguity regarding employment status can leave locums vulnerable to exploitation or deprived of essential benefits.

So, what should pharmacy owners be doing?

1. They should provide education and training to ensure that their hiring managers understand the implications of each different employment status and their obligations under employment law, including providing training on proper employment practices, tax regulations, and compliance requirements.
2. Open communication and collaboration with locum pharmacists is essential to address their concerns and ensure fair treatment. Pharmacy owners should engage with locums to understand their preferences regarding employment status, working conditions, and remuneration.
3. Consider the specific circumstances of each contract and its consistency with the reality of the relationship. The fact that an arrangement is structured and/or documented as a contract for services and not an employment contract will not be conclusive as a matter of employment law or with regard to the individual's tax status.

Locum pharmacists are a vital component of primary care, providing flexibility and support to pharmacies while ensuring continuity of care for patients. However, the complexities surrounding employment status pose significant challenges that require careful consideration and proactive measures from pharmacy employers, and locum pharmacists themselves. By addressing these challenges collaboratively, the pharmacy sector can create a fair and sustainable working environment for all stakeholders involved.

If you are unsure of the correct status of your locums and do not relish the prospect of swingeing HMRC clawbacks, speak to one our specialist employment lawyers, who will be happy to advise you.

Richard Hough is a former pharmacist and partner at Brabners. Brendan McAleese is a legal director in Brabners’ employment department and healthcare sector team.