Almost every doctor who picks up locum shifts eventually asks the same question: should I invoice through an ABN, or just take the PAYG rate an agency or hospital offers? It sounds like a simple admin choice. It isn’t – it changes how much tax you pay, when you pay it, what you can claim, and how big a surprise you get at tax time.
There’s no single right answer for every doctor. But there is a right way to think about it.
The Basic Difference
PAYG (as an employee): The hospital or agency withholds tax from every payment and sends it to the ATO on your behalf, roughly in line with your expected annual income. Superannuation is paid on top by the employer. HECS/HELP repayments are also estimated and withheld through the year. It’s low-admin and low-surprise.
ABN (as a contractor): You invoice for the gross amount and receive it in full, with nothing withheld. You’re responsible for setting aside your own tax, paying your own superannuation, and managing GST if it applies. In exchange, you generally get access to a wider range of deductions than an employee would.
Why ABN Locums Get Caught Out
The most common trap isn’t complicated, it’s just easy to miss in your first year of contracting: you receive the full invoice amount, it looks like more money than your payslip used to show, and if you don’t consciously set tax aside, you spend it. Then tax time arrives and the bill is real.
A reasonable rule of thumb is to set aside 30–35% of every ABN payment for tax, rising toward 45% if your combined income (hospital salary plus locum earnings) pushes you into the top tax bracket. This is a starting guide, not a substitute for a proper estimate from your accountant, because your actual rate depends on your total income across all sources.
GST: The Detail Most Locums Get Wrong
Many doctors assume medical services are GST-free, full stop. That’s true for services billed directly to a patient. But when you’re invoicing a hospital or agency for your time – rather than directly treating and billing a patient – the ATO generally treats that as a taxable supply of labour, not a GST-free medical service. That means once your ABN turnover crosses $75,000 in a rolling 12-month period, you need to register for GST, add 10% to your invoices, and lodge a Business Activity Statement (BAS), usually quarterly.
Miss this and you don’t avoid the GST – you just end up paying it out of your own net income instead of passing it on, because the ATO can still treat you as liable once you’re over the threshold.
Superannuation Isn't Automatically Skipped
This surprises a lot of contractor doctors: even when you invoice through an ABN, you can still be considered an employee for superannuation guarantee purposes if the contract is essentially for your personal labour. The extended super rules look at substance, not just the invoice. If your locum arrangement is genuinely you providing your own services personally, don’t assume the practice or hospital has no super obligation – and don’t assume you’re off the hook for topping it up yourself if they don’t.
HECS/HELP Adds Another Layer
If you have a HECS or HELP debt, repayments are calculated on your combined income – hospital salary plus locum earnings – not on each income stream separately. Your hospital payroll only withholds HECS based on your salary alone, with no visibility of your locum income. When your full year is assessed, the higher repayment calculated on your combined income can arrive as a lump sum you weren’t expecting. Factor this into how much you set aside from ABN earnings, on top of your income tax provision.
PAYG Instalments
After your first full year of ABN locum income, the ATO will typically move you onto PAYG installments – quarterly prepayments toward your next tax bill, based on your prior year’s income. This is a cash-flow management tool, not an extra tax, but it does mean your local income needs to support both the installment and your ongoing living costs.
Deductions Worth Knowing
Contractor locums generally have access to a broader range of deductions than employees, including travel between different workplaces (not your regular commute), relevant professional development and conference costs, indemnity insurance, and equipment genuinely used for work. Meals are only deductible in specific circumstances – generally overnight travel with an allowance, not simply a long day shift. Good record-keeping matters here more than clever tax strategy.
So Which One Actually Saves You More?
It depends on your total income, how much locum work you do, whether you value flexibility over simplicity, and how disciplined you are about setting money aside. Higher-earning contractors with genuine deductible expenses often come out ahead on ABN, but only if the tax, GST, and super obligations are properly managed. Doctors who want a “set and forget” arrangement, or who do occasional locum shifts alongside a main employed role, sometimes find PAYG simpler and less risky.
This is a genuinely individual calculation, and it’s one we work through regularly with junior doctors, registrars, and specialists doing locum work across Queensland. If you’re weighing this up, our tax and accounting services for medical professionals cover exactly this kind of structuring decision, alongside broader planning like the one outlined in our medical practice tax planning guide.
Frequently Asked Questions
If you’re invoicing a hospital or agency directly as an independent contractor, yes. Without one, the payer is required to withhold tax at the top marginal rate (47%) under the no-ABN withholding rules.
Once your ABN turnover exceeds $75,000 in any rolling 12-month period. Below that, registration is optional, and many part-time locums choose not to register.
Not always — it depends on what you’re actually billing for. Direct patient-billed medical services are typically GST-free, but labour invoiced to a hospital or agency is generally treated as a taxable supply. Check the specific nature of each arrangement.
A common starting guide is 30–35% of gross payments, increasing toward 45% if your combined income pushes you into the top bracket. Get a personalised estimate from your accountant based on your full income picture.
It can. Even on an ABN, you may still be treated as an employee for superannuation guarantee purposes if the arrangement is for your personal labour. Don’t assume contracting automatically removes super obligations.
Repayments are calculated on your combined income from all sources. Your employer only withholds based on your salary, so locum income can create an unexpected top-up amount at tax time.
They’re quarterly prepayments toward your expected tax bill, usually triggered after your first full year of contractor income. They help spread your tax liability instead of leaving one large bill.
Generally yes, if it’s travel between two separate workplaces, but not your standard commute from home to your usual workplace. Keep a logbook or clear records.
Occasional locums alongside a main salaried role sometimes prefer PAYG for simplicity, since there’s less to manage and less risk of an unexpected tax bill. It’s a personal trade-off between simplicity and potential tax efficiency.
An accountant who works specifically with medical professionals can model both options against your actual income and circumstances. You can book a free consultation with our team to work through your numbers.
