Increasing Income from Self-Employment to Employee?

Reflecting on Sole Trader Days

It has been three months now since I quit being self-employed to become an employee. The Frugal Doctor was previously working as a sole trader in a general practice clinic. General practitioners (GPs) in Australia can be grouped into sole traders, employees, practice owners, and locums. As a sole trader, my earnings were a percentage of my billings. Every $100 that I billed could be broken down into:

• $40 service fee
• $4 service fee tax
• $26 income tax
• $3 other business costs (medical indemnity, accounting fees, insurances, registrations, education)
• $27 pay to myself (retirement contributions, leave, living costs)

The Limitations of Self-Employment

When I looked at the above, it did not make sense to me. I was only earning about 27% of my billings. The service fee covered the cost of running my practice at the clinic. This included administration staff, software, collection of fees, and nursing services. I tried to negotiate a lower service fee, but was unsuccessful. The only way I could increase my income would be to increase my billings. I was already charging higher fees than other GPs at the practice. I can only see so many patients in an hour (three to four) and still offer a quality service.

As a sole trader, I was responsible for making my own superannuation (retirement) contributions. I would not get any leave payments. Each quarter, I was expected to submit a business activity statement (this task was done by my accountant). I nevertheless had to reconcile transactions in the accounting software and forward information to my accountant. As a sole trader, if you do not work, you have no income. No billings = no income.

Exploring Options for Change

I had to walk away from my previous role when negotiations failed. I could become a locum GP. There are some attractive pay rates. The downside would be travelling to other parts of the country for weeks to months at a time.

I could become a practice owner. However, this would mean increasing the number of days I work. I would also have to shoulder more responsibilities without guarantee of profitability. I could move to another practice and negotiate a better service fee rate as a sole trader. I could be an employee, negotiate a competitive hourly rate, and have guaranteed employer superannuation contributions (11.5%) and leave.

The Surprising Upside of Employment

Being an employee is not as bad as it is made out to be. I am now on a flat hourly rate. I am enjoying focusing on the patient interactions rather than focusing on the financial side of things. I do not have to think about patient consults in terms of billings per 15-minute time increment. I now see two to three patients per hour. If a patient fails to attend, I am not worried that I have not billed anything.

I can focus on achieving better outcomes for patients and still bill efficiently, but the focus is on patient outcomes. I am doing similar work to what I was doing before, but I have given myself a pay rise. I am still working three days a week. It now appears that I am earning the equivalent of 65% of my billings in my previous role. I have more than doubled my income. This is by far a better use of my time.

Flexibility at Work

I no longer have to submit quarterly business activity statements. I can no longer claim a percentage of my vehicle costs for business use. I nevertheless can claim a tax deduction for occupation-related expenses. I get paid when I am sick or on leave.

One reservation that most employees have is about leave requests and approvals. I have been fortunate that the organisation I now work for prioritises flexible arrangements for its employees. I let my manager know about my plan to have four months off to travel in 2025. There were no objections. One of my colleagues is presently on a three-month break.

Reclaiming Time and Life Energy

I am so glad I made the switch from sole trader to employee. I am still swapping my time for money, but in a more effective way. I am seeing fewer patients an hour and getting paid more. My focus is on patient care; this is the work that I enjoy. Going on the Financial Independence journey has helped me realise the utility of my time.

Vicki and Joe raise this idea in their book Your Money or Your Life. They ask: “Are you getting full value for selling that most precious commodity – your life?” and “Does work, work for you?” Work is working for me. I am getting full utility for my life energy.