Locums: The Real Hourly Rate

The Brochure Math Overstates Your Pay by Six Figures

A staffing agency posts a hospitalist assignment at $1,600 per day. Multiply by 240 working days and you get $384,000 — roughly $120,000 more than a typical employed hospitalist earns. That arithmetic is the industry's most effective recruiting tool, and it is wrong in four separate places. The $1,600 is not a wage. It is gross revenue paid to a one-physician business — yours. Out of it, that business must pay both halves of Social Security and Medicare tax, buy the health, disability, and retirement benefits an employer would have provided, absorb the weeks when no assignment is booked, and cover whatever the agency does not reimburse. Run the honest conversion and the same $1,600 day rate frequently lands near a $254,000 W-2 equivalent — a good living, and possibly better than your alternative, but roughly $130,000 short of the brochure math. This module shows you the conversion, step by step, so you can compare a day rate to a salary offer without fooling yourself in either direction.

~57,000 physicians

In 2024, roughly 8 percent of eligible U.S. physicians — about 57,000 — worked at least one locum tenens assignment, up from approximately 50,000 (7 percent) the year before, according to CHG Healthcare's State of Locum Tenens report. Facility usage has climbed alongside physician participation as health systems staff around shortages, and the physicians surveyed consistently rank schedule control and flexibility among their leading reasons for choosing the work. Two implications follow. First, locums is no longer a between-jobs stopgap — it is a durable career structure that one in twelve physicians now touches in a given year, which means its economics deserve the same rigor a permanent contract gets. Second, because demand is broad and growing, the negotiating dynamics differ from employment: rates move with specialty scarcity and timing, assignments are repriced continuously, and the physician who understands the full cost structure — not just the day rate — captures the difference. The workforce data also reframes who locums is for: the survey population spans new graduates testing markets before committing, mid-career physicians buying back schedule control, and late-career physicians tapering toward retirement without a hard stop — three groups with different alternatives, and therefore three different break-even points for the same posted rate.

Source: CHG Healthcare, State of Locum Tenens Report 2025

1099 independent contractor

A worker paid gross, untaxed compensation for services, responsible for both halves of employment taxes and for every benefit, insurance policy, and business expense an employer would otherwise carry.

The Internal Revenue Service does not see a physician earning $1,600 per day. It sees a sole proprietorship with $1,600 of daily gross revenue, and it taxes it accordingly. Five costs separate that revenue from a wage. First, self-employment tax: 15.3 percent — 12.4 percent Social Security plus 2.9 percent Medicare — on 92.35 percent of net profit, because you now pay the employer half no employer is paying. Second, benefits replacement: health coverage, own-occupation disability, life insurance, and the retirement contribution an employer would have made. Third, malpractice: agencies commonly carry coverage for the assignment, but the policy type and the tail obligation vary by contract. Fourth, gap risk: credentialing delays, canceled assignments — many contracts allow cancellation with 30 days of notice — and unbooked weeks between engagements produce revenue of zero. Fifth, unreimbursed costs: state licenses, DEA registrations, CME, accounting, and whatever travel the contract does not cover. None of these makes locums work a bad deal. They make it a business, and businesses are valued on net, not gross.

Why it matters: Every dollar of difference between a day rate and a salary must first survive five deductions: self-employment tax, benefits replacement, malpractice arrangements, unbooked weeks, and unreimbursed costs. Physicians who compare $1,600 per day against a $260,000 salary without pricing those five buckets systematically overvalue locums work — and physicians who assume 1099 work is always a trap systematically undervalue it. The conversion is arithmetic, not opinion.

Bill rate vs pay rate

The difference between what a facility pays a staffing agency for a physician's time (bill rate) and what the agency pays the physician (pay rate) — the price of the services and margin bundled into agency placement.

The facility does not pay you $1,600 per day — it pays the agency a bill rate meaningfully above that, and the agency pays you a pay rate out of it. The spread between the two funds real services: malpractice coverage for the assignment, travel and lodging, credentialing and privileging support, licensing logistics, scheduling, invoicing and collections from the facility, and the recruiter who found the assignment — plus the agency's margin. That is the honest frame for the agency-versus-direct decision. Contracting directly with a facility captures the spread as a higher day rate, and it simultaneously makes you the malpractice purchaser, travel department, credentialing coordinator, biller, and collections agent for your one-physician business. The spread is not free money; it is the market price of a bundle of services. Some physicians replace that bundle cheaply — an experienced locums physician with existing licenses, an accountant, and a malpractice broker can keep most of the spread. A first-year locums physician who underestimates the forty-plus hours of administration per assignment, or who prices malpractice wrong, can capture a higher rate and still come out behind. Timing shifts the calculus too: a physician's first assignments carry the steepest learning curve — credentialing from scratch, no billing relationships, no malpractice broker — which is why many locums careers rationally start with an agency and migrate toward direct contracts at facilities where the physician is already credentialed and known. The renewal of an assignment you have already worked is the single best direct-contract opportunity in locums: the facility knows you, the credentialing is done, and the agency's ongoing services have largely already been consumed.

Why it matters: Direct contracting pays more only after you replace everything the agency was silently covering. The decision is not agency-versus-direct in the abstract — it is whether the spread on a specific assignment exceeds the cost, in dollars and unbilled hours, of doing the agency's job yourself.

Agency at $1,600 vs Direct at $2,000: The Same Assignment, Priced Honestly

A family physician can take the same 100-day rural hospital assignment through an agency at $1,600 per day with malpractice, travel, and lodging covered — or directly with the hospital at $2,000 per day, covering her own malpractice at $12,000 and travel and lodging at $15,000.

Bottom line: Direct contracting nets about $13,000 more on this assignment — the spread minus every cost the agency was covering — in exchange for the administrative load and the risk ownership that came with it.

$1,600 a Day Converts to About $254,000, Not $384,000

A hospitalist is offered $1,600 per day for 2026. She realistically expects 190 booked days — about 86 percent of a 220-day target, allowing for credentialing gaps and time off — and prices family health coverage at roughly $21,600, individual own-occupation disability at $3,500, and a forgone employer retirement contribution at $15,000.

Bottom line: At honest utilization, the $1,600 day rate buys the economics of roughly a $254,000 W-2 salary — about $130,000 below the $384,000 the brochure arithmetic implies.

Solo 401(k)

A one-participant 401(k) plan for a self-employed person with no employees, allowing both an employee deferral ($24,500 in 2026) and an employer profit-sharing contribution, up to a combined $72,000 (2026).

The conversion math so far has been all subtraction. Here is the addition. A self-employed physician with no employees can open a one-participant 401(k) — a solo 401(k) — and contribute in two capacities at once. As the employee, the 2026 elective deferral limit is $24,500, the same as any W-2 plan. As the employer, the business can contribute roughly 20 percent of net self-employment earnings on top, until combined contributions reach the 2026 total limit of $72,000. A locums physician netting $250,000 can plausibly shelter around $70,000 pre-tax in a single year — nearly double the $24,500-plus-match that a typical employed position allows. At a 32 to 35 percent marginal rate, the extra $30,000-plus of sheltered income defers roughly $10,000 of federal tax annually, and the larger deferral pulls taxable income downward — relevant at the margins where the qualified business income deduction phases out for physicians ($276,750 of taxable income for single filers in 2026). The employer-side calculation has traps — the percentage applies to net earnings after the half-of-self-employment-tax deduction, and the arithmetic is circular — so the exact figure belongs with a CPA. The strategic point does not: the benefits-replacement line in the conversion overstates the true gap for physicians who actually use the retirement space 1099 status opens.

Why it matters: The honest conversion cuts both ways. Locums physicians who never open a solo 401(k) pay for benefits they lost without collecting the offsetting advantage; physicians who fund one narrow the W-2 gap by five figures of deferred tax a year — and it is one of the few levers that also defends the QBI deduction at the phase-out margin.

The Set-Aside: 31 Cents of Every Profit Dollar, and Nobody Withholds It

A single locums physician nets $250,000 of 2026 profit after business expenses, takes the standard deduction, and wants to know what fraction of each deposit is not actually hers.

Bottom line: Roughly 31 percent of this physician's net profit is owed in federal tax alone — before state income tax — and not one dollar of it is withheld by anyone. The set-aside is the first system a locums business needs, not the last.

The Tail Question Costs More Than the Rate Negotiation

Malpractice policies come in two structures, and the difference only matters on the day an assignment ends. An occurrence policy covers any incident that happened while the policy was active, no matter when the claim is filed — no tail needed. A claims-made policy covers only claims reported while the policy is in force; when it ends, coverage for late-arriving claims ends with it unless someone buys an extended reporting endorsement — the tail. Industry guides describe the common locums pattern: the staffing agency insures you under its claims-made policy for the duration of the assignment and arranges the tail afterward, at no cost to you. Common is not universal. The obligation lives in your assignment agreement, and practice varies by agency and contract — a direct contract with a hospital may leave the tail entirely to you, and a tail on a physician-purchased claims-made policy can cost roughly 1.5 to 2 times the annual premium. A claim filed three years after a two-week rural assignment is your problem if nobody owns the tail in writing.

How to avoid it: Before you sign, get three answers in writing: is the policy occurrence or claims-made; if claims-made, who purchases the tail when the assignment ends — in the contract itself, not a recruiter email; and what are the per-claim and aggregate limits. If you contract directly with a facility, price the tail into your rate or buy occurrence coverage. Keep a certificate of insurance from every assignment permanently.

Counting Revenue You Are Not Yet Credentialed to Earn

The most expensive weeks in a locums year are the ones that produce nothing. Three gaps recur. Credentialing and privileging at a new facility commonly takes 60 to 120 days — a physician who signs in January expecting February revenue can sit unpaid until April, and every additional facility restarts the clock. Cancellation clauses cut the other way: many assignment agreements let the facility cancel with 30 days of notice, sometimes less, converting a booked quarter into an open one after flights are purchased and other offers are declined. And between assignments sit the unbooked weeks that no contract mentions at all — the difference between the 240-day brochure year and the 180-to-200-day year most full-time locums physicians actually book. None of these risks appears in a day rate, which is exactly why physicians who budget at 100 percent utilization live one canceled contract away from a cash crisis. The gap weeks are not a failure of the model; they are a cost of the model, and the physicians who thrive price them in from the start.

How to avoid it: Model the year at 75 to 85 percent of target days, not 100. Maintain relationships with at least two agencies or facilities so one cancellation does not zero a quarter. Negotiate a cancellation fee — pay for canceled days inside 30 days is a standard ask. Start credentialing paperwork the day an assignment is probable rather than confirmed, and treat a cash buffer covering roughly three months of personal fixed costs as a business requirement of 1099 practice, not a luxury. Physicians who track their own utilization for a full year — booked days versus target days, by month — replace guesswork with a personal number, and that number, not the brochure's, belongs in every future conversion they run.

The Same Physician, Two Structures, Side by Side

Everything this module has priced, on one table. The dollar figures reference the module's worked examples — a $1,600 day rate at 190 booked days against a $260,000 salaried alternative — and every row moves with your own inputs. Read the last two rows as carefully as the first two: the structural rows are the ones physicians report caring about most five years in, and the financial rows are the ones that decide whether the structure is sustainable long enough to find out.

The $1,700 Day Rate vs the $260,000 Salary

One Cap, Two Taxes

The Break-Even Direct Rate

45.2%

In 2023, 45.2 percent of U.S. physicians reported at least one symptom of burnout (Mayo Clinic Proceedings trend series) — down from the pandemic peak, still far above the general working population. The work-control literature sharpens the picture: in a 2025 multi-institution study in Annals of Internal Medicine, poor control over patient-load volume carried 1.35 times the odds of burnout, and poor control over schedule and workload were each independently associated with burnout and with intent to reduce clinical hours. This is the context in which schedule control tops the reasons physicians give for choosing locums work in industry surveys. The conversion math in this module prices that control honestly: at realistic utilization, autonomy over when and where to work often costs $20,000 to $40,000 a year against a comparable W-2. The burnout evidence is what sits on the other side of the scale — control over schedule and workload is one of the few variables consistently associated with career sustainability, and locums is one of the few structures that sells it directly. Whether the price is worth paying is a personal calculation; that there is a real asset on both sides of the trade is not.

Source: Mayo Clinic Proceedings, 2011–2023 physician burnout trend data

Compare Numbers, Not Slogans

• A posted day rate is business revenue, not a wage; conversion, not multiplication, is the honest first step.
• In 2026, self-employment tax runs 15.3 percent on 92.35 percent of net profit, with the 12.4 percent Social Security portion capped at the $184,500 wage base and half of the tax deductible.
• Benefits replacement — health coverage, own-occupation disability, and the forgone employer retirement contribution — commonly costs $35,000 to $45,000 per year and must be priced, not waved away.
• Get the tail answer in writing before signing: occurrence needs no tail, claims-made does, and who pays it varies by agency and contract.
• Medicine is a specified service trade or business, so in 2026 the QBI deduction phases out entirely above $276,750 of taxable income for single filers ($553,500 married filing jointly).

Do this next: Take one real day rate you have been offered, run the six-step conversion from this module with your own booked-day estimate and benefits costs, and write the W-2-equivalent number next to the posted rate before your next conversation with a recruiter.