Employee or Self Employed?

[Hoblands]

Hi,

I run a small cleaning and maintenance business in Sussex and I'm in desperate need of clarification on where the legal line is between employing casual labour on a self employed basis and having to take them on PAYE. (I have read the HMRC guidelines)

I currently have 2 full time people (who are causing me the issue) and a couple of part time casual workers who I only employ ad hoc when the work gets busy. My 2 full timers have been with me for around two years and started off working for multiple companies before I had enough work to keep them busy enough without them having to go elsewhere. Both own their own vans and supply their own materials but to keep the finances simple I pay them them an hourly rate (usually but not always 9 till 5) that they invoice me for at the end of each week. I have suggested to them that it would probably be prudent if I were to employ them on PAYE from the start of the new financial year but there are a few problems that I'm not sure how to overcome:

Firstly - the hourly rate that I currently pay is only around 15% less than what I invoice out as originally it was my intention to just sub out the work I couldn't handle and take a small cut. The issue here is that if I were to manage all of the legal obligations of being an employer I'd either need to put my prices up (which won't go down well with my clients) or put wages down (which wont go down well with my staff)
Secondly - the 2 people mentioned above have told me that they'd prefer to remain self employed if possible as currently they can offset the value / running costs of their vehicles plus all of the materials and sundries used in the business. Even if I were to make part of the pay a vehicle allowance its my understanding that they would still be taxed on it?

I'd be very grateful if anyone were to be able to offer me a solution that would keep me within the law and also keep my staff and clients happy!

Hope that the above makes sense...

Many thanks in advance

Paul

[Kati]

Re: Employee or Self Employed?

:bump: for [MENTION=19071]teaboy2[/MENTION] [MENTION=26290]mariefab[/MENTION] xx

[ostell]

Re: Employee or Self Employed?

If the two regulars are free to perform work for other people, and do, select their own operating hours and also fully account for payments to HMRC then they are self employed. The casuals can paid gross if they are truly occasional casuals.

That's my understanding

[mariefab]

Re: Employee or Self Employed?

http://tools.hmrc.gov.uk/esi/screen/...ary?user=guest

Try this ^ tool.

[Hoblands]

Re: Employee or Self Employed?

Many thanks for the replies. The HMRC website is currently down, I will take a look later. Ostell, unfortunately no to all of the above - they are free to work for other people but all the while I keep them busy there is no need, working hours are flexible (ish) but still need to be within the boundary of the usual working week.

[teaboy2]

Re: Employee or Self Employed?

The two full time contractors are self employed contractors - Which is why they invoice you as they provide your company with a service. So the contract between you and them is a service contract. The two casuals, can be employed on a zero hour contract if they wished to be on PAYE, otherwise you can just pay them gross and have them give you a receipt or sign a receipt/invoice when you give them their pay - And they would then have to pay their own taxes and NI and be registered self employed. But if they don't register self employed, thats not for you to worry about!

[Guest]

Re: Employee or Self Employed?

One thing to be aware of is that there is no clear line between employee and self-employed or independent contractor. An employment tribunal could find that someone who has been invoicing as an independent contractor or even a limited company, is actually an employee and, after two years, has the same rights to redundancy and to bring a claim for unfair dismissal as someone on your payroll. There are a number of things that the tribunal would take into account, I have seen a judgment that's 20 pages long and contains 130 paragraphs just to establish that the alleged contractor was, in fact, an employee, so it's far from simple.

[Hoblands]

Re: Employee or Self Employed?

Many thanks for your replies. Will have to go away and ponder my options!

Cheers,
Paul

[teaboy2]

Re: Employee or Self Employed?

A limited company can not be an employee as its not a person! - The question was regarding tax purposes and PAYE. And so long as it specifically states in any contract they are a contractor contracted to provide a service and not an employee/worker or they are a third party service provider contracted to provide a service. Then @Hoblands should be safe.

[Bel0612]

Hi,

I run a small cleaning and maintenance business in Sussex and I'm in desperate need of clarification on where the legal line is between employing casual labour on a self employed basis and having to take them on PAYE. (I have read the HMRC guidelines)

I currently have 2 full time people (who are causing me the issue) and a couple of part time casual workers who I only employ ad hoc when the work gets busy. My 2 full timers have been with me for around two years and started off working for multiple companies before I had enough work to keep them busy enough without them having to go elsewhere. Both own their own vans and supply their own materials but to keep the finances simple I pay them them an hourly rate (usually but not always 9 till 5) that they invoice me for at the end of each week. I have suggested to them that it would probably be prudent if I were to employ them on PAYE from the start of the new financial year but there are a few problems that I'm not sure how to overcome:

Firstly - the hourly rate that I currently pay is only around 15% less than what I invoice out as originally it was my intention to just sub out the work I couldn't handle and take a small cut. The issue here is that if I were to manage all of the legal obligations of being an employer I'd either need to put my prices up (which won't go down well with my clients) or put wages down (which wont go down well with my staff)
Secondly - the 2 people mentioned above have told me that they'd prefer to remain self employed if possible as currently they can offset the value / running costs of their vehicles plus all of the materials and sundries used in the business. Even if I were to make part of the pay a vehicle allowance its my understanding that they would still be taxed on it?

I'd be very grateful if anyone were to be able to offer me a solution that would keep me within the law and also keep my staff and clients happy!

Hope that the above makes sense...

Many thanks in advance

Paul

The fact that you call your two 'troublesome' workers "2 full time people" does not bode well. The key indicator as to whether or not a flexible worker is truly self employed is dependent on many factors. There is the contract you made with them, but does that reflect the reality? There are three key things to bear in mind regarding day to day working practices, which will ultimately define their true working status as SE or employees:

1. Is there genuinely 'no mutuality of obligation' (the workers do not have to accept work you offer, you don't have to offer it). If you, the engager, obliges them to keep to set hours you dictate to fill an expected work requirement that is not yet there - that is mutuality of obligation. If the engaged feels you owe them expected regular work by putting aside time to perform it when the work is not yet there, that too is mutuality of obligation = employment. In other words, are you are paying for their time to fill on an as and when basis with tasks and duties (full time, or part time - it makes no difference). Or are they providing service based on a specifically defined need to sell you what they will produce for you at the time of offer and when there is no offer they can work elsewhere or they can refuse the offer of work without ruining their relationship with you?

2. Can your two flexible workers work autonomously or do they need to ask permissions? Can the choose their own hours if it is not necessary to keep to set ones to perform the work? Or do you say to them they must keep office hours or hours you set them, irrespective of whether it is vital that they work them just to get the work done? If so, that is a pointer toward employment. Another test: would they feel free and comfortable to phone your company or you to say they are shifting work to another time but will meet the deadline? Or would they feel fearful of getting a disciplinary hearing with warnings or even the sack because they work between X and Y as set out in your rules?

3. Is it essential that they carry out the work in person? Or are they able, should they choose to do so, sub-contract their work out to others they hire of their own volition (subject to suitable skilling) because the work you offered them is insufficiently skilled for them to need to perform it themselves to meet your standards of acceptance? If you have in your contract with them that they must perform the work personally, even though it is not essential that they should do so because it is not so high skilled that it can only be performed by these two people at the exclusion of anyone else - that again points to employment. An unfettered 'right of substitution' is probably less important pointer to employment than the two above but could still make or break a status definition if others that make up an overall picture amount to a borderline status. No. 1. is essential, however: If there is no mutuality of obligation there is no employment either (except for tax purposes perhaps), but they could still be contract workers with limited employee type working rights. (temps, in other words).

These are the three key criteria to take into account when defining whether you should take these people on payroll or keep them self employed and minimise risk of false self employment.

But it is still not all that simple. A judge will ultimately make a decision on whether someone is truly self employed, should a dispute arise in future, when they get a 'feel' of the over-all picture of what it is like to work with your company. It is definitely not a tickbox exercise. If the judge concludes that it feels that these flexible workers are "selling you a service for which they invoice you for and for which you have chosen to purchase then self employment is the likely status outcome. But if the judge concludes that the overall day to work working practices tends to veer toward you hiring these two flexible workers for their time in the event of work cropping up regularly over full time hours in exchange for a wage (masquerading as an invoice for appearances sake) then they might conclude that it is false self employment. With them simply providing an invoice with 'Contract For Services' on it must reflect reality. If it doesn't, then they are providing a Contract Of Service, which means they are employed. If you allow that falsification to exist you might be shoring up problems in future if these workers decide to shaft you further on down the line by claiming they are employed after all. So decide what the true working practices are, based on what I have said above, and what the contract says and align their status accordingly.Don't' put up appearances in the contract terms that don't reflect the true nature of the relationship, otherwise you might be stung for Employers NI as well as sick and holiday pay and a legal bill as well.

Other key indicators the judge might consider vital or a deal breaker to decide one way or another:

a) Do you provide them or allow them subsidised employee type benefits (use of the canteen at lower than market prices for their meals). This is a de-facto perk of a job.
b) Do you insist that they wear a uniform or dress code of some sort to blend in with the overall culture of the business and other employees (not PPE for H&S reasons). Do employees see them as 'one of them' or outsiders performing something that can only be done by outsiders who aren't expected nor do they 'join in' the general day to day operations like staff do?
c) Do you provide them with equipment to perform their job but which is not something that can only be provided by your company to perform the uniqueness of the job? In other words equipment they could easily provide themselves to do the same job at the same standards? This implies that they are not equipped to perform the services they are selling to you. They are taking on a de-facto job.
d) Do you provide them with training that they could get themselves outside your company or they should be offering as part of a skilled service? Again, this implies that they are not selling a service that your company can't provide for itself, they are just two bodies to act as helping hands doing things on your terms.

All of these factors will be considered and more besides if the judge is still not sure. So make sure you don't make out black is white. It could bite you hard on the bum later on down the line and will give your workers ammunition to fill a gun with if you decide to get rid of them - employed or not.