Q&A with Martin Copland
The first thing to consider when someone is working for you is their employment status
Question:I have a guy that works for me and I am thinking of taking him on as an employee. I currently pay him £100 per day, but I am not sure if I would still be required to pay him this amount as guaranteed take home pay. Are there any requirements to continue to pay him at the current level and what are the implications of taking him on as an employee?
Mr P, St Leonards
The first thing to consider when you have someone working for you is their employment status. Does the nature of the working relationship mean they are an employee or self-employed? Use the H M Revenue & Customs Employment Status Indicator Test (www.gov.uk/guidance/employment-status-indicator) to find out.
If you are treating them as self-employed but H M Revenue & Customs deem them to be an employee, you would be liable for the additional tax and National Insurance that you should have deducted from the employee.
If they currently work only for you, they use your tools and equipment to perform the work and you bear the risk for correcting any work they do wrong, it is likely that this person should be employed by you.
Taking on an employee can certainly be beneficial in respect of giving you more control over the work they are required to do, as opposed to them working for you on a self-employed basis. However, this does transfer the responsibility for making the correct deductions of tax and National Insurance over to you, rather than being down to the self-employed individual.
The suggestion that you match his current take home pay in the net pay he receives as an employee can cause issues if you are guaranteeing the amount of money he will receive each pay period. If there is a change to his circumstances, for example a change in his tax code or you start deductions for a student loan, any reduction or increase to the net pay may not be passed on to the employee as it should be.
There is no legal requirement when taking on an employee to match their current level of take home pay. In fact, this would not normally be the case as there are additional benefits in being an employee as opposed to being self-employed that should also be taken into consideration. These include entitlement to holiday, statutory leave, rights to redundancy pay and other employment rights.
In summary, it is very important to establish the current employment status and look further into the overall cost of taking on an employee; you should also look in more detail at the employment rights before agreeing the level of wages you are willing to pay a new employee.
If you would like to discuss your circumstances in greater detail, Ashdown Hurrey can advise on employment tax matters in addition to other tax, accountancy and business matters. Contact Martin Copland on 01424 720222 or email him at [email protected]