Employing & Registering new staff
Employee or Self Employed
One of the decisions a business has to make is whether or not specific individuals are actually employees. This may sound like an easy question but it’s not as straight forward as it sounds.
It is quite common for a business to treat someone who works for them or on their behalf as self – employed or as a freelance subcontractor. The reason being that it has many tax advantages, however, this can be a dangerous thing to do and should not be entered into lightly.
Unfortunately employment status is not a matter of personal preference but is based on the relationship between worker and employer. If you treat someone as self – employed who qualifies as an employee you run the risk of running up a sizeable tax and national insurance liability, plus the possibility of interest and penalties.
Whether someone is employed or self – employed requires a review of a considerable number of factors relating to their working relationship with you and your business. The guidelines from HM Revenue and Customs website should help you make that decision but some of the main points are:-
| Employed | Self-employment |
| Has to do the work set themselves | Can hire someone to do work or assist at their expense |
| Told what, where and how | Personally decides what work to do and how and when to do it |
| Paid by the hour, week or month | aid only for work they do |
| Can receive overtime or bonuses | Is paid a fixed agreed fee for work required |
| Does set hours for the business | Regularly works for a number of different organisations |
If you are still unsure then it is best to seek specialist advice or treat them as an employee to err on the side of caution.
If you do decide that someone is self – employed then at the very least you need to be able to show during an inspection from HMRC that you have reviewed all the facts and made a reasoned and carefully argued decision as to why that person is self – employed.
Once you decide that someone is in fact an employee there are further decisions and actions to take.
Contract of Employment
Firstly, a contract of employment should be drawn up. Technically contracts do not need to be in writing to be legally binding but it is obviously far better if they are so you have something tangible to refer to in the event of a dispute.
The contents of an employment contract will vary depending on the complexities of the job but the fundamental principles should remain the same. The main things covered in a contract are listed here:-
| Some aspects of a contract of employment |
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Registering new employees
EPS will register your new employees with HMRC saving you the time
You usually have to pay your employees through PAYE if they earn over a certain amount. You don’t need to pay self-employed workers through PAYE.
If an employee has to be paid through PAYE you must tell HM Revenue and Customs (HMRC) when you take on a new employee and be registered as an employer.
Before you pay your new starter you must get the employee information to work out their tax code, if you don’t have their P45 from their previous employer, use HMRC ‘s ‘starter checklist’ (which replaced the P46).
You’ll need your employee’s:
- Name
- Address
- National Insurance Number
- date of birth
- start date
From your employee’s P45, you’ll need their:
- full name
- leaving date from their last job
- total pay and tax paid to date for the current tax year
- student loan deduction status
- National Insurance number
- existing tax code
You must keep this information in your payroll records for the current year and the three following tax years.
You must then register your new employee with HMRC by including their details on a Full Payment Submission (FPS) the first time you pay them.
On this FPS, include:
- information you’ve collected from them
- the tax code and starter declaration that you’ve worked out
- pay and deductions (eg tax, National Insurance and student loan deductions) since they started working for you – don’t include figures from their previous job.