Is your company looking to take on some temporary workers over the summer months? Do you
know what you need to do to keep your tax and NI bill to a minimum? Avoid unexpected casual staff costs.
When HMRC introduced real time information reporting for payroll data, the rules for temporary and casual workers changed. Until then HMRC had given employers flexibility to not apply the full PAYE rules for very short term and casual workers. This concession was withdrawn except for farmworkers. This doesn’t prevent businesses from using casual labour but it can lead to tax and NI problems in cases where they are paid in hand i.e. you agreed to pay an after tax and NI amount, this can lead to unexpected casual staff costs.
Terms of work
If a worker is not supplied through an agency or other third party and carries out the work on a self- employed basis, PAYE and NI do not apply to their pay. If your company wants to adopt this approach, then you need to ensure that you agree to terms of work that do not create an employer/employee relationship; otherwise HMRC can hold the business liable for the PAYE and NI that ought to have been deducted from the worker’s pay.
Paying a worker, whether temporary or permanent, cash in hand means you must work out the corresponding amount of pre-tax and NI pay. As you have agreed a net pay figure with the worker (which is a contractual obligation) you have to pick up the bill for the tax and NI for both employee and employer. Which can be costly.
For example, ABC Ltd takes on two students for three weeks at £260 each per week. This doesn’t give the company sufficient time to sort out the necessary paperwork before it pays the students and the students don’t complete the new starter checklists that have been given. The consequences of which are significant for ABC Ltd – see below the calculations for each employee per week:
Gross weekly pay £342.00
PAYE tax at 20% £68.40
NI at 13.25% on pay above £242 £13.25
Workers net pay £260.35
Employers NI at 15.5% on pay over £175 £25.13
Total tax & NI costs to ABC Ltd £106.78
The total cost of tax and NI for the two temporary workers over three weeks is £640.68. This has increased the cost of temporary labour by 41% from £1506 to £2204. If ABC Ltd had obtained completed new starter checklists the tax and NI bill could have been reduced to as little as £139, lowering the overall costs of the labour to £1753, saving £451.
A simple solution is to not pay casual workers on a net pay basis, instead agree a figure for gross pay, so that the tax and NI comes out of their pocket instead of your company’s.
If you found that helpful, why not read our most popular blog, The Tax Dos and Don’ts of Employing Casual Workers.