Tax dos and don’ts of employing casual workers

The important things to know when employing casual workers

There are potential pitfalls to watch out for when employing casual workers.

As an employer you probably know from experience that these days you must not only pay workers a fair wage for a fair day’s work, but provide workplace pensions, welfare and much more.

You also have to act as unpaid tax and NI collectors by operating the increasingly complex PAYE system.

An error that results in too little tax or NI being collected can leave you footing the bill.

What to look out for if you are employing casual workers

At one time HMRC took a more relaxed approach to employing casual workers where they were employed for a week or less.

However, currently the only concession is for short-term harvest workers and beaters for shoots.

Broadly, if you employ them for two weeks or less you can pay them without deducting PAYE tax or NI.

Since the introduction of RTI, the golden rule is that, apart from harvest workers/beaters, you should treat PAYE when employing casual workers and other short-term employees in the same way as for permanent staff.

This includes notifying HMRC of their starting and leaving details on a full payment submission.

Beater on a shoot

When employing casual workers for a matter of days or weeks, e.g. students in the holidays, the chances are they won’t have a P45 form a previous job.

In this case you should give them the usual “starter checklist” to complete to establish the correct code to operate.

What Tax Code To Use

When you pay an employee, temporary or otherwise, who hasn’t given you a P45 or starter checklist, don’t make the mistake of using the emergency code to work out their tax.

You must use code BR, or insufficient tax will be collected and HMRC is likely to ask you to pay the shortfall.

What About Cash In Hand?

Another trap is agreeing a cash-in-hand amount of pay as this can cost you more than you think. Let’s look at an example.

A company takes on a student for temporary work. It agrees to pay him £50 in their hand per day (which meets the minimum wage requirement).

The student is paid for 10 working days but leaves before completing the starter checklist.

The company must account for tax on the employee’s pay using code BR. To arrive at the £50 per day it has paid, it costs the company £730 (£73 per day).

This means the PAYE tax and NI has cost the company almost half as much as the pay.

Had the company obtained the starter checklist it could have operated an emergency code, which would have reduced its cost to approximately £580.

Get in touch for more advice on how to handle employing casual workers.

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