Employing casual workers? Tax tips for taking on short-term employees

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Employing casual workers? Tax tips for taking on short-term employees

Payroll for casual workers can be notoriously tricky and therefore we recommend that you should take extra care when processing pay as one mistake can cost much more when it comes to tax and NI… so what to do?

The duties of an employer

Nowadays an employer is not obliged only to cover a fair wage reflecting a fair day’s work. An employed is also responsible for providing welfare, NI contributions as well as a mandatory workplace pension. PAYE systems have become increasingly complex in order to account for vast and increasing employer responsibility for unpaid tax and NI. Any discrepancies will penalise the employer and it will be you left with the fine. Be cautious of this when employing casual labour!

The rules are not the same

There was a time when HMRC were fairly relaxed as regards casual workers, especially where the term of employment was 7 days or fewer. But this has changed; at the moment the only exception is for harvest workers/beaters. On the most part, if you are employing labour for less than two weeks you can pay without deducting PAYE or NI.

So what’s our advice?

Twofold – firstly, outsource your payroll to a competent and fully qualified accountancy firm like Marden & Co and secondly run payroll with a ‘one size fits all’ policy that treats casual and short-term employees no differently from permanent staff including notifying HMRC of their start/end dates on a full payment submission (FPS).

When you employ someone for a matter of days or weeks, for example a student in the holidays, the chances are they won’t have a P45 from a previous job. So you should give them the usual ‘starter checklist’ to complete and establish the correct code to work with.

Marden & Co would suggest this is one of the ‘first day’ tasks – it only takes a minute and makes sure all the T’s are crossed and the I’s are dotted.

We would also recommend you steer clear of the trap of using an emergency tax code if you haven’t been given the P45. Without it you must use code BR, or insufficient tax will be collected and HMRC is likely to ask you to pay the shortfall. Also avoid agreeing a cash-in-hand amount of pay as this can cost you more than you might think!!

Here’s an example – ACME take on a student to fulfil temporary work with £50 in hand for each day worked (covering minimum wage requirements). After working two weeks (or 10 days) the student is paid… but… oh dear… they haven’t completed a ‘starter checklist’. ACME must account for tax on the employee pay using BR tax code meaning a total day rate for the employer of £73 (or £730 for 10 days work!) ACME are paying almost half in NI and PAYE, whereas with the starter checklist they could have used an emergency code and reduced the total cost to £580!

But listen, you have a business to run – so why not share the load and let our experts in payroll, tax and accounts take care of you and provide the know-how and protection you need. Visit our payroll page http://mardenandco.co.uk/our-services/payroll/ or get in touch today on 01737 851 761 or email us on info@mardenandco.co.uk for a chat about how we can help.