Employing casual workers? Know your tax rules!

As we head into the Christmas season, all kinds of small and medium-sized businesses find themselves needing to get in extra staff to help with the busier period. This is often achieved by employing casual workers, that is, people who work for you for a short period or when required to suit your business needs. However, there are certain considerations for processing these workers’ pay – and how to avoid paying more tax or NI than necessary.

Here are four of the main PAYE issues relating to casual labour and ways you can prevent problems arising.

#1: The cost is on you: As an employer, you must pay your workers a fair wage and provide workplace pensions, welfare and more. You also need to ensure you avoid collecting too little tax or NI by operating the increasingly complex PAYE system – as you’ll be responsible for any mistakes.

#2: No job’s too small… to be taxable: HMRC don’t offer relaxed rules for short-term workers anymore (under one week’s work); currently the only concession is for short-term harvest workers and beaters for shoots.

#3 Cutting corners could be costly: If you’re employing someone for a very short time, say a few days or weeks, such as over Christmas, they’re unlikely to have a P45 from a previous job. You will therefore need to give them the ‘Starter Checklist’ information needed to establish the correct PAYE code. As tempting as it is, what you mustn’t do is use the emergency code to work out their tax. Use code BR, or insufficient tax will be collected and you’ll be asked to pay the shortfall.

#4 Cash in hand isn’t always cheaper: Paying cash-in-hand is popular with casual labourers; however, it could work out more expensive than you realise. Take our example:

Say Kerry took on a causal worker, Tom, for some temporary Christmas shop work. She agrees to pay him £50 in cash, per day (meeting the minimum wage requirement). She pays Tom for ten working days, but he leaves before completing the Starter Checklist. Now, Kerry must account for tax on Tom’s pay using code BR. To arrive at the £50 per day Tom was paid, it costs Kerry £730 (£73 per day) for the ten days, meaning the PAYE tax and NI has cost Kerry almost half as much as the pay. Note: Had Kerry obtained the Starter Checklist, she could have operated an emergency code, which would have reduced her cost to just over £580.

Ways you can avoid tripping up over tax on casual workers

  • Always tackle PAYE for casual and short-term employees as you would for permanent staff (the only exclusion is harvest workers/beaters). This will mean notifying HMRC of their starting and leaving details on a full payment submission (FPS).
  • Complete a Starter Checklist on day one. Ask all new starters – whether casual or not – to fill out a starter checklist as one of their very first tasks.
  • Avoid paying cash-in-hand. Using normal pay arrangements for casual workers will help you avoid unexpected tax and NI costs.

 

For expert advice and support with your PAYE, contact the team at ADM Accountancy on 01242 679767 or email andrew@admaccountancy.co.uk

 

Photo by Charles Koh on Unsplash

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The information contained in this website is for general information purposes only. The information is provided by ADM Accountancy Services Ltd and while we endeavour to keep the information up to date and correct...
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ADM Accountancy Services Ltd
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