Employed or Self Employed?

Employed or Self Employed?

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I work for a charity and need to know whether it would be best to employ someone or get them to work as a self employed person.  The details are as follows:

The man receives a NHS pension, we could issue him with a contract, the minimum hours he would work is approx 6 hrs a week and max would be 16, his rate of pay is £6.75 per hour so I guess he would have to pay tax or Nat Ins??  Would he be entitled to holiday and sick pay if put on the payroll.  He is happy to work self employed but I need to know what would be best for us as a charity. 

Any help would be great.

Thanks

Replies (7)

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By Phil Rees
03rd Sep 2010 13:19

Wrong question

It is the circumstances of the engagement that determine employment status. You can't just decide these things to suit yourself.

It sounds like he is employed. If you treat an employee as self employed then you are liable for the NICs, income tax etc that should have been deducted (with interest and penalties for good measure).

Proof that a worker is self employed usually involves (a) having a contract that does not name the individual (implying that he has a business structure of his own) and that excludes mutuality of obligation and (b) being able to prove that the contract is implemented in reality.

I am treasurer of a local charity and we pay the regular staff under PAYE. Only the fund raiser is self employed; ie she is genuinely self employed.

 

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the sea otter
By memyself-eye
05th Sep 2010 12:02

and also consider...

That if this person is an employee and you treat them as 'self employed' and the charity gets a PAYE visit - the trustees could ultimately find themselves personally liable for any subsequent incometax/NI shortfall.

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By taxhound
05th Sep 2010 19:17

Use HMRs Employment Status Indicator

I agree with the others.  You can't decide whether he is employed or self employed.  If you are not sure, run the facts through the HMRC's employment status indicator, which you can find here:

http://www.hmrc.gov.uk/calcs/esi.htm

Print off the results and as long as you have answered truthfully, HMRC are bound by the decision so it will give clarity.  You do not have to give your name or any other personal details when completing it.

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By pauljohnston
08th Sep 2010 11:36

From the figures

you have given there is unlikely to be any NIC.  So if he is PAYE (on the payroll)  the only cost to charity is running the payroll, holiday and sick pay

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By nkwayne
08th Sep 2010 12:41

Employed is safest

It is true that you will have liability to sick pay and holiday pay, but they are unlikely to be large amounts of money and that will pale into insignificance against a determination later on the it was a 'disguised' employment and the charity/trustees have to cough up for back tax and so forth.  Bear in mind the charity has probably got an even higher responsibility through charity status not to misuse the funds it holds.  A paye investigation which goes bad could be a problem with the charity commissioners.

And in reality the difference is minimal.  He is over retirement age therefore is not personally liable to NI.  The amounts are likely to always be below the employers NI threshold.  And as a self employed person he would pay tax on all he earned whether through the charity payroll or as a self employed person (unlikely he would have any real expenses against his income, and if he did, he could still claim them as an expense against employment).

So why bother with the risk?

 

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By Briar
08th Sep 2010 16:24

Ask HMRC for an arrangement

I had a client who worked low hours for a church (which did not have a PAYE system and did not wish to operate one). She had other income above the personal allowance level. We wrote to HMRC explaining the situation and they (kindly) agreed that we could treat the earnings as self-employed. Saved everyone a whole load of bureaucracy!

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By Siân Woods
13th Sep 2010 11:02

It is your choice

Hi,

The information you gave was not enough to determine whether the individual should be treated as employed or not.

It is obviously safer to take them on as an employee but there is no need to if that is not what is desired.  It is open to both parties to decide on the nature of the relationship and to agree the terms that follow this decision.

It is the terms and conditions of the relationship that determine the individual's status.  The most important of these are: personal service, control and mutuality of obligations.

Personal service
Is his personal service required?  You have not said what the job is but does it have to be that particular individual that completes it?  If he didn't want to do the work one day could he get someone else to do it?  Do you just want someone to complete it and don't really care who so long as the job gets done?

Control
An employer has the right to exercise sufficient control over the employee to create a "master/servant" relationship.  The most important aspect of control to consider is who controls how the work is completed but there are other areas to consider.  You mentioned that his hours will vary.  Who will determine this?  Him or you?  Where will the work be completed?  Can it be done anywhere or only at the charity's premises?  Why?  Who will decide what work should be done?  Who will decide how the work will be done. 

The final aspect is that of mutuality of obligations.  Will you be obliged to find work for him and will he be obliged to complete that work.  Obviously the intention will be that if you have work he'll do it but what will the obligations actually be?  Will you guarantee him any work?  Can he just decide he no longer wants to do the work or that he won't be available at various times?

Once you have answered these questions you can establish whether the relationship is one of employment.  Whatever the outcome you should ensure you put a contract in place that reflects the position.  There is a requirement under employment law to provide employees with the terms of their employment.  It is also useful in a self employed relationship.  Both parties know their rights and obligations which can save disputes at a later date.  It also demonstrates the position to any interested third party, such as HMRC.
 

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