Small businesses, especially start-ups prefer to hire self-employed workers instead of permanent employees. This is mainly because they can save a lot when it comes to taxes and employment rights that only employees are entitled to as per HMRC.
Though self-employed workers charge a comparatively higher amount than a regular employee, it could still turn out to be an expensive affair for any business. A business should never fall for this as there are countless risks involved in hiring a self-employed worker.
Not to mention, HMRC is also on a constant lookout for companies who take on self-employed workers solely to save taxes. This doesn’t mean that you shouldn’t hire one, but you have to be legal in your business conduct and provide HMRC with their employment status beforehand.
However, there are some guidelines published by HMRC which helps businesses find out whether someone who works for them should be treated as an employee or as a self-employed person. Also, the total revenue of a company will decide whether self-employed workers should be considered as employees or not.
How HMRC Will Decide A Self-Employed Worker Should Be An Employee?
Depending on how you work with self-employed workers, HMRC will look for certain factors to find whether they are your employees or not.
These factors are:
- Working with a self-employed person without a written contract.
- You’re paying them at a weekly, hourly or daily rate.
- The self-employed person has all rights and responsibilities of an employee.
- The self-employed person has an active portfolio with your clients only.
All these factors will ensure that these workers are your employees, and not self-employed personnel. But, they have to pay more tax as employees and if somehow they’re not paying the required taxes, then you as an employer will be responsible for paying their tax and resulting penalties.
People That HMRC Pick For Investigation?
HMRC targets specific organisation for the investigation on the basis of yearly revenue. By analysing the monthly returns of a year, HMRC can ‘data mine’ submissions in real-time looking for ‘hallmarks of employment’, such as:
- Self-employed person having only one client or employer.
- Self-employed person receiving regular fixed amount from the employer.
- A self-employed person not paying any other self-employed worker.
If HMRC finds any organisation working with these kinds of self-employed workers, then it becomes a subject for HMRC investigation.
Cost of Converting Your Self-Employed Workers Into Employees
Converting your self-employed workers can cost you much as the overall payroll of the company will be increased by 28% to 40%. There will be many costs involved in it some of which are:
- Insurance costs of employees
- Holiday pay
- Additional costs for dealing with PAYE and employment rights legislation
- Costs of paternity and maternity leaves and much more.
This is an overall estimate of the increased payroll which you will have to pay after converting your self-employed workers into employees.
What Is The Alternative For It?
Yes, there is an alternate option to save yourself from being a target of HMRC and reduce the payroll of your company if you outsource your self-employed workers to an intermediate contractor.
How Safe It Is To Use An Intermediate?
Every solution provider is not equal as compared to others in any industry. It is entirely safe to take advice from a reputable, audited and compliant contractor who has already dealt with HMRC.
If you wish to know more about how you can be more in line with HMRC’s strategies with respect to self-employed workers, then get in touch with us today!
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