Tax Questions: The Cost of Temporary Workers
Summer is on the way and for many businesses this means taking on temporary workers, including those in agriculture, hospitality, tourism and retail. Some workers stay for a season, others work a week or two. When it comes to paying temporary workers, there are some tax and NI considerations you might not yet be aware of.
If you pay a worker (temporary/permanent) cash-in-hand, you’ll be liable for all tax and NI (employees and employers) on their pay. This could increase cost of labour by up to 41%. To reduce or avoid the extra cost tell the worker they won’t get paid until they’ve completed HMRC’s starter checklist or agree a pre-tax and NI wage.
How temporary workers tax is calculated
When HMRC introduced real time information (RTI) reporting for payroll data, rules for temporary and casual workers changed. Before RTI, full PAYE rules didn’t apply to short-term/casual workers. This exemption now only applies to farmworkers.
Having to apply PAYE to temp workers can lead to tax and NI problems where cash-in-hand is involved, that is, if you agree to pay an ‘after tax and NI amount’.
If a worker isn’t from an agency or another third party and carries out work on a self-employed basis, PAYE tax and NI don’t apply to their pay. If this is your route, agree terms of work that don’t create an employer-employee relationship, otherwise HMRC can hold you liable for PAYE tax and NI that ought to have been deducted from pay.
Paying a worker, (temporary/permanent) cash-in-hand means you have to work out corresponding amount of pre-tax and NI pay. As you’ve agreed a net pay figure with the worker as it is a contractual obligation, you have to pick up the tab for tax and NI (employees’ and employers’) and it can be costly.
Tell temporary workers they won’t get paid until they complete and return a HMRC starter checklist. Or, don’t pay temporary or casual workers on a net pay basis, instead, agree a figure for gross pay so tax and NI comes out of their pockets instead of yours.
For help with any of this, request a chat with our tax team on Let’s Talk.