Staff: PAYE or Self Employed?

When owning an electrical business of any sort you will no doubt need to hire staff. You need to decide whether to pay them by the PAYE system or hire them as self employed contractors. There are legal obligations regardless of how you pay your staff.

Contract of Employment

Any person who works for you must have a contract of employment. They must sign the contract and you must sign as well. Both parties should have a copy and if at any time the work agreement is changed there must be an amendment to the contract kept on file and signed by the staff member. The contract does not have to be a long technical document as long as it has the hours of work, the staff member’s duties and how much they are to be paid plus when they are paid and how. Entitlements and any other important items should also be shown. This could be in the form of a letter as long as the staff member has written agreeing to the terms.

Permanent or Regular Hours

If the staff member is to be permanent or is to work regular hours and takes their orders from you then they are technically supposed to be put on the PAYE system. This means that you calculate their pay, deduct their tax and national insurance and give them the net figure along with a pay slip. They can be paid weekly or monthly but it must be at a regular time. As the employer you will have to pass on these deductions to the Inland Revenue along with a portion of money that is the employer’s part of the national insurance for each staff member.

Employing Self Employed Staff

Many employees in the electrical trades are self employed. They may be hired for a set contract or the job may be ongoing. Technically self employed people take care of their own tax and national insurance payments and they are registered with their tax office as self employed. A self employed person uses their own tools, often supplies materials as well and then invoices for their hours and parts used. If the time comes when the self employed person works solely for one person full time they should be put onto the PAYE system.

Tax Self Assessment Form

At the end of each tax year a self employed person must complete a self assessment form and submit it to the Inland Revenue who will calculate the tax due for that years work. Self assessment can be completed on line and is quite user friendly. The self employed person must keep records of their earnings and their expenses. If this is beyond your capabilities then an accountant or bookkeeper can be hired to do this for you.

Casual Workers

Sometimes the business owner may use someone for a few hours work and pay them on a casual basis. The causal worker must either sign to say they have been paid this amount of money or they must supply an invoice. Regardless of the persons status they have earned a wage and must declare it to the inlands revenue and tax must be paid.