Changing self employed workers status to employed - help!

[sophierosie]

I've posted a few times on here about some queries I've had in my current role and now have discovered something that is quite significant for the charity.

My current issue is that some of the staff are employed as 'self employed' and therefore make their own arrangements in terms of paying tax etc. Now I have a v strong feeling that they should be employed by us. I have checked on inland revenue website and on their checklist they would most definitely be seen as 'employed' by us.

So, how on earth do I go about making this change? And what implications, if any, would there be in terms of claiming any previous years tax/NI from us. I would have thought that each of the employees would have made all their payments in terms of tax/NI as part of their self employed status so we shouldn't be liable for previous costs? Would that be correct? Also would we be fined for employing staff on the wrong basis?

This is a big step change in terms of the organisation as 'its always been done like this' and my administrator is convinced that they will all leave as they won't be happy being employed! Happy days!

I haven't yet spoken to my chair of trustees about this but really want to get this sorted for the beginning of the next financial year...

Help!

Just tell them (the self employed lot) that you believe they meet the definition of employed. I've had to do that with a few people this week grrr and they weren't best pleased either.

Before you do that, if you are worried about losing them (i.e. they won't be easily replaced), have a word with your chair of trustees/whoever decides salaries, because you may get them requesting to earn what they clear at the moment as a net salary which will cost you a HUGE amount more than their cost does now iyswim (once you've added on the PAYE, their NI and the employer's NI!).

Couple of quick points, will come back to this later

There are benefits for them in being employed, employment rights, maternity pay, SSP, paid holiday, etc etc etc, so your administrator may not be right in all cases.

Do think about how disposable they are if they get the hump about it.

I would probably try and have a word with an adviser at the HMRC, if there are lots of them it might be worth talking to someone about a 'clean slate', starting all these people again on the right footing and not making an issue of the fact that they may have been incorrectly employed for a long time. I have no idea how amenable the HMRC would be to that.

I'll be back later when I haven't got DS causing havoc and had a chance to think properly.

Thank you!

I am slightly concerned about losing some of them, but I think we could always find replacements as there are so many people looking for the type of work that we are offering. Its just that they may not be as experienced as our current team.

Yes, I agree about the benefits - I was hoping that the proposal of offering holiday/sick pay etc would act as a selling point!

Re Salaries - I'm aiming to recalculate their current hourly rate minus deductions for tax/NI. Some of them will be exempt from NI and tax as they won't earn enough.

One problem with the benefits is that is it not actually the tax treatment that determines employment status - there have been cases of self-employed individuals (who should correctly have been treated as employed) claiming unfair dismissal, SSP, maternity etc.
If they ARE employed (ie that is the facts of the matter regardless of how they are treated) then they need to be treated as such, both to protect the employer on the tax side, and to clarify the position to the individuals.
If HMR&C did an inspection and concluded they are employees - it would be the employer that would be liable for 6 years of back NI, PAYE, penalties, interest...

Exactly, chasingsquirrels, they are employed at the moment, but they are (or might be) saying they want to be self-employed, so explaining some of the benefits of employment might help.

Clearly if one of them got pregnant and decided to claim maternity pay she would be entitled to do so. But their correct status needs to be formalised for tax and employment purposes. You could do as foxisocks says and 'just tell 'em', but sweetening it a bit, for their cooperation, with a lovely 'sell' about the benefits of employment might help.

sophierosie I would advise you to speak to HMRC because of the issues chasingsquirrels mentions about employer liability for all that stuff. I don't know, but if you approach them and say 'this is the situation, I have come here and realised this is not right so I am doing something about it, (rather than waiting to be found out )and by the way we are a charity', they might be helpful and lenient with regards to penalties etc

In terms of speaking to the individuals concerned, you should say that you have looked into their situation, and their status is actually employee, show them the stuff you have found, then say you propose to issue them all with appropriate contracts of employment, blah blah, plus say about how wonderful it is to be an employee really, and were they aware of all these marvellous benefits they are entitled to?

sophierosie how many people are we talking about here? You're not an HR person are you? Do you have one helping you with contracts etc and a financy-type person about the tax stuff?

It will impact on 5 people. Some of whom are employed elsewhere in statutory services, some have their own private practices as well.

No, I have a basic knowledge of HR from a previous life, but this is v out of date, and have certainly never had to deal with anything like this - have done standard stuff and had training around grievances/interviewing/various policies etc.

Unfortunately there is no one I can call upon within the organisation who could offer help with contracts etc. We do have an accountant and a volunteer bookkeeper, but none of the trustees have HR as a speciality and to be honest I'm not entirely sure they are aware of the implications of the current situation.

Chasingsquirrels - so we would be liable for 6 years of tax/ni etc ever though it would have been paid by those as self-employed through their tax return?

I'd have to double check, but i think I am right in saying that the amount you have paid them would be treated as if it was the net amount - so would have to be grossed up and you would then have to pay the PAYE, ee's NIC and er's NIC, regardless of the fact that they have paid tax.
This is a worse case scenario though.
Whether to approach HMR&C is a killer, at best they would be helpful, advise on status and ignore the past, and worse they would totally screw you.

employment is a grey area though (well mostly it is pretty black and white, but there are very grey areas).
ie, if you have people with their own practices, who work for others etc.
You need to consider each individual on a case by case basis - and probably need someone specialised to do so.

Oh god, it really is going to be a nightmare

When I took up the job I was under the impression that I would be spending most of the time fundraising and some day to day finanial management - not pulling them into line with regards to good practice. To make matters worse when the administrator started 10 years ago she raised this with the then manager and was told to keep quiet about it...

at 'keep quiet'

sophie I've emailed you.

I know - When I raised it today with the administrator she said that she always thought they should be employed by us - Well why didn't she raise this with me when I started? Grrr.

Have emailed you Flowery.