Self employed equivalent pay

[Colakit]

As an employee in a shop I earn minimum wage (£12.21 per hour). I only work to fill in when needed so some weeks I work, for example, 3 days a week, other weeks not all. Basically a zero hours contract which suits me very well.

But my employer has asked that I come off their books and become self employed, sending them an invoice for work done. How much do to need to charge them per hour to cover the employee benefits that I will now lose, like holiday pay?

I roughly calculated £15.50 per hour but when I suggested this to the boss she screwed her nose up and asked me to look at it again. I don’t want end up working for less than minimum wage.

That isn't a self employment situation.

While the engager would be taking most of the risk in this situation, there is still some risk for the engagee.

I suspect the whole reason they are asking you to do it is to avoid holiday pay, tax, NICs and sick pay! So it isn’t a surprise she doesn’t want to pay the extra. She’s hoping to effectively pay less than NMW and lose the holiday liability to boot.

To answer your specific question, you’d add 12.07% to the hourly rate to cover holiday pay. But if it’s not a genuinely self employed arrangement then the fines from HMRC could cost them a lot more!

How long have you worked there? Are you an employee or zero hours worker?

They can't do that (well they can but it wouldn't be lawful). You would never pass the test for self-employment - they retain total control of what you do and when you do it. She screwed up her nose because she wants to save money by operating unlawfully, and she knows it.

Sorry that doesn't work for me is your answer

I’ve worked there 2 1/2 years. Until Oct 2024, I worked 4 days a week but switched to a fill-in role to suit myself.
I know they’re trying to save money on holiday pay etc but I must cover what I would be losing and they’d be saving,

I doubt they can do this, its disguised employment and you could report it.
However, you will lose your job and somebody else will probably do it.
You need to charge around 30% more than as an employed person and you will also need to keep records, do a Tax return etc.
As a properly SE person who also does IR35 reviews to check that SE is genuine I am pretty confident this is not a SE situation you are describing

I think the average cost to an employer is in the ballpark of 1.4 times the salary once you add in holiday pay, NI, payroll , HR, sick pay etc. So even at min wage the cost to an employer is around £17 an hour. Just adding in statutory holiday pay brings you up to nearly £13.50 ph so I think your £15.50 is pretty reasonable.

I assume you’d have to register with HMRC as self employed, file a tax return, send invoices all for less than the average min wage worker?

I don’t think it’d even qualify as self employed according to HMRC test.

Don't forget you'd be missing out on employer pension contributions. I'm not sure of the figures but I'd factor at least 5% of your existing salary for this.

If you do take this arrangement, make sure to report your employer to HMRC as they are acting illegally and you absolutely are an employee.

As PP’s have said, self employment is not a choice either you or your employer can make, but is dependent upon the facts - and the facts are you are an employee.

Use this HMRC calculator:

https://www.gov.uk/guidance/check-employment-status-for-tax

Dont be coerced into anything else, you could become liable for all sorts. Your employer has already got a very good deal with you on a zero hours contract.

Just go back to your employer and say that, having done some research, you don't think self employment is an option because, based on the legal definition, you're still an employee.

Yeah, this is not how self employment works.

It's an employer trying to dodge the NIC raise and you can bet that HMRC will be on the lookout for this sort of nonsense for exactly that reason.

Boatload of faff for you, registering, invoicing, keeping accounts, filling in tax returns etc and all the benefit to them. Don't do it.

I wouldn’t do this - think of the sick pay you are giving up. Seems like a win-win for the employer??

Yes this is good advice - say you checked with the HMRC self-employment checker and unfortunately it's doesn't come under self-employment.

If you slip and hurt yourself, or a customer, or break something, you will be liable as a self-employed person. So you'd need to start paying liability insurance and all sorts. But it's just wrong, so let them know.

This is a good point
You may need professional indemnity and public liability insurance

Thanks for the advice everyone. I’ve decided to tell her I won’t do it. Sounds too dodgy.

If I become self-employed, I won't get holiday pay, employer NI, or a pension. To make up for that, my hourly rate needs to go up. When you add these to £12.21, you get about £15.50–£15.70 an hour. Anything less would put me below the minimum wage.

We pay (genuine) self employed subcontractors about double what we pay employees. It’s not only holiday & sick pay, it’s insurance, pension, admin time spent invoicing & doing tax returns. Plus you’d have no protection for unfair dismissal.