Flexible Workforce Options
At Pier Consulting, we ensure our clients understand their options when it comes to engaging flexible workers.
Helping you to navigate complex employment law
The increasingly complicated world of employment law, especially in relation to flexible workers, can be a headache. We aim to make it as simple as possible to understand your options and legal obligations. As your compliance partner, we give you the advice and guidance you need to make the best decision for your business.
Advice for Engaging Flexible Workers
As a client or end-hirer, however you choose to engage flexible workers, you must be aware of how workers are paid. You have an obligation to understand payment options to ensure you are not seen to be ignoring the rules, and that you are aware of the implications to your own business should you engage flexible workers from an agency that is not adhering to regulations.
If you already engage flexible workers or you are considering engaging flexible workers, it is essential that you use a professional recruitment agency to protect your own business and give you complete peace of mind. A professional agency will be able to advise you regarding each assignment, and will use a professional payroll provider.
We do everything in our power to keep our clients informed and within regulations
All of our clients receive confirmation paperwork for each flexible worker that clearly states how each worker is engaged and we are always on hand to help with any specific questions or queries.
Below, we break down the various options for engaging flexible workers, including payroll options and your responsibilities as an end hirer.
A PAYE worker’s pay is subject to income tax and national insurance contributions (NIC).
At Pier, we engage many workers as PAYE workers. Lots of workers choose to be paid in this way, but workers within the Supervision, Direction and Control (SDC) rules, must be paid as a PAYE worker. There are a variety of workers caught under the SDC ruling in the construction industry, including Labourers, Trade Mates and Skilled Labourers.
All PAYE workers are protected by Agency Workers Regulations (AWR). Under AWR, workers have day one rights, and 12 week pay and condition rights that end users must confirm and provide to the agency they are hiring from.
Breakdown of pay for a PAYE worker:
Pay Rate + Holiday Pay + ENI (Employers National Insurance) + Pension + Agency Markup = Client Charge Rate
A self-employed contractor will be registered as self-employed. Within the construction industry, they will be registered with the Construction Industry Scheme (CIS) and have a valid unique taxpayer reference number (UTR). CIS contractors are sole traders and do not typically operate through a Limited entity. Generally, self-employed contractors within the construction industry are skilled and qualified workers.
Before you engage a flexible worker as being self-employed, it is essential that you clarify with your agency that SDC does not exist with the contractor you are engaging. If SDC does not exist with the contractor, they will not be supervised, directed or controlled as they undertake their duties and as such, they can be paid as genuinely self-employed.
At Pier, we follow a 5 step process prior to engagement to ensure that a contractor will truly be self-employed:
- We ask the client if SDC will apply to the contractor
- We ask the contractor to complete a self-employed questionnaire to confirm that they believe they are self-employed
- Our payroll partners repeat these checks during the registration process
- We will have checked the trade of the contractor against the HMRC Employment Status Indicator (ESI) outcomes to ensure that their specific trade can be paid as self-employed, and that we can provide our client with the ESI reference number on our paperwork
- We provide a job description that is specific to the self-employed trade that we are about to supply
Breakdown of pay for a self-employed contractor:
Pay Rate + Agency Markup = End Hirer / Client Charge
Flexible workers often don’t understand how Umbrella engagements work, and in our experience, this is usually because of a lack of communication between an agency and a flexible worker.
For example, if an agency or client changes a flexible worker’s payment method from self-employed (CIS) to a PAYE Umbrella Worker, and no adjustment is made to their pay rate, the flexible worker will see a significant reduction in their take-home pay.
Please note: if a worker is caught under the SDC rules, they cannot be self-employed and must be paid as a PAYE worker.
When a flexible worker has PAYE deductions taken from their pay, it’s essential that both the client and flexible worker understand what this change will mean for the worker.
Breakdown of pay for a PAYE Umbrella Worker will include an umbrella comparative rate from a CIS rate and then it should include the following:
Pay Rate + Hol Pay + ENI + Pension + Apprenticeship Levy + Agency Markup = Client Charge Rate
Due to the new IR35 regulations implemented in April 2021, the decision making and responsibility associated with this type of working is now on the client. As such, a lot of our clients have become completely risk averse, and decided not to employ flexible workers through this route.
However, if the correct processes and procedures are followed, this is still a valid way of working provided that both the client and agency know which category of IR35 the flexible worker can work under, once the worker has taken the CEST test.
If you are a small business, you may be exempt from the IR35 payroll rules when engaging LTD/PSC contractors. A small business is exempt if it meets the definition of a ‘small company’ as set out in sections 382 and 383 of the Companies Act 2006. A small business will meet the definition if two or more of the following three criteria apply:
- The company has a turnover of not more than £10.2 million per financial year
- The company has a balance sheet of not more than £5.1 million per financial year
- The company has no more than 50 employees
If you are classed as a ‘small company’ and are therefore exempt from the IR35 Payroll rules when engaging LTD/PSC Contractors, you must complete a declaration to the agency you are using to confirm this exemption.
The public sector reform in 2017 and private sector reform in April 2021 means that if a business is not a small company, the responsibility for assessing the IR35 status of an assignment now falls to the client (and not the contracted worker).
When an assignment is within IR35, the contracted worker should be taxed at a similar rate to a regular PAYE employee. The contracted worker is not able to receive the tax benefit of working through a limited company.
If the assignment is inside IR35 (as agreed by the contract review and client), the fee payer (the organisation that pays the PSC) will be responsible for the following:
- Making PAYE RTI submissions to HMRC
- Deducting PAYE tax
- Deducting National Insurance
- Paying employers’ National Insurance Contributions
If as a client, you choose to engage workers in this way, you are responsible for the tax liability. You could potentially receive a hefty fine if you are seen to be ignoring this rule. To ensure this doesn’t happen, it is essential that you use reasonable care to determine the IR35 status.
If a worker is operating as a genuine business, they are operating outside of IR35 rules. This means that a worker is able to pay themselves a salary, draw the remainder of the income as dividends, and remains responsible for their taxes.
This means that:
- The correct contractual arrangement is in place with your business (as the client) and the worker
- A CEST test has been taken and the outcome is ‘outside IR35’
- A Statement of Determination Statement (SDS) has been provided to the whole supply chain
- Care has been taken to ensure that all of the correct processes have been checked, resulting in the correct decision, and it is agreed that the worker is acting as a genuine business.
There are 10 factors to determine that a worker is outside of IR35, that you need to be aware of:
- Control and Direction
- Personal Service/Substitution
- Mutuality of Obligation
- Provision of Equipment
- Financial Risk
- Regularity of Payment
- Part and Parcel
- Exclusive Service
- The Intention of the Parties
- Operating as a genuine business