Why does it matter?
With the rise in the number of firms using temporary staff and freelance contractors, more HR departments are opting to outsource their payroll functions for such workers.
There are good reasons to do so, particularly for small and medium-sized businesses that wish to avoid the expense of a full-time in-house payroll team. However, there are certain key points that HRDs must bear in mind.
‘Due diligence’ on any payroll provider you work with. The Criminal Finances Act 2017 made it a criminal offence to avoid paying taxes in the UK or abroad – everyone can be held liable. If you are completely outsourcing ensure your provider is making the right deductions for tax, National Insurance (both employee and employer contributions), pensions and the apprenticeship levy (if applicable) and paying the correct funds to HMRC. If they are completing a bureau service for you all the reports and submissions should be reported to you.
Be flexible. Companies and agencies should operate a preferred suppliers list. Some might have just one provider but this will limit the pool of contractors you work with. Contractors who regularly work for a range of different recruitment agencies may have their own payroll provider they want to stick with – otherwise they end up with multiple tax codes and an accounting headache. So be flexible. Another tip for HR people: if a recruitment agency you work with tells a contractor they must use a particular payroll provider, with no choice given, this could be because rebates are in place. So be aware that there may be a problem with the Act mentioned above…
Make it clear to contractors what the benefits and costs are. For HR departments (or the recruitment agencies you may enlist), with a preferred supplier list the costs and services for each provider should be communicated. This allows the freelancer to make an informed decision on which provider to choose based on fees, service, perks, pension provider and if they offer advances against wages.
Try and avoid PAYE and workers’ rights. The rules on when someone is a freelancer, employed, self-employed, their own limited company or personal service company are so complex that even HMRC gets it wrong sometimes. But HMRC will come for you – and can claim up to seven years of back taxes.
Treat freelancers like commodities. Even if someone isn’t a full-time employee still treat them as such. Ensure that if their pay is outsourced the provider gets the money in good time to cover wages.
Forget to check bona fides. A reiteration of our first ‘Do’ item... but it’s so important. Check everything. What professional bodies or accreditation schemes are they members of (such as Professional Passport and APSCo)? What recruitment agencies or large companies do they work with, and can they provide testimonials? Are their submissions to HMRC up to date and their accounts in order?
Sarah Johnston is managing director of ePayMe