When you have a person coming to work for you such as a cleaner, carer or other type of help, you may be classed as an employer and take on the duties and responsibilities of this position including the need to deduct Income Tax and National Insurance contributions from their wages through the Pay as You Earn Scheme (PAYE). Older and disabled people will also acquire employer status when using the Direct Payments they have received from social services to take on someone to help with their daily needs such as cooking, washing, dressing, driving etc.
Who is defined as an 'employee'?
If the person you take on replied to your advert, carries out your instructions and only works for you, they will almost certainly be your employee. Conversely, if you buy services from a business that has several employees and works for several customers, that business is the employer, not you. Special rules apply to workers supplied and paid by agencies, which mean that the agency has to operate PAYE - not you. If an agency supplies someone to work in your home and you (not the agency) pay the worker, contact your Tax Office regarding PAYE.
There are also special rules for deciding if someone is employed or self-employed. This is called their 'employment status'. If a person is self-employed you don’t need to worry about operating PAYE.
When you must operate PAYE
Whether or not you need to operate PAYE (deduct Income Tax and National Insurance contributions from their pay and pay employer’s National Insurance contributions) depends on your employee’s overall earnings. The figures below are relevant for the tax year 2010-11.
If you pay more than £110 a week
If you pay your employee more than £110 a week you'll have to operate PAYE.
If you pay them between £97 and £110
If you pay your employee between £97 and £110 a week inclusive and this is their only job and they don’t get other taxable income, there are no tax or National Insurance contributions due, but you’ll need to fill in a ‘PAYE Deductions Working Sheet’ or equivalent record showing how much you pay them. This is because pay of £97 a week or more counts towards your employee's basic State Pension and needs to be recorded.
If you pay them less than £97
If you pay your employee less than £97 a week and they don’t have another job elsewhere - or other taxable income such as a pension - you don't have to do anything.
If they have another job or other taxable income
If your employee has another job - or other taxable income, such as a pension - you’ll need to operate PAYE no matter what they earn. This is because their tax-free allowances will normally be set against the pay from their main job or pension which means tax may be due on their earnings from you.
Simplified PAYE Deduction Scheme for domestic employees
There is a Simplified PAYE Deduction Scheme available which is a way of operating PAYE requiring less form filling than the PAYE schemes operated by most employers. You can use the scheme if your personal or domestic employees’ taxable earnings don’t exceed £160 per week or £700 per month (2010 -11) but, if their taxable earnings are more than this you must operate PAYE in the normal way and you should refer to the HMRC guide 'taking on a new employee’ for further information.
Registering as an employer
Where you have an obligation to operate PAYE you should contact HM Revenue & Customs (HMRC) to register as an employer. HMRC will then send you everything you need in the ‘New Employer's Starter Pack’. If you're eligible to use the Simplified Deduction Scheme, tell HMRC when you call and they will send you the Simplified PAYE Deduction Scheme Employer pack.
Avoiding employing someone illegally
Bear in mind that if you’re going to employ someone from outside the UK, you’ll need to make sure that they’re entitled to work here before they start working for you. The government has recently introduced checks that you must make on all new employees to safeguard you from employing someone illegally.
Using a payroll agency
Many people using the Direct Payments system do not want to operate PAYE themselves and there are payroll agencies that will do it on your behalf. You send them details of your employee's gross wages (before tax) and they operate PAYE and prepare payslips for you. The responsibility for PAYE remains yours where you engage a payroll agent to act on your behalf. Your social worker should be able to provide you with details of services operating in your local area.
Your employee's rights
As well as dealing with your employee's tax and National Insurance contributions, you also need to be aware of your other obligations as an employer. Anyone you employ - even if they're part-time or temporary - has employment rights. To find out more about this subject please click here (opens in new window)