Growing a business comes with its many rewards but also has its challenges. As the work demand increases, so will the pressure on the existing workforce and employers will need to make a decision…do we need to push forward with recruitment and hire new employees or should we just use contractors instead?
There is no one size fits all answer to the employees vs contractors debate. Ultimately, the best option for the business will come down to a number of factors which we will explore further below.
Topics to be answered in this article
What does employing a person mean?
An individual’s employment status impacts both their rights and their employer’s legal responsibilities to them. Under UK employment law, there are three categories of employment status:
- Employees – who have a number of employment rights.
- Workers – who have fewer employment rights.
- Self-employed individuals – who have no employment rights. Independent contractors would fall within this category.
Compared to hiring a contractor, hiring an employee is a longer term two-way relationship that comes with duties and obligations attached. This includes the mutual duty of trust and confidence (which essentially means that both employer and employee have a responsibility to treat the other with respect and trust) and the employer’s obligation to provide work to the employee and for the employee to then subsequently undertake this work. Other key employer responsibilities include:
- Providing their employees with a safe working environment. This includes taking reasonable steps to protect them against workplace bullying, discrimination and work-related stress
- Providing a written statement of particulars which sets out details of the individuals employment including the responsibilities of their role .
- Making statutory payments including: statutory sick pay, maternity pay, paternity pay and adoption pay and (provided the individual has also obtained two years’ continuous service with the business) statutory redundancy pay where an employee is being made redundant
- Paying agreed salaries (at or above the National Minimum Wage) and providing payslips which detail all deductions (e.g. National insurance Contributions)
- Registering with HM Revenue and Customs for the purposes of payroll, tax and other deductions and following PAYE regulations
- Ensuring their employees take regular breaks
- Automatically enrolling employees into their pension scheme and making the minimum monthly employer pension contributions
We fully appreciate that this can seem rather overwhelming at first glance but we are happy to help simplify the process of recruiting new employees, and actioning the employer responsibilities that accompany this, so that employers can instead focus their attention towards the benefits that come from hiring new employees.
What are the benefits of employing someone?
Employees are in it for the long haul
Employees are usually hired on a long-term basis and consequently can commit to multiple projects for the business no matter their timeframe. This commitment often comes hand in hand with a dedication to the business itself – as employees are more likely to be invested in the future of the business and where their career development fits in with that. They will also have better familiarity with the workplace culture and business ethics and will therefore be better able to assist in promoting both whilst fully integrating themselves into the business by motivating and supporting the wider team.
Growing together
Employers are also more likely to see back their investment into the training that they provide their employees. As the skills that employees will develop and hone during their employment are more likely to benefit the business in the long run. As mentioned above, contractors do not have a long term commitment to the business and may well take their skills elsewhere.
Better control and adaptability
Employers will have more control over the way in which employees work, including when and where they do it. This can also provide flexibility for the employer who can readily delegate work to them where there is a demand for it, particularly during times of change.
Costs
Hourly rates for contractors are generally higher compared to employee salaries. It is worth noting however that there are additional costly obligations that come alongside hiring employees including: employer tax obligations, paying for payroll management services and providing staff benefits.
Tax Implications
Whether an employer hires an employee or contractor will also have an impact on their tax obligations. For employees, employer tax will be due. For contractors, there will be corporate tax payments. These corporate tax payments are less costly than employer tax obligations and consequently the HMRC will often carry out checks for situations where an employer is paying corporate tax for a contractor but treating them like an employee – as they essentially consider this to be dishonest and that consequently unpaid tax will be due.
How can Goughs help?
We are available to provide direct support and advise businesses who wish to hire someone and need help navigating this process and the obligations that come along with this. From preparing employment documentation (such as employment contracts) to advising on employee rights, PAYE for employers and employment status – we would be happy to assist where we can.
Our expertise not only applies to the beginning stages of recruitment but also extends to; disciplinaries and grievances, performance and management, business restructures, redundancies, termination of employment and Employment Tribunal claims.
Should you wish to contact us for advice and/or support in respect of any employment matters, please do get in touch.