Pros/Cons. Employee or contractor?

hwalkerh

My partners small one man business is doing well and he has had a couple of contractors in for a week here and there working for him. He could do with someone full time, either contractors so they just invoice him or employing someone he has worked with previously who he knows is reliable etc.

What do people think are the pros and cons for each to help us decide?

We know that it would cost less on general wage for employee over contractor but our concerns of a full time employee is what obligations would there be? We know they would have paid holiday. What obligations would there be on sickpay? Other costs/obligations to consider?

FatAndy

You might not have a choice in the matter. If the person is working for you full-time then they almost certainly will be an employee as far as HMRC is concerned.

More info here - http://www.hmrc.gov.uk/employment-status/index.htm


Holiday entitlement is 5.6 weeks per annum - http://www.direct.gov.uk/en/Employment/Employees/Timeoffandholidays/DG_10029788

Statutory Sick Pay is nothing for the first three working days then £81.60 per week. As a small employer you'd be entitled to Small Employers Relief which would mean you'd get most, possibly all, of that back - http://www.hmrc.gov.uk/helpsheets/e14.pdf

As far as other obligations are concerned the ACAS website is an excellent place to start, there's lots of advice, sample forms and so on to get you started - http://www.acas.org.uk/index.aspx?articleid=1339

paddyrg

You want to look into IR35 - there are ways to phrase a contract to make sure the contractor is not classed as an employee, but the glory days are over, and the contract would mean engaging a third party service company which may provide any personnel (not just the guy you want), and they have to provide their own equipment, not use yours. They can't use staff facilities, one person can't be at the same site for over 24 months or so... Basically, if you're ready for a full-timer for the long-term, just hire carefully and get a good one, as contractors are meant to flit in, do a job, and flit out.

I used to work in this very sector - some companies have a high contractor load (eg some big tech companies I worked for had upto 33% contract staff), but they also use it as a way to find who they want as an FTE and so they make offers to good contractors. I, however, had offers at every contract I did, but couldn't bear the idea of being trapped in one job, so never accepted. There are a lot of contractors who would never consider FTE work, but also many who feel forced to contract after a redundancy who are mustard keen to go FTE.

Contractors are part bee, part vulture - they pollenate your company with practices from other places meaning you aren't relying on guesswork, home-grown solutions, training courses etc., but get fresh insight and often the benefit of 'how (big company or competitor) approach this'. Part vulture, as when a project is spiralling out of control through poor management, they throw contractors at it to pick the bones.

A balance is good - have full-timers looking out for your infrastructure, planning and management, keep the 'heart' of the system in-house, but by all means have contractors in to get specific skills or at times when you have a specific load of work which can't wait. What to pay? As a rule, take whatever you are paying your contractor per hour (eg £40) and add three zeroes (£40k) to give you a similar FTE salary for a similar role. You may even get someone for less (but be aware they may not have the experience if younger).

hwalkerh

Thanks for all the advice.
Can a person not be self employed working for their own ltd company and then contract to you? so they will just invoice you and be responsible for sorting out there own NI and tax payments?

Employing someone would be the ideal scenario. If we employed someone what tasks would i need to be doing each month extra to what I do for the general business running?
I guess payslips, pay wages with NI and Tax deductions and student loan deductions etc. I will have to get better at paying on time as it doesn't tend to matter if i am a day or two late with paying my partner his wage.

Savvy_Sue

hwalkerh wrote: »

Employing someone would be the ideal scenario. If we employed someone what tasks would i need to be doing each month extra to what I do for the general business running?
I guess payslips, pay wages with NI and Tax deductions and student loan deductions etc.

Yes, all of that, but the HMRC website is now very helpful and for a small number of employees it doesn't take long and there are online calculators.

BUT you need to provide a written statement of terms and conditions of employment, and you need to keep on top of changes to employment legislation. You can't, for example, sack someone just because they're late once, or make deductions from their wages if they damage company property: you have to have procedures and policies and USE THEM!

hwalkerh wrote: »

I will have to get better at paying on time as it doesn't tend to matter if i am a day or two late with paying my partner his wage.

Oh yes! You cannot be late, or skip it until next week because you fancy a holiday, or you felt ill. You MUST have a robust plan for if you fall under a bus. If you have an accountant, they may provide a payroll service. If you're in any doubt about your ability to pay on time, consider using that, or a similar one. They should also be able to advise you about your other obligations as necessary.

paddyrg

hwalkerh wrote: »

Can a person not be self employed working for their own ltd company and then contract to you?

Then, strictly speaking, they are not self-employed, but employed by that ltd co, and that ltd co is contracted to your company. But where a ltd co only has one employee, that employee might still be deemed as effectively employed by your company if they are not simultaneously servicing other clients, providing you with their choice of labour, using their own equipment, etc. Look up IR35 - people used to use the very model you suggested quite rampantly for tax efficienct, HMRC clamp down on it more and more every few years, so you really need a proper B2B consultancy relationship for it not to get messy. If the person is benefitting from all the same benefits as an employee, you will probably find they are legally an employee anyway, and you may get hit for back-taxes (at upto 40% of their fee!) plus redundancy, holiday pay etc.