Why do companies hire employees?

D924

I'm trying to understand what the appeal is for companies to hire staff on payroll rather than just demand that their employees register as sole traders or their own LLCs and then invoice the company for their time on a contract basis.

It seems to me that this would benefit the company by obtaining the same work while eliminating their obligations to pay employer national insurance contributions or any sort of pension. This saves the company money and also provides them with more contract flexibility.

I'd imagine there are some finer points I am missing. Can anyone on here elaborate? Nobody I know in real life can answer this.

Sncjw

Because the people with the right skill set may not want to do their own tax and insurance so you miss out on getting those people. 

Also people register self employed may charge the company more to cover paying tax and ni. Therefore employing someone as an employee will work out cheaper. 


Why do you want to know this? 

ACG

HMRC prevent it. 
If you are told where to be, when to be there and have equipment provided, you are classed as an employee. 

So a shop worker who is given set hours and a till for example would satisfy all of those requirements. 

lisyloo

Some companies do tax on their "employees" under IR35 rules.
It tend to go in and out of fashion depending on the laws and tax rules.
At the moment I'd say it's out of fashion and tends to cost employers more.

MalMonroe

As someone just plunging into self-employment in my retirement I have to say that I'm glad I have my pension cushions. (State and teensy private ones) If I am off sick, I don't get paid. And if I want to go away on holiday I don't get paid. Take a day off - don't get paid. Right there are some non-incentives for a self employed person of working age. 

I do know some people who are wealthy self-employed but most of us aren't wealthy at all. 

I think it would be really messy for companies to use solely self-employed people because they'd have all those invoices coming in every month and they'd need to employ extra financial specialist staff, as well as staff to assess what workers were needed and to distribute work appropriately. So probably not much gain. But a big headache for those few members of staff who had all the self-employed people to control and pay.

Hmmm. All this is making me have second thoughts about being a freelancer!  

P.S. and N.B.  All my own work/thoughts and opinion, though. 

Devongardener

Under HMRC rules you cannot be self employed if you only work for one organisation, your have to have other “customers”.

Undervalued

ACG said:

HMRC prevent it. 
If you are told where to be, when to be there and have equipment provided, you are classed as an employee. 

It is not quite a simple as that but those factors are certainly significant along with others.

Undervalued

Devongardener said:

Under HMRC rules you cannot be self employed if you only work for one organisation, your have to have other “customers”.

Again, it is a significant factor but not absolure.

DullGreyGuy

D924 said:

I'm trying to understand what the appeal is for companies to hire staff on payroll rather than just demand that their employees register as sole traders or their own LLCs and then invoice the company for their time on a contract basis.

It seems to me that this would benefit the company by obtaining the same work while eliminating their obligations to pay employer national insurance contributions or any sort of pension. This saves the company money and also provides them with more contract flexibility.

I'd imagine there are some finer points I am missing. Can anyone on here elaborate? Nobody I know in real life can answer this.

Its not down to a business to arbitrarily decide if someone is an employee or self employed, see how Uber lost that argument. That means you not only pay the tax but penalties on top. 

The next problem is that you typically pay contractors more than employees because they have to pay for the pension etc

Thirdly, if you are going to do it properly and try and make sure they arent deemed as workers or concealed employees their contract is going to have a whole host of clauses about them working where and when they like etc which makes it damned hard to ensure you've got the 300 call centre agent's bums on seats ready to take calls at 8am when the lines open or get people to do the less palatable shifts.

Many companies suffer from staff turnover issues whilst they have notice periods, training programmes, benefit packages etc... turnover of contractors/agency staff is much worse because there is no long term commitment from either side

The list goes on and on

D924

Thanks for all the replies, there had to be a reason and turns out there's plenty of reasons, not least of which HMRC hate it.

Lomast

Others have covered the issues with hmrc, but the company do not really save money, when I used to contract I was being paid roughly 40% more per hour than permanent employees to cover having to pay my own tax ni pension etc