HOW DO YOU EMPLOY A SELF EMPLOYED DRIVER?
Employing drivers can be an expensive game. Not only do you need to pay them sick leave when they are unable to work, you still have to pay them when you can’t find any jobs for them. Decide to reduce your workforce and you’re faced with all the legislative complications around redundancy.
To make matters worse, you’re forced to have a payroll department to sort out all the wages and pay a 13.8% National Insurance contribution for the privilege.
All this costs money and, ultimately, this can only come from charging your customers more or reducing what you pay your drivers. You lose out, your customers lose out and your drivers lose out. Not exactly an ideal situation.
One option that a lot of private hire fleets use is to contract in self-employed drivers. But what exactly does “self employed” mean, and how do you ensure HMRC doesn’t breathe down your neck for paying gross tax to people who work for you full time?
Unfortunately, there is no black and white ruling regarding the difference between employed and self employed drivers. Legally a worker can be “employed”, “self-employed” or a “self-employed worker”. But defining the difference can be very hard work, even for the experts.
The tax office uses a number of what it calls “self employment indicators” to determine if a worker is self employed or not. For example, if the employer supplies the tools to do the job and the employee travels each day to the same place of work, it’s very hard to claim they are self-employed. In the case of a driver, he could be coming to your office each morning to pick up an employer-owned car. In this scenario, how can he not be taxed like any other full-time employee?
Many employers get their self-employed workforce to sign a contract, which contains a statement where they declare themselves self-employed. But, in reality, it takes a lot more than a paper declaration to be legally self-employed and this can often lead to lengthy HMRC PAYE inspections. These have become more frequent over the past two years and are often triggered following checks into immigrant workers.
Most people in the private hire and taxi sector know the industry would grind to a halt if everybody went full-time PAYE and, besides that, many drivers like being their own boss. So what options are available?
With money-laundering monitors in place at banks, paying cash is a dangerous option. Using chauffeurs and other drivers with their own cars can work out OK, but if you want them to drive a car from your own fleet every day, then it becomes difficult.
Some companies have opted to open another external limited company which holds the fleet on its books and leases the cars to drivers, but HMRC is getting wise to this and will carefully check listed company directors to see if they have any in common with the firm the for which the worker is driving.
Around 100,000 drivers in the UK are affected, and for them one option is to work under an umbrella company which invoices the employer on the driver’s behalf and then handles the deductions and pays the employee on a PAYE basis. This doesn’t retain the self-employed status that the driver may prefer, and the employer is still be liable for NI contributions.
Schemes from payment companies can also include products such as personal accident and public liability insurance, and are UK-based for tax purposes, ensuring everything is above board. Fees can also be surprisingly cheap from around £25 per week.
For drivers it means a higher take-home wage. For employers, it means lower costs from NI, employee benefits and so on, and you can pass on some of the savings to customers, making your rates competitive.
If you're torn between employed or self-employed drivers, channelling your payments through a formal payments company could be just the solution you are looking for.
Source: Professional Driver
