The cost of employing someone

I’ve written something that has been hanging over me for months – something I needed to write to understand the issue myself, but also something that will help me explain this issue to others. It’s here if you want to see the detail around what I’m telling you in this post [pdf].

It’s something that I think every union rep and official would benefit from knowing more about. Understanding employment and costs from the employer point of view.

Employees tend to think of themselves as being categorised by their salary. They will say things like “I earn £24,000 a year. I take home about £19,000.”

But another way of looking at it is the question of how much they are worth to their employer. If you have a headline salary of £24k (take-home £19k), you will be costing your employer a total of £27,000 in payroll costs (the £3k extra being Employer’s Class A NICS, employer pension contributions, and a couple of other small statutory costs.

But then if you factor in how much it costs the employer to employ you, that figure can have another £10k or £20k added to it – office, equipment, training, lots of other not-so-little liabilities, etc.

Many of these costs are often avoided if the employer can talk the worker into going freelance on a £2k a month deal. Even if they sweeten it a bit to cover a few costs, they will be avoiding a lot of that £3k, and a lot more of that £10k – £20k.

And when they find HMRC pointing at you, saying “that looks like an employee to me – are you hurting our revenue by determining someone incorrectly?” (for which there are penalties!), those engagers will sometimes then try and push the worker into working through an ‘Umbrella’ payroll company.

If this happens, if the worker doesn’t have their wits about them, the £3k employer costs could be lumped onto them – along with a cost of processing payroll. A lot of the other employee on-costs will still be avoided and – crucially – your rights as a worker will be hit very badly. No job security, fewer parental rights, and – most importantly – no real bargaining relationship with your engagers. If you wanted to design an employment relationship designed to weaken the bargaining hand of a worker, this is it.

So for these understandable reasons, the TUC is very opposed to Umbrella Companies of this kind.

But I hope that PDF is useful to you if you want to read more into this.

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