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Recruiters: Employed or self-employed?

Not all recruiters are treated the same: some are taxed as employees and others paid as 'self-employed'. So what, you may say. Ignorance of current rules, however, could result in hefty fines.

The 80s saw the introduction of rules by which interviewers and recruiters would be treated as 'employees' under modified PAYE arrangements. Even though their adoption has been patchy, few companies have challenged them.

Unfortunately, those that continue to treat recruiters as self-employed have rarely sought a formal 'Status Determination' from the Revenue and risk facing the payment of Tax and NI arrears as well as substantial fines and penalties

We believe that the treatment of recruiters as employees is fundamentally flawed. As a result, we have fought two significant appeals on behalf of clients to have recruiters treated as 'self-employed'.

It's been an uphill struggle. We have, however, now won this argument with two separate Inland Revenue Districts and believe that this sets something of a precedent for qualitative research companies as a whole.

It not only reduces the cost of using recruiters, removing the uncertainty that clouds the whole issue, but also helps make the person trying to run payroll for perhaps 200 or 300 extra people extremely happy.

Frequently Asked Questions

When treating recruiters as employees:

  • Few recruiters may be willing to have tax and National Insurance deducted from their earnings.
  • The cost to the company ­ up to 12.2 % of employers National Insurance ­ reduces profits.
  • The company would be subject to EC legislation such as minimum pay, pensions, holiday pay, etc. where applicable.
  • The administrative time in producing monthly or weekly payslips and end of year returns and P60s is considerable.

When treating recruiters as self-employed:

Recruiters bill us and we pay them. Will this change and what will be the effect?

  • The PAYE guidance notes say that if you have any doubt as to whether someone is employed or self-employed, you should obtain a ruling from your local PAYE office.
  • If you are paying your recruiters as self-employed then the Inland Revenue, as a result of a routine PAYE inspection, may challenge this. If the status of recruiters has not been agreed it may try to recover tax and penalties by maintaining that they should have been treated as employees.
  • Whether it is successful will depend on the arguments you use to refute its suggestion, but you could face a long and expensive argument with considerable costs if you lose.

A fieldwork agency carries out my recruitment. Does this affect me?

  • This depends partly on the nature of the contract with the agency. If it merely arranges for a recruiter to recruit groups for you and you are responsible for the payment of the recruiters direct then it is you that the Revenue will treat as 'employer'.

When treating recruiters as self-employed:

  • The expenses they can offset against their income are greater since they have to pass a far less rigorous test of being 'wholly and exclusively' for the purposes of the business rather than 'wholly exclusively and necessarily' for the purposes of the business.
  • The NI cost of being self-employed is generally less than that for employees.

What does the future hold?

Is there anything we can do as a group that will remove the uncertainty?

  • At present the Revenue likes to treat each question of employment status on a 'case by case basis', arguing that the cases that we have won do not mean that a precedent has been set. This leaves companies, fieldwork agencies and recruiters vulnerable if their local PAYE office attacks their position.
  • The advantage of a trade body such as the AQR is that the Inland Revenue will usually negotiate the treatment of such groups as recruiters with it. It may mean that certain guidelines would have to be followed by research businesses to qualify for this treatment but, once formalised, these could be used as a template for members. Contact Jeremy on 020 8663 3337 for more details.


Jeremy Harding-Edgar
Copyright © Association for Qualitative Research, 2002