Employing staff has become more complicated in recent years, as details of wages must be reported to HM Revenue & Customs (HMRC) each week or month under the Real Time Information system, and also most employees are now auto-enrolled into a pension scheme.
It is therefore tempting to treat casual workers as self-employed so that this administrative burden can be avoided. However, self-employment status is not a choice and HMRC can insist that workers are put on the payroll.
How do you determine the status of farm contractors?
There have been numerous court cases and tax tribunals over the years which provide guidance on the factors you need to take into account:
Mutuality of obligation - In simple terms this asks whether the farmer is obliged to offer work each week and the worker is obliged to accept it. An employee is obliged to turn up each week and the farmer has to find work for them. A self-employed person has the right to say they aren’t coming next week and equally the farmer can say that there is no work next week.
Right of substitution - A self-employed person can usually send along a suitably qualified replacement to do the work, whereas an employee is expected to do the work themself.
Opportunity to profit - An employee is generally paid per hour, whereas a self-employed person is paid per unit or per task. For example, a sheep shearer is normally paid per animal clipped, and a relief milker is paid per milking regardless of the time taken.
Provision of equipment - If a contractor provides major pieces of equipment to perform their work, it is usually an indication of self-employment. An employee will normally only provide small tools or protective clothing.
Control - In general, a self-employed person can decide when and how a task is performed whereas an employee will be more closely supervised.
Method and frequency of payment - An employee is paid at fixed intervals - weekly or monthly - whereas a self-employed person will raise invoices when a particular task is complete.
Be aware of minimum wage changes
Farmers also need to be aware of changes to National Minimum Wage (NMW) and National Living Wage (NLW) rates from 1st April 2024. This will see an increase in the hourly rates for NMW and NLW, and the extension of NLW - now £11.44 an hour - to include 21 and 22-year-olds for the first time.
In addition, we are seeing more enquiries into NMW, and it is essential that farm businesses keep detailed records of hours worked by employees. This is to ensure they can prove they have complied with the legislation and avoid being “named and shamed” for non-compliance.
For more advice about the employment status of farm contractors and how this impacts your business please email help@armstrongwatson.co.uk or call 0808 144 5575.
