Q) I operate a mass catering operation, specialising in providing on-site catering for large gigs. I usually operate PAYE on the wages I pay casual catering staff. Increasingly I'm getting requests from casual staff to be paid cash in hand. Presumably, they would deal with their own tax . Is there any problem in doing this?
A) There are several problems with this. One of the main issues is that it is very unlikely that the Inland Revenue would treat casual catering staff as self employed. However, there is a case precedent which could be used to stave off the Inland Revenue - O'Kelly and others v Trusthouse Forte where casual catering staff were deemed by the court to be self employed on the basis that there was no mutuality of obligation between the catering staff (to provide their services) and the hotel (to provide work).
Naturally, this case is not popular with Inland Revenue compliance officers and there are several factors in that case which might distinguish your staff from those discussed in the O'Kelly case such as:
· They were paid only for work actually performed – no regular wage or retainer
· No sick pay, not in pension scheme, no fringe benefits unlike regular employees
· They had no regular or assured working hours
· Their contracts were terminable without notice by either party
· Applicants had right to decide whether or not to accept work
· No obligation on Trusthouse Forte to provide work
· Mutual intention for self-employment
· Custom in industry – casuals engaged under contract for services.
Conversely, the main indicators of a contract of service (employment) were:
· They invested no capital in the business
· No chance of making a gain or loss from the business
· Trusthouse Forte exercised control whilst they were working
· They were held out to customers as part of the Trusthouse Forte organisation when working
· Clothing and equipment were provided by Trusthouse Forte
· They were paid weekly in arrears
· There was a disciplinary and grievance procedure in place
· They received holiday pay or incentive bonuses
This is an important case when considering basically unskilled workers providing services on a casual or ad-hoc basis. However, in order to ensure that you are not storing up problems for yourself in the future, you should seek a ruling from the Inland Revenue Status Inspector that these workers can be treated as self employed. It should be noted that the obligation remains with the employer to establish the correct employment status of staff. If you get it wrong, and the Inland Revenue concludes that these staff should be treated as employees, under most circumstances the employer will be charged for the tax and National Insurance contributions which should have been deducted when the worker was paid