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Who counts as an 'employee'?

Sometimes it's very easy to decide whether or not someone is your employee. For example, if you take on someone who has replied to your advert where they follow your directions and work only for you, they'll almost certainly be your employee. On the other hand, if you buy services from a business that has several employees and works for several customers, that business is the employer, not you.

Special rules apply to workers supplied and paid by agencies, which mean that the agency has to operate PAYE. If an agency supplies someone to work in your home and you (not the agency) pay the worker, contact your Tax Office regarding PAYE.

There are special rules for deciding if someone is employed or self-employed. This is called their 'employment status'.

If you're not sure about the employment status of someone who works for you, you should ask to talk to the Status Officer at your Tax Office.

• Work out if you're employed or self-employed
• Contact details for all Tax Offices (opens new window)

When you must operate PAYE

Whether or not you need to operate PAYE (deduct Income Tax and NICs from their pay and pay employer’s NICs) depends on your employee’s overall earnings. The figures below are relevant for the tax year 2008-09.

If you pay more than £105 a week

If you pay your employee more than £105 a week you'll have to operate PAYE.

If you pay them between £90 and £105 a week and this is their only job and they don’t have other sources of taxable income

If you pay your employee between £90 and £105 a week inclusive and this is their only job and they don’t get other taxable income, there’s no tax or NICs due, but you’ll need to fill in a ‘PAYE Deductions Working Sheet’ or equivalent record showing how much you pay them. This is because pay of £90 a week or more counts towards your employee's basic State Pension and needs to be recorded.

If you pay them less than £90 a week and this is their only job and they don’t have other sources of taxable income

If you pay your employee less than £90 a week and they don’t have another job elsewhere - or other taxable income such as a pension - you don't have to do anything.

If they have another job or other taxable income

If your employee has another job - or other taxable income, such as a pension - you’ll need to operate PAYE no matter what they earn. This is because their tax-free allowances will normally be set against the pay from their main job or pension which means tax may be due on their earnings from you.

Simplified PAYE Deduction scheme for domestic employees

The Simplified PAYE Deduction Scheme is a way of operating PAYE which requires less form filling than the PAYE schemes operated by most employers.

You can use the scheme if your personal or domestic employees’ taxable earnings don’t exceed £160 per week or £700 per month (2008-09).

If their taxable earnings are more than the figures above you must operate PAYE in the way that most employers do.

• Simplified Duduction Schemes (opens new window)

Registering as an employer

Where you have an obligation to operate PAYE you should contact HM Revenue & Customs (HMRC) to register as an employer. HMRC will then send you everything you need in the ‘New Employer's Starter Pack’. If you’re eligible to use the Simplified Deduction Scheme tell HMRC when you call and you will be sent a Simplified PAYE Deduction Scheme Employer pack.

Avoiding employing someone illegally

Bear in mind that if you’re going to employ someone from outside the UK, you’ll need to make sure that they’re entitled to work here before they start working for you. The government has recently introduced checks that you must make on all new employees to safeguard you from employing someone illegally.

• Ensuring your workers are eligible to work in the UK (opens new window)

Using a payroll agency

If you don't want to operate PAYE yourself there are payroll agencies that will do it on your behalf. You send them details of your employee's gross wages (before tax) and they operate PAYE and prepare payslips for you. The responsibility for PAYE remains yours where you engage a payroll agent to act on your behalf.

You can compare the services of payroll agencies online.

• More about outsourcing payroll (opens new window)

Your employee's rights

As well as dealing with your employee's tax and NICs, you also need to be aware of your other obligations as an employer. Anyone you employ - even if they're part-time or temporary - has employment rights.

• Learn about employee rights and employer obligations (employment section)

Where to get help

You can get help by ringing our New Employer Helpline on Tel 0845 607 0143, open 8.00 am to 8.00 pm, Monday to Friday and 8.00 am to 5.00 pm, Saturday and Sunday.

• Becoming an employer for the first time (opens new window)

More useful links

• Information from Business Link about setting up as an employer (opens new window)
• Find out about employment rights (opens new window)