Business Clinic: Advice on employing staff for the first time

Whether it’s a legal, tax, insurance, management or land issue, Farmers Weekly’s Business Clinic experts can help.

Joe Spencer, a partner in MHA, advises on the administration implications of employing staff for the first time.

See also: Business Clinic: Tax advice on shared land project

Q: We are an expanding farm business with traditional farming and diversification via both holiday lets and a new farm shop. We want to consider the issues involved in starting to employ staff, providing on-farm accommodation in one instance for our long-standing livestock business.

A: This question deals with two main elements – payroll and the employment of staff on the farm, and then employment benefits.

Employing staff can be a big commitment, and it is best to ensure you approach this diligently from the outset to avoid challenges arising later.

I will respond on the basis you have identified this will be an employer/employee relationship as opposed to anything to the contrary.

Pay as you earn

You will need to apply for a pay as you earn (PAYE) scheme with HMRC, and have the relevant software to submit payroll data to HMRC under real-time information (RTI) reporting.

This is a system under which employers have to report PAYE information to HMRC on or before their employees’ pay day.

You will need your business UTR number to apply for a PAYE scheme and to gather the relevant personal information from the employee. Starter checklists are available through HMRC.

We strongly recommend you have a robust contract of employment that is reviewed and agreed by both the employer and the employee – this should clearly define the duties and responsibilities of the role, while setting out other items like the working hours and patterns of work.

As the business changes and evolves, employment contracts should be reviewed to ensure they remain relevant.

You will also need to consider producing an employee handbook with policies that would deal with what happens in certain situations, items like maternity and paternity leave, holiday entitlements, health and safety, and other areas of employment law, among other items.

Pension for employees

Further consideration should be given to the provision of a pension for employees.

It is a statutory requirement that the employer has to be able to provide a pension, regardless of whether the employees qualify for a workplace pension.

In order to be eligible, the employee needs to be over 21 years of age, earn more than £10,000/year and be under state pension age.

National Employment Savings Trust (Nest) is a government-run pension scheme that some employers use at no cost to the employer.

Once this is all set up, you will need to ensure you make the relevant submissions to HMRC and any pension provider each time the employee is paid (in line with their employment contract), deducting any PAYE and national insurance (NI) contributions from the employee’s gross pay.

These deductions are then paid over to HMRC, along with any employer NI contributions.

It is likely, though, that the business might qualify for the employment allowance, a government scheme reducing employer NI by up to £5,000. This might cover the full exposure if you are only employing a couple of people.

Accommodation needs legal advice

The provision of accommodation for the employee is covered by a legal framework, and separate advice should be sought on this.

In a way it falls within benefits in kind (BIK) – where the employer gives benefits to the employee as part of their employment package. BIKs can range from company cars/vehicles, to private medical insurance, through to employee loans.

In these circumstances, the employer and employee are both taxed in some way on the benefit provided.

However, accommodation provided to employees where it is “necessary to the performance of their role” is treated as a tax-free benefit, and this should be the case despite HMRC tightening the rules in recent years.

There would look to be a strong case where, for the performance of the role to be properly executed, on-farm accommodation is provided.

In summary, we recommend you seek professional advice to ensure robust contracts and policies are put in place from an employment perspective from the outset.

These documents will require periodic review and alternations, so should not be kept at the bottom of the filing cabinet.

Employment accommodation is also a tricky subject area and clarification should be sought in respect of tenancy agreements and navigation of the varying legislation.

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