How are tax and NICs handled for casual workers?
Many employers have workers who are called "casual" workers. These are often people who do not work regularly but who are called in to work as and when the employer has the work, perhaps during the summer season, over Christmas, at harvest time, or at other times of peak production or trading. These are not casual workers for PAYE purposes. They must be treated as all other regular employees. They should be asked for a P45 when they start and, if they cannot provide one, the P46 procedures must be followed.
For PAYE purposes, a "casual" employee is someone who
- does not produce a current P45, and
- is engaged to work on a single occasion for a period of not more than one week (or two weeks in the case of harvest casuals engaged by farmers), and
- is not expected to be employed again within the current tax year.
However, normal P45/P46 procedures apply if
- those conditions are not met, or
- the employee stays for more than one week (or two weeks if a harvest casual), or
- it is expected that the employee will be employed again within the current tax year.
If the employer is confident that the employee is a "casual" employee for PAYE purposes, the procedures to be followed depend on the employee's level of earnings and what the employer knows about the employee's work arrangements elsewhere. If the total pay for the week
- exceeds the PAYE threshold (i.e. £100 for 2007/08) and it is known that the employee has other employment, tax is deducted using code BR, NICs are deducted, and form P45 is issued at the end of the employment.
- exceeds the PAYE threshold but it is not known if the employee has other employment, tax is deducted using the Emergency Code (i.e. 522L for 2007/08) on a Week 1/Month 1 basis, NICs are deducted, and form P45 is issued at the end of the employment.
- is less than the PAYE threshold but equal to or more than the NICs lower earnings limit (LEL) (i.e. £87 for 2007/08), zero tax is recorded against a code of 'NI', NICs are recorded as NIL, and no form P45 is issued at the end of the employment.
- is less than the LEL for NICs, no deductions are due and no P45 is issued at the end of the employment.
In situation 3, the code 'NI' is not a tax code and is used for manual recording on form P11 only. It must not be used on a P14 End of Year Summary. Most computerised systems use the tax code 'NT' in this situation.
In the first 2 situations, where there are tax and NICs values to record, and in situation 3, where the employee is treated as having made a contribution, the employer must create a payroll record on a P11 Deductions Working Sheet, or on a computerised payroll system. A P14 End of Year Summary must be created for the employee at the year end.
In situation 4, where there are no tax or NICs details to record, a payroll record does not even have to be created, either manually or on computer. The employer may simply record the employee's name, address and amount paid. No P14 End of Year Summary is required. The employer must, instead, complete a P38A Employer's Supplementary Return. As the employee's earnings are less than the LEL, no details of the employees or their earnings need be entered. The employer has only to sign and date the declaration that "I have made no payments that need to be listed above".
Many employers with computerised payroll systems find it safer and simpler to put all casual workers on the payroll, irrespective of their earnings. This is acceptable to HMRC. Handling the pay of casual employees in this way removes the risk of their pay being taken out of petty cash and the payroll office not being notified about them. At the year end, a P14 End of Year Summary may be produced, even though there are no tax and NICs to report, and it is, as a result, unnecessary to complete a P38A Employer's Supplementary Return.
There are somewhat different procedures to apply in the case of casual harvest workers. See CWG2 Employer's Further Guide to PAYE and NICs, pages 64 and 65.
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