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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 will 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 HM Revenue & Customs (HMRC) regarding PAYE.

There are also special rules for deciding if someone is employed or self-employed. This is called their 'employment status'. Read HMRC related guide below to find out more – if they are self-employed you don’t need to worry about operating PAYE.

• Find out more about how employment status is determined Opens new window

When you must operate PAYE

Whether or not you need to operate PAYE (deduct Income Tax and National Insurance contributions from their pay and pay employer’s National Insurance contributions) depends on your employee’s overall earnings. The figures below are relevant for the tax year 2012-13.

If you pay more than £144 a week

If you pay your employee more than £144 a week you'll have to operate PAYE.

If you pay them between £107 and £144

If you pay your employee between £107 and £144 a week inclusive and this is their only job and they don’t get other taxable income, there are no tax or National Insurance contributions due, but you’ll need to fill in a ‘PAYE Deductions Working Sheet’ or equivalent record showing how much you pay them.

If you pay them less than £107

If you pay your employee less than £107 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 (2012-13). Please note that the Simplified PAYE Deductions Scheme was closed for new registrations on 5 April 2012. All new registrations from 6 April 2023 will be set up as standard PAYE shemes.

• Simplified Deduction Schemes Opens new window

Registering as an employer

Where you have an obligation to operate PAYE you should contact HMRC to register as an employer. HMRC will then send you everything you need in the ‘New Employer's Starter 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 National Insurance contributions, 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 the New Employer Helpline on Tel 0845 607 0143, open 8.00 am to 8.00 pm, Monday to Friday and 8.00 am to 4.00 pm on Saturdays.

• The cost of contacting 08 and 03 telephone numbers

• Becoming an employer for the first time Opens new window

More useful links

• Taking on a new employee Opens new window

• Information from Business Link about setting up as an employer Opens new window

Useful contacts

• Money, tax and benefits contacts