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Wednesday, May 22, 2024


    New free PAYE calculator to help recruiters prepare for IR35

    David McCormack, CEO, HIVE360

    An online calculator that compares the cost of running a contract payroll versus PAYE will tell recruitment companies the real financial impact to their business of complying with the new IR35 off-payroll rules that come into force on 6 April.

    According to the calculator’s developer HIVE360, an employee benefits and outsourced payroll provider which operates extensively in the GLAA* and industrial recruitment sector, it uses four pieces of information – hours worked, client hourly rate, umbrella hourly rate, and the umbrella fee – to calculate the weekly, monthly and annual cost for recruiters paying workers using a PAYE payroll vs paying them as contractors.

    HIVE360 estimates that recruitment businesses opting to set-up and run an in-house payroll of 400 workers,  should expect to add over £30,000 each year to their bottom line to cover administration and resource costs.

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    For those opting to use the alternative of an umbrella company to pay workers, there will also be significant additional costs once IR35 takes effect – they will pay more tax, but also be charged for the privilege, with the average umbrella company charging on average £20 per worker per week, around £1,000 a year based on an average £18,000 salary.

    “When IR35 legislation changes on 6 April 2021, recruitment businesses have three options,” says David McCormack, CEO of HIVE360.  “Either return to in-house payroll, cut workers’ pay, or outsource payroll to a recommended PAYE-compliant specialist.

    “The online calculator will help them decide by converting contract rates to a PAYE rate for immediate comparison – no doubt busting a few myths and delivering some very surprising outcomes, both in terms of worker take-home pay and agency costs.

    Whilst we all need to accept the one inevitability of the new IR35 off-payroll rules – there will be more tax to pay – some of the tactics being invoked are leaving recruiters with an additional financial overhead.

    “Not only this, they also face a tough decision on how to cover the increased costs to their businesses or to their workers – such as a cut of at least five percent to workers’ pay to cover the additional costs if they force workers down an umbrella route.”

    Workers are better off financially being paid via a PAYE model, he says: “When you deduct the weekly fee and all costs of employment going through an umbrella and see the real ‘take-home pay’ for workers, you have to ask if the vanity of a higher umbrella rate (and we all know it’s not really a higher pay rate) is stopping your workers moving to PAYE, which is the ‘IR35 safe solution’.”

    The upcoming changes to IR35 legislation mean that after 6 April, businesses in the public and private sector engaging workers through intermediaries, must identify whether the worker is classified a direct employee for income tax purposes.

    Recent figures** suggest that approximately 60,000 medium and large-sized engagers and potentially 20,000 recruitment agencies will be affected by the changes to IR35 off-payroll legislation.

    “Businesses need to act fast to ensure their payroll is fully compliant and minimise disruption to their organisation,” says David McCormack.

    Hive360 is a GLAA (*Gangmasters and Labour Abuse Authority) license holder and champions a new model of employment administration for the UK market.  It is leading the way in innovating employer engagement via its suite of employee benefits that match individual business requirements with a tailored, personal solution, to provide a ‘bridge’ between an employer and its workforce with pioneering technology-based solutions.

    For more information: Hive360 | Payroll & Benefits Reimagined

    Reference – **Research by ICAS, the global professional body for Chartered Accountants: IR35 where are we now and what does the future hold?

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