Contractor Payroll – How HIVE360 Can Support PAYE

Categorised in: Laws & Regulations, News, Payroll

Securing the appropriate payment method is a crucial step in the onboarding process for contractors. Making an informed decision based on your specific circumstances is paramount.

Pay As You Earn (PAYE) is a common contractor payroll option and our guide below will help you make the right payment choice for your needs. HIVE360 can support the process from start to finish.

PAYE stands out as a widely utilised payment option, streamlining the process of income tax and national insurance contributions handled by your employer on your behalf. Your employer takes the responsibility of collecting and forwarding your tax contribution to HM Revenue and Customs (HMRC), deducting it from your salary before payout. Your payslip provides a breakdown of the tax and national insurance contributions deducted.

Advantages Of Contractor PAYE Payroll

Advantages of opting for PAYE include its simplicity, with your employer managing calculations, collections, and submissions to HMRC. This makes it an ideal choice for contractors engaged in a single project or short-term contract. Your tax contributions are consistently recorded, minimising the risk of disputes.

Disadvantages Of Contractor PAYE Payroll

However, there are downsides to PAYE for contractors. As an employee, you’re entitled to fewer tax reliefs compared to limited companies or sole traders. Additionally, you cannot claim tax relief on out-of-pocket expenses.

Calculating PAYE

The PAYE calculation depends on your earnings and eligibility for the personal allowance – the tax-free amount you can earn annually. The tax rates of 20%, 40%, or 45% are applied based on your income and basic rate. PAYE is generally distributed evenly over the year unless there are bonuses or additional benefits. Any discrepancies in tax payments are resolved through HMRC at the end of the tax year, not through your employer.

PAYE Pension Eligibility For Contractors

With PAYE, you are also eligible for pension contributions, although there is some enrolment criteria.

Enrolment involves a 12-week postponement period. During this time, contracts are assessed, and workplace pension scheme eligibility is determined. Criteria for eligibility include:

• Being at least 22 years old
• Earning over £805 per week
• Working in the UK

If eligible, you are automatically enrolled, with 3% of your total monthly earnings directed into your pension pot.

(Accurate as of February 2024)

HIVE360 – Making Contractor Payroll Easier

For businesses which utilise contractors, HIVE360 is the ideal support solution. We offer PAYE payroll and pension support along with benefit and wellbeing assistance, plus much more. Speak to one of our experts here to see how we can assist you and your business.