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If you take someone on to work in your home - like a nanny, cleaner, carer or other domestic staff - you may be legally classed as their employer, and may have to deduct Income Tax and National Insurance contributions from their wages through the PAYE (Pay As You Earn) scheme. If they earn below a certain level you can operate a simplified PAYE scheme.
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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 your Tax Office regarding PAYE.
There are also special rules for deciding if someone is employed or self-employed. This is called their 'employment status'. Read our related guide below to find out more - if they are self-employed you don't need to worry about operating PAYE.
Read more about how employment status is determined
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 2009-10.
If you pay your employee more than £110 a week you'll have to operate PAYE.
If you pay your employee between £95 and £110 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. This is because pay of £95 a week or more counts towards your employee's basic State Pension and needs to be recorded.
If you pay your employee less than £95 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 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.
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 (2009-10).
Find out more about the Simplified Deduction Scheme
If their taxable earnings are more than the figures above you must operate PAYE in the way that most employers do. Find out more in our guide 'Taking on a new employee' under 'More useful links' at the end of the page.
Where you have an obligation to operate PAYE you should contact us to register as an employer. We'll send you everything you need in the 'New Employer's Starter Pack'. If you're eligible to use the Simplified Deduction Scheme, tell us when you call us and we'll send you the Simplified PAYE Deduction Scheme Employer pack.
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.
Read the Businesslink guide, 'Ensuring your workers are eligible to work in the UK'
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.
Read about outsourcing payroll on the Businesslink website
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 are part-time or temporary - has employment rights.
Learn about employee rights and employer obligations on the Directgov website
You can get help by ringing our 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 Saturday.
Becoming an employer for the first time
Information from Businesslink about setting up as an employer
