Need to hire/subcontract - help please

[Pondlife]

Hi Folks, Not sure if this should be in business or accounting but figured anywhere except general for a sensible reply (please).

I am in the fortunate position of having more work than I can handle and so need to aquire another resource (both of us working on multiple projects at the same time). The contracts mean that MyCo wont get paid immediately as it's deliverable based invoicing but the person I have in mind will need to be paid monthly.

The idea is to pay them a resonable monthly amount (few grand) and then a 'milestone bonus' when I get paid.

Option 1: Ask them to go self employed (NI/PAYE is then not my prob?)
Option 2: Employ them and take a % to cover holiday pay but with no minimum hours so if they're not working I don't have the added overhead but do have to pay additional NI.
Option 3: Ask them to go Ltd and invoice for services provided (+VAT).

Currently FRVS but will go way over threshold if this takes off.

What would the panel suggest? What am I missing that could bite me in the ass later? (apart from the risk that the client doesn't pay me and I will still owe)

At least IR35 isn't a worry.

Thanks in advance.

[Emperor Dalek]

Option 3 is the way to go. Option 1 isn't as clear cut as you imply and there certainly have been cases where the deemed employer of a self-employed bod has ended up with the tax bill when the sub-contractor hasn't paid their taxes.

[premiere]

Agreed, Option 1 isn't that easy.

Got a friend who owns a small security company. All his staff were employed on a 'self employed' basis and responsible for their own tax/ni, but because they were working for him regularly (set hours etc) , it was deemed by HMRC that they were in fact not self employed and he got stung for a load of Emp NI and stuff.

I'd go for Option 3. Must easier...

[Mordac]

Hi Folks, Not sure if this should be in business or accounting but figured anywhere except general for a sensible reply (please).

I am in the fortunate position of having more work than I can handle and so need to aquire another resource (both of us working on multiple projects at the same time). The contracts mean that MyCo wont get paid immediately as it's deliverable based invoicing but the person I have in mind will need to be paid monthly.

The idea is to pay them a resonable monthly amount (few grand) and then a 'milestone bonus' when I get paid.

Option 1: Ask them to go self employed (NI/PAYE is then not my prob?)
Option 2: Employ them and take a % to cover holiday pay but with no minimum hours so if they're not working I don't have the added overhead but do have to pay additional NI.
Option 3: Ask them to go Ltd and invoice for services provided (+VAT).

Currently FRVS but will go way over threshold if this takes off.

What would the panel suggest? What am I missing that could bite me in the ass later? (apart from the risk that the client doesn't pay me and I will still owe)

At least IR35 isn't a worry.

Thanks in advance.

Option 4: Take him/her on as an employee, pay salary + divis?

If you need any help recruiting, PM me. I have agency level access to Jobswerve & CW Jobs.

[meridian]

Option 4: Take him/her on as an employee, pay salary + divis?

If you need any help recruiting, PM me. I have agency level access to Jobswerve & CW Jobs.

Correct me if I'm wrong, but divis can only be paid to shareholders.
Do you mean "pay completion bonus at end of gig"?

[Mordac]

Yes I meant to say make them a shareholder as well. It may not be practical in this case but it's only a suggestion. You would pay employers NI on a bonus, but not on divis.

[Pondlife]

Yes I meant to say make them a shareholder as well. It may not be practical in this case but it's only a suggestion. You would pay employers NI on a bonus, but not on divis.

But by making them a shareholder they would be entitled to a % of all divs paid even if the revenue was not based on their work? Or can you pay divs to some shareholders and not others (different classes of shares?)

Thanks all for the replies though.

[Mordac]

Obviously they have less shares than you do. The tricky bit is working out the distribution so you can calculate the dividend easily. Thinking about it it's probably a crap idea because if the business really takes off you'd be stuck paying someone 10% of the profits for life!

[Pondlife]

I think I'll get them to go Ltd.

Need to figure out the wording for a schedule that states that 'x' per day is to be invoiced monthly and 'y' based on milestones being delivered.

Thanks all anyway.

[tim123]

Obviously they have less shares than you do. The tricky bit is working out the distribution so you can calculate the dividend easily. Thinking about it it's probably a crap idea because if the business really takes off you'd be stuck paying someone 10% of the profits for life!

Put the boot on the other foot.

If someone came on here saying: "I've been offered this deal by somebody that I don't know, where I'm to be made a shareholder of the company, paid a small salary and promised a dividend out of profits at the end", would you be telling him to take it?

The usual answer is, no way. It's all too easy for the principle to engineer massive expenses so that there is no profit. For each person out there who has got a good deal out of this method of working, there are 100 who've been ripped off.

Superficially this deal might look good. But, for the potential employee, it just doesn't sit on the right place on the risk/reward curve.

tim