Cutting payroll costs

With continued cash pressures on travel businesses and the need to retain expert employees, there is a delicate balance to strike when trying to contain staff costs. As staff costs often represent over half of an agency or operator’s overheads this is an area that is increasingly coming under review. Here are some options to consider:

Re-engage workers on a self-employed basis

This involves changing their remuneration from fixed/variable salary to a commission-only basis and re-engaging them on a self-employed contract, subject to the detail of their original contract.  This will deliver an immediate saving on your National Insurance costs (currently 13.8%), with the added saving of associated employment costs. Achieving such a restructure of ‘pay’ arrangements can be better secured if all sales-orientated staff are switched to self-employed because transferring only some of them would likely fail an HM Revenue & Customs (HMRC) challenge.

Consider an umbrella arrangement

Workers required to travel frequently could be transferred into an umbrella arrangement to make use of ‘tax free’ travel and subsistence payments, thereby reducing overall payroll taxes.

You have the option of paying the employee a monthly gross salary plus an additional reimbursement for expenses without the deduction of Pay-As-You-Earn tax or National Insurance. Be aware that if you choose to allow employees to claim tax deductions from their monthly salary instead of reimbursing them you may be challenged by HMRC, which says employees should claim back the funds in their annual tax return.

Make senior staff personal service companies

It may be possible to re-engage non-executive senior staff via their own limited company. Being classified as a one-man company, rather than self-employed, removes the staff member from payroll tax and National Insurance deductions as long as the contract states that they have the right to work where and when they choose and must pay their own expenses. Otherwise, HMRC may insist that they pay tax and NI as a ‘normal employee’ because they are kept in continual work and heavily supervised by you. 

Employers must proceed with caution when overhauling their payroll system as HMRC is taking pains to examine the status of workers. However, it’s worth considering the opportunities, and seek specialist employment advice as the savings can really add up.

This article appeared in the Travel Trade Gazette on 12 October 2011.

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