Tax Update: The difference between workers and interns February 2011
Posted date: 1 February 2011
Lorraine Owens discusses the pitfalls that employers fall into when hiring interns.
The difference between workers and interns
As Shakespeare said: “A rose by any other name would smell as sweet”, meaning that the names of things do not matter; what counts is what things really are.
Here is a fictitious job advert: “Enthusiastic, hard-working graduate wanted for exciting opportunity to work alongside the best in their field and gain valuable experience in the sphere of [insert your choice of career]. The candidate will be expected to work from 9am–5pm and commit to at least six months in the role. We are looking for someone who is reliable and responsible.”
But here is the twist: “You will receive expenses for travel and lunch.”
There is no mention of a salary. The missing word in the job advert was intern, but could have been trainee, work experience placement, graduate assistant or how about unpaid labour?
Employers are often unaware of the risks of taking on interns and frequently fall into what appears to be a common trap of thinking there is a magic bullet which absolves them of their obligations.
National Minimum Wage
The National Minimum Wage (NMW) Act 1998 requires that anyone who is classified as a “worker” is entitled to be paid at least the NMW.
Under the Act, a worker is someone who has a contract of employment, written or oral, express or implied, or any other contract that requires that they personally carry out work or services for another party, assuming that they are not self-employed, or that they are employed by someone else.
Exemptions include:
- people doing Government-accredited apprenticeships and some work-based training schemes
- students undertaking their first degree course or teacher training course who are working for no more than 12 months as part of their degree
- voluntary workers employed by a charity, voluntary organisation or statutory body
- a few other minor groups, eg homeless people working in return for shelter.
Another exception is people who are work shadowing; that means trailing someone else who is working, but not actually working themselves.
Charities and voluntary organisations
Charities, voluntary organisations and statutory bodies often use volunteers or voluntary workers to support their work.
A true volunteer is under no obligation to undertake any work, may attend at times of their own choosing and typically does not have any prescriptive terms applied to how they help the charity. They may only be reimbursed for expenses genuinely incurred.
Voluntary workers, in contrast, have the hallmarks of workers. They work under a contract of employment or a contract personally to perform work or provide services. Voluntary workers must work for a charity, voluntary organisation, associated fund raising body or statutory body.
Again, they can receive expenses incurred in the course of the volunteer work and perhaps subsistence and accommodation, if relevant to the volunteering. Any payment over and above this may be viewed as consideration for the services they are providing and could result in their status being that of a worker, who, as explained, would qualify for the NMW. There are obvious tax implications for this also.
Commercial or other employers
If your organisation is a business the exemption for voluntary workers will not apply. If the other exemptions listed are not relevant, then you must determine whether or not the “intern” is a worker.
If they are a worker then ensure that you pay at least the NMW. Record-keeping is an important aspect and you need to maintain sufficient records to ensure that you are paying at least NMW.
Enforcement
HM Revenue & Customs (HMRC) is responsible for enforcing the NMW.
HMRC compliance officers may carry out inspections at any time and there is no requirement to provide reasons for an inspection. Many such assessments are triggered by complaints from workers.
In January 2010 HMRC launched a team with the rather racy title of “Dynamic Response Team” to work on the most high-profile cases and provide a rapid response to cases across the UK.
If a compliance officer determines that you have failed to pay NMW, you may be served with a notice of underpayment, which requires that you pay the arrears to the worker and to pay a penalty to the Secretary of State.
The penalty is half the total underpayment, with a minimum penalty of £100 and a maximum of £5,000. If you fully comply with the terms of the notice the penalty may be reduced by 50 per cent. Failure to comply can result in a criminal prosecution.
Lorraine Owens is Employment Tax Manager at haysmacintyre.
- Issue:
- February 2011
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