What are the rules for paying employees aged under 18?

With the weather warming up, the days getting longer and the school holidays fast approaching, many business owners will be looking at employing their children over the summer months.

As well as providing the younger member of the family with some spending money, employing those under the age of 18 gives businesses some financial relief as any salary a business pays will be deductible from its taxable profits. However, with employees under 18 there are strict rules on the hours and type of work they can do.

Employing school-age children

Children aged 13 or over can be employed to do ‘light work’ (eg office work), for up to two hours on most term-time days. In school holidays this increases to eight hours (five hours if under 15) between 7am and 7pm. 

16 and 17-year-olds can work up to 40 hours per week and can do most types of work, although some additional health and safety regulations apply.

You can therefore generally employ children, including your own, aged 13 or over and pay them a salary which is deductible from your business income.

How much can you pay?

A salary paid to a child must justify the work undertaken, and although there is no fixed rate of pay for children, common sense comes in to play. For example, a business owner would not be justified in paying their 13-year-old son a £40k salary to do filing for two hours a day. For a child with no experience carrying out unskilled work, the national minimum wage for 16 to 17-year-olds is £4.35 per hour for 2019/20, so we recommend businesses use that as a guide. 

A salary of up to £12,500 could be paid tax-free to a child aged under 16 with no other income, if the work undertaken justifies such payment. If a company pays more than £8,632 per annum, employer’s national insurance becomes payable at 13.8%. Children aged 16 or over also pay 12% NI on earnings above £8,632 in 2019/20 in the same way as adults.

Young entrepreneurs and junior partners

Although considered unusual, children can also set up their own business. So, you could award a contract to a child and pay a normal commercial rate for the services provided.

The child in question would be taxable on their business profits in the normal way but would only pay national insurance at 9% on profits in excess of £8,632.

Businesses are also able to take children into partnership, which reduces the overall tax burden – using an LLP would safeguard against losing private family assets.

Here common sense comes into play again, and although this can be a complex issue to navigate, basic rules apply. You couldn’t for example, take on a child as a partner until they have the intellectual capacity to understand the business and there must be an agreement for all partners to carry on in business together with a view to profit.

Therefore, any child taken into partnership must genuinely participate in the business at a sufficient level to justify their status as a partner.

In summary

Those who are considering employing one of their children over the summer must make sure they do a number of things to ensure they can answer any questions from HMRC.

This includes creating a job description outlining exactly what the employee’s duties are, making sure they are only working the hours they are legally allowed to work and ensuring there is a direct, traceable link between the PAYE records, the business bank account and the employee’s bank account.

Alan Rolfe, senior tax manager at HWB, said: “Provided you follow some basic ground rules there is no reason why businesses cannot offer some work to children over the holidays, or employ them to take on a specific project for the business.

“This is perfectly legal and can give your children some valuable experience while keeping them busy during the holidays. However, HMRC is aware of bad practice and does pick up on situations where procedures haven’t been followed correctly – so it’s important that businesses make sure they are following the rules and not overpaying their young employees.”

For further advice, contact Alan Rolfe:

023 8046 1235

alan.rolfe@hwb-accountants.com