Did you know that misclassifying a
supply teacher’s employment status can result in hefty fines from HMRC? Historically, some education recruitment agencies unknowingly put themselves at risk simply by misunderstanding the rules.
In education recruitment, managing supply teachers comes with a lot of responsibilities… Finding the right talent,
matching them to the right schools, and navigating the complex world of employment status.
If you’re leading a recruitment agency, one question you’ve probably faced (or will soon) is: Are our supply teachers employed, self-employed, or something else altogether? And importantly, why does this even matter?
Let’s break it down so you can make informed decisions that benefit both your agency and your contractors.
Understanding employment status
Broadly speaking, supply teachers working as contractors can fall into three categories:
Directly Employed (Agency PAYE): This status means the teacher is employed directly by your agency. You deduct tax and National Insurance contributions (NICs) on their behalf and provide workplace rights such as holiday pay, statutory sick pay, and pension contributions.
Outsourced Employment PAYE Umbrella or PAYE (PEO): This status means the teacher is employed by an 3
rd party. They deduct tax and
National Insurance contributions (NICs) on their behalf and provide workplace rights such as holiday pay, statutory sick pay, and pension contributions.
Something else (could be limited company or self-employed): The supply teacher operates as an independent business, invoicing you directly for their work. They are responsible for their own taxes and NICs. This has been outlawed for a long time, but we still see rare cases of teachers hoping to be paid via these arrangements. They present large risks to agencies that allow them to be used.
Understanding these categories and ensuring proper classification is essential. Not only can it save your agency from financial penalties, but it also ensures your supply teachers receive the rights and protections they are entitled to.
Why it matters
1. Tax compliance
The biggest reason to care about employment status is staying on the right side of HMRC. Employment status determines who is responsible for tax and NICs. With rules like IR35 impacting contractors working through limited companies, it’s crucial to assess whether a supply teacher falls inside or outside IR35.
- Inside IR35: The contractor is considered an employee for tax purposes and must pay PAYE tax and NICs.
- Outside IR35: The contractor is genuinely self-employed and responsible for their own taxes.
Incorrect classifications can lead to hefty penalties, backdated tax payments, and reputational damage for your agency.
2. Cost management
The employment model you choose affects costs for your agency. Employing supply teachers directly means taking on additional costs like employer NICs and holiday pay. On the other hand, working with umbrella companies can help streamline payroll while ensuring compliance.
- Direct employment (PAYE) means your agency must cover additional costs like employer NICs and holiday pay, and also the cost of providing statutory benefits (SSP, SMP etc…)
- Umbrella companies offer a middle ground by streamlining payroll while ensuring compliance. They also take on the liability and responsibility for the cost of statutory benefits.
3.Teacher engagement and retention
Teachers are more likely to stay loyal to agencies that offer fair and transparent working arrangements. Some prefer the stability of direct PAYE employment, while others value the independence and flexibility that come with outsourced PEO or umbrella company arrangements.
4. Legal and ethical considerations
Misclassifying a supply teacher’s status isn’t just a financial risk, it’s an ethical one too. Ensuring your teachers are on the right contract type helps protect their rights and fosters a positive working relationship.
How to determine employment status
HMRC provides guidelines and an online tool called CEST (Check Employment Status for Tax) to help determine whether a contractor should be treated as employed or self-employed. Key factors include:
Control: Does your agency or the school dictate how, when, and where the teacher works?
Financial risk: Is the teacher responsible for their own expenses?
Mutual obligation: Is there an expectation for ongoing work, or is it project-based?
Outsourced employment: A popular middle ground
Many agencies and supply teachers find that working with an umbrella company strikes the right balance. Umbrella companies handle payroll, ensure tax compliance, and often provide additional benefits such as:
- Statutory rights (holiday pay, sick pay, pension contributions).
- Insurance coverage for professional indemnity and liability.
- Reduced administrative burden for both agencies and contractors.
At Fair Pay Services, we support education recruitment agencies by offering transparent, compliant payroll solutions that ensure your supply teachers are paid correctly, efficiently, and fairly.
Final thoughts
Getting employment status right is essential for compliance, cost management, and building lasting relationships with your supply teachers. When you understand the different options and their implications, you can make better decisions for your agency and the talented professionals you place in schools.
