Cleaning company structure

[rarestone]

We currently run a home cleaning business and our clients pay us and we pay the cleaners.
When we started with only a few cleaners, paying cleaners was easy. However, now with many cleaners it’s becoming difficult. Operating PAYE and doing the payroll is proving to be time consuming.
I know most big cleaning companies out there, ask the clients to pay the cleaners directly. So each time a cleaner goes to clean a house the client would leave them money. So the clients will make two separate payments, one direct to the cleaner and another to the agency. So for example, if the total fee per clean is £40, the client would pay the cleaner 30 and pay the agency 10.
When we started we knew of this model however, we preferred to pay the cleaners direct because we thought if the clients pay cleaners direct, that will increase the risk of the client and the cleaner cutting the agency out all together.
However, now that we pay the cleaners direct, that makes us effectively their employers and with that comes a lot of responsibility as you know, such as operating PAYE, having to pay out holidays etc. And we also have to provide them with wage slips etc

So we are now considering switching to a system where cleaners are paid direct by clients. Cleaners will operate as self employed, we will explain this to cleaners when they start. Any advice or tips? Do you think this will be a good move, what are your thoughts please.

 

[elaine@cheapaccounting]

Sound s like you need to revisit your business plan.

Compare what has happened now to the original business model.

This is a major re-think of your business and shows the need for a robust business plan IMO.

Each model carries with it strengths, weaknesses, opportunities and threats.

 

[MyAccountantOnline]

We currently run a home cleaning business and our clients pay us and we pay the cleaners.
When we started with only a few cleaners, paying cleaners was easy. However, now with many cleaners it’s becoming difficult. Operating PAYE and doing the payroll is proving to be time consuming.
I know most big cleaning companies out there, ask the clients to pay the cleaners directly. So each time a cleaner goes to clean a house the client would leave them money. So the clients will make two separate payments, one direct to the cleaner and another to the agency. So for example, if the total fee per clean is £40, the client would pay the cleaner 30 and pay the agency 10.
When we started we knew of this model however, we preferred to pay the cleaners direct because we thought if the clients pay cleaners direct, that will increase the risk of the client and the cleaner cutting the agency out all together.
However, now that we pay the cleaners direct, that makes us effectively their employers and with that comes a lot of responsibility as you know, such as operating PAYE, having to pay out holidays etc. And we also have to provide them with wage slips etc

So we are now considering switching to a system where cleaners are paid direct by clients. Cleaners will operate as self employed, we will explain this to cleaners when they start. Any advice or tips? Do you think this will be a good move, what are your thoughts please.

I'd chat it through with your accountant - do be very careful with employment status. It might be of interest to have a read of this from the HM Revenue & Customs website

 

[rarestone]

Thank you Elaine and Nicola, I will chat it with the accountant. During my student years, I worked as a cleaner before, and I was paid directly by the client. So the cleaning company did not have to do any payroll at all. And this is a big cleaning company.
What I am finding also is that since we invoice clients at the end of each month, and pay cleaners weekly, we tend to get cash flow issues because we are paying cleaners before the clients pay us. What's worse is that there is always those clients that never seem to pay their invoices on time which doesnt help the problem.
I can see it would be difficult to offer to pay cleaners monthly as they always seem to want their money 'yesterday'.
Asking clients to pay in advance can cause problems if a cleaner cancels and the cleaning doesn't get done. So we would owe the client money and then have to deal with the hassle of reimbursing them.
So this is one of the reasons why we would like the clients to pay the cleaners directly.

 

[MyAccountantOnline]

Thank you Elaine and Nicola, I will chat it with the accountant. During my student years, I worked as a cleaner before, and I was paid directly by the client. So the cleaning company did not have to do any payroll at all. And this is a big cleaning company.
What I am finding also is that since we invoice clients at the end of each month, and pay cleaners weekly, we tend to get cash flow issues because we are paying cleaners before the clients pay us. What's worse is that there is always those clients that never seem to pay their invoices on time which doesnt help the problem.
I can see it would be difficult to offer to pay cleaners monthly as they always seem to want their money 'yesterday'.
Asking clients to pay in advance can cause problems if a cleaner cancels and the cleaning doesn't get done. So we would owe the client money and then have to deal with the hassle of reimbursing them.
So this is one of the reasons why we would like the clients to pay the cleaners directly.

A good accountant will certainly be able to help you with all of these issues - as I mentioned you do need to be really careful with employment status. Its an area which is 'easy pickings' for HM Revenue & Customs - mistakes with status can be very costly

 

[Rhodes100]

It would seem to me as if you would need completely new contracts with all your clients to change your system, some of whom may decide that they would not rather sign a new agreement.

If you are providing equipment, a van, uniforms etc then you are employing staff, regardless of whether the client pays them directly.

You are comparing yourself a cleaning company with a cleaning agency, the likes of Maid2Clean, Belle Casa etc. They do not provide any cleaning materials, equipment, transport etc. And furthermore each cleaner has the right to tell the agency whether or not they want to clean for a particular client.

Your issue with this seems to be PAYE why dont your simply outsource the payroll admin and use an employment service such as Penninsula?

 

[rarestone]

Elaine sorry to be a pain, but can you tell me what strengths, weaknesses etc you see with each model? Just want to see your views.

 

[MrPAYE]

as I mentioned you do need to be really careful with employment status. Its an area which is 'easy pickings' for HM Revenue & Customs - mistakes with status can be very costly

Spot on there.

The cleaning industry is certainly where 'easy pickings' are often made by HMRC.

IF HMRC don't get you on the normal employed route (i.e. you are the ultimate employer), it is often possible for them to invoke the agency rules to get their (several) pounds of PAYE and NI on the basis that you are effectively acting as an employment agency in introducing these cleaners to other businesses for your profit.

As has already been said you need proper advice on this.

 

[MyAccountantOnline]

Spot on there.

The cleaning industry is certainly where 'easy pickings' are often made by HMRC.

IF HMRC don't get you on the normal employed route (i.e. you are the ultimate employer), it is often possible for them to invoke the agency rules to get their (several) pounds of PAYE and NI on the basis that you are effectively acting as an employment agency in introducing these cleaners to other businesses for your profit.

As has already been said you need proper advice on this.

Yes sadly took on a client recently who had some very bad advice in the past who learnt that one the hard way

 

[elaine@cheapaccounting]

Elaine sorry to be a pain, but can you tell me what strengths, weaknesses etc you see with each model? Just want to see your views.

blimey - that is a huge list!!

I would say your starting point has to be to establish if the cleaners are employed or self employed.

The answer to this will tell you what your business model will be, then you do business plan based on this.

If the numbers don't work then I'm afraid that you may not have a business.

Your issues will be :

• cleaners are probably employed by you (to be confirmed)
• you pay wages and ers Ni if applicable
• you fund cash flow
• you take risk for losses, damages, crap work etc
• you will probably exceed vat reg threshold soon - so price / hour to client increases

a few things to think about

Am I being harsh or just realistic - you decide!

 

[rarestone]

It would seem to me as if you would need completely new contracts with all your clients to change your system, some of whom may decide that they would not rather sign a new agreement.

If you are providing equipment, a van, uniforms etc then you are employing staff, regardless of whether the client pays them directly.

You are comparing yourself a cleaning company with a cleaning agency, the likes of Maid2Clean, Belle Casa etc. They do not provide any cleaning materials, equipment, transport etc. And furthermore each cleaner has the right to tell the agency whether or not they want to clean for a particular client.

Your issue with this seems to be PAYE why dont your simply outsource the payroll admin and use an employment service such as Penninsula?

We dont provide any cleaning materials, equipment or transport. The clients do. Cleaners just show up to the addresses. And cleaners do have the choice to refuse to work for a certain client. Some cleaners for example dont like to clean houses with pets etc. so in that sense we are the same as Belle Casa and Maid2Clean.

Have never heard of peninsula, have just quickly googled them and checked their website. Sounds like a good idea. Thank you.

 

[rarestone]

Also while on the outsourcing payroll subject, does anyone have a rough idea of how much it costs to outsource this. Say for less than 25 employees? Also what are good companies that provide this service?

 

[elaine@cheapaccounting]

Also while on the outsourcing payroll subject, does anyone have a rough idea of how much it costs to outsource this. Say for less than 25 employees? Also what are good companies that provide this service?

google that and you will find loads

 

[Maslins]

I imagine in the residential cleaning market, many agencies may try to get the client to pay the cleaner direct as a VAT avoidance measure to keep turnover down.

If you get the client to pay you £10, and pay the cleaner £30 direct, your taxable turnover is only £10, and it's unlikely any individual cleaner will breach £70k taxable turnover on their own. You'll need a lot of £10s until you breach the £70k threshold, and even when you do, VAT will only be on the £10, not the whole £40 the client ends up paying.

If you charge the client £40, then you pay the cleaner £30, your taxable turnover is still £40. You'll reach the £70k threshold much sooner, and VAT will become payable on the entire amount.

Of course, as others have mentioned, there are other factors at play such as employment status, which will need to be based on facts, rather than what suits your business model.

 

[rarestone]

Thank you Maslin, you point out the VAT issue, which is quite important. mmm something to think about. thanks, very much for your input. much appreciated. Like Elaine was saying there is lots of things to consider, and we are definitely revisiting the Business Plan, and it seems we are going to rip it apart and replan things from scratch and make sure all areas are covered. Would not want to be on the wrong side of HMRC, I hear you Mr PAYE and Nicola.