Keeping volunteers as volunteers: the tax and national minimum wage considerations

Volunteering is, of course, hugely important to society, contributing to wellbeing, social interaction, personal development for the individual and benefitting many charitable and other not for profit organisations in the process.

In most instances, properly structured, the relationship with the engaging organisation works as intended, largely free of the costs and other complications that arise through engaging employees or other paid workers. However, for those organisations that are less prepared, the risk remains that, even absent any intention to provide financial reward or create a contractual relationship, an important distinction between volunteer on the one hand and worker or employee on the other fails to be made.

There is no substitute for obtaining proper advice in this regard, (we recommend consulting a lawyer whilst information is also available from organisations such as ACAS and the NCVO) however, suffice it to say, that HMRC in their role of enforcing national minimum wage legislation, appreciate that the essential elements to create a contractual arrangement and therefore re-categorise a volunteer as an employee or worker, may be inferred from the facts despite the contrary intentions of both parties.

That can be important, as when these facts are accompanied by payments, benefits in kind or other reward to individuals that go beyond the reasonable reimbursement of expenses incurred in either undertaking that role or placing themselves in the position of doing it in the first place, unwelcome liabilities will arise.

The kind of expenses which are often reimbursed and should be acceptable include:

• Reasonable meal and refreshments whilst volunteering
• The costs of commuting to and from the volunteering role as well as the costs of travelling in performing it.
• Care costs e.g. childminding
• Equipment or protective clothing needed to do the work
• Sundry costs such as phone calls and postage

It is, by contrast, where payments either become excessive, cannot be identified with an actual cost incurred, or are made for other things e.g. for an individual’s time, that liabilities to income tax arise, which to the extent that an employment relationship is found to exist, will necessitate the engaging organisation deducting PAYE together with NIC where appropriate.

A further significant concern however is the creation of an entitlement to National Minimum Wage (NMW). Indeed, as that entitlement extends beyond employees to “workers”, and the concept of reward is more widely interpreted for these purposes, care is required that the mere promise of future benefits such as paid employment doesn’t bring an otherwise “volunteer” within its scope. The provision of training to volunteers that goes beyond that required in doing the job or to improve an individual’s ability to do it, can also catch an organisation out.

It is worth noting at this point that:

• When made to a volunteer, a genuine one-off gift which they had not expected to receive, is not made under any obligation, and is of a reasonable amount, is not likely to give them the right to the minimum wage.
• The NMW legislation does contain a specific exemption for “voluntary workers” i.e. precisely those otherwise volunteers, who as indicated above, might cross the Rubicon to become a worker through inadvertently becoming subject to a contractual relationship (despite an absence of meaningful financial consideration), however this exemption only applies to the extent that no payments or benefits are provided other than:
  • In relation to expenses actually incurred or reasonably estimated as likely to be or to have been incurred
  • Reasonable subsistence or accommodation required in undertaking the role (which would also cover monetary payments in respect of subsistence where the voluntary worker has been placed with a qualifying host employer by the charity).

For all these reasons, it is important to ensure that the necessary steps have been taken in engaging volunteers, documenting their role via appropriately drafted volunteer agreements, but also in ensuring that everyday processes and procedures which govern what payments are made to them will do no more than reimburse them for actual out of pocket expenses or represent a reasonable estimate of those.

To reiterate, estimates that lack proper foundation, and payments which cannot be identified with actual expenditure incurred by the volunteer, will likely cause them to be re-categorised as an employee and brought within the scope of NMW.

Using HMRC’s approved scale rates in relation to travel and subsistence including their Approved mileage payment rates for a volunteer’s travel in their own car may provide a solution as HMRC will accept that provided there is evidence that these are paid only where it is known that actual costs commensurate with them have been incurred, they do not give rise to a liability for tax.

For some volunteers, their role and responsibilities may be such that they become more integrated into the organisation as an officeholder, i.e., broadly occupying a role that exists independent of the identity of the holder e.g. Treasurer, Secretary etc. Again, to the extent that they are not remunerated (which would include the receipt of even a small honorarium!) and therefore receive no payments other than to reimburse the costs that they incur in undertaking the role, HMRC will not question the existence of taxable earnings whilst they will also remain outside the scope of the national minimum wage in respect of that role.

Is an intern entitled to NMW?

Whilst the legislation defines a “volunteer”, we aren’t so lucky when considering interns. The term “intern” is not specifically defined in NMW legislation and can mean many different things to an employer.

It is therefore necessary to consider the exact engagement pattern and consider if they are:

1. A volunteer, or
2. An individual undertaking work experience as part of a further/higher education course (conditions apply), or
3. An individual undertaking work experience as part of a government programme/return to work scheme (conditions apply), or
4. Other.

The first category, as already mentioned is not straight forward. The second and third category is less complicated, but employers need to be able to evidence they and the individual meet the exemption criteria.

The fourth category is deliberately named based on our experience of how HMRC typically look at the concept of an intern. In these cases, unless you can demonstrate that the individual is literally work shadowing another individual (and by literally I mean no photocopying, no admin or any form of work related task), then they might be outside the scope of NMW. Otherwise HMRC will expect them to be paid for every second and challenge the organisation if they are not.

Protecting your organisation

The overriding message is that for any organisation which engages volunteers, an awareness of both what they are provided with as a consequence of their role and how it might be construed for NMW purposes is key. An independent review and risk assessment can help in identifying not only inherent problems but also appropriate steps that can be taken to avoid future problems. Further information on wider NMW risks is available on our “A Guide to National Minimum Wage”.

• Scotland - Mike Hepburn
• Yorkshire, North East, North West & Midlands - Kyle Newton
• Bristol, Reading & Southampton - Caroline Jones
• East of England, South East & London - John Weston