A charity pays four kinds of people, and the rules are different for each. Employees are governed by ordinary employment law with no charity discount. Freelancers are governed by whether they are genuinely freelance, which is a question of fact and not of paperwork. Trustees are governed by charity law, which starts from the position that they get nothing. Volunteers are governed by the gap between reimbursing a cost and paying for time — and that gap is where small charities get caught.

Here is each group, with the 2026/27 figures, the specific thing that goes wrong, and what it costs when it does.

Employees: PAYE, the wage floor and the pension

A charity that employs anyone is an employer like any other. Register with HMRC as an employer before the first payday — you can do it up to two months ahead — and run payroll with a Real Time Information submission to HMRC on or before every payday, not afterwards. You must operate PAYE if any employee earns at or above the Lower Earnings Limit of £129 a week (£6,708 a year) for 2026/27, or already has another job or a pension.

Three sets of numbers do most of the work.

  • The wage floor. From 1 April 2026 the National Living Wage for workers aged 21 and over is £12.71 an hour, up from £12.21. The 18 to 20 rate is £10.85, up from £10.00. The under-18 rate and the apprentice rate are both £8.00, up from £7.55. Apprentices aged 19 or over who have finished the first year of the apprenticeship move onto the rate for their age.
  • Employer National Insurance. Secondary Class 1 is charged at 15% on earnings above the secondary threshold of £5,000 a year (£417 a month, £96 a week). Employees pay 8% between £12,570 and £50,270 and 2% above that, deducted from their pay rather than added to your cost.
  • The pension. Automatic enrolment thresholds are unchanged for 2026/27: the earnings trigger stays at £10,000, and qualifying earnings run from £6,240 to £50,270. Minimum total contribution is 8% of qualifying earnings, of which at least 3% must come from the employer.

The lever most small charities miss is the Employment Allowance, worth £10,500 against your employer National Insurance bill for the year. Charities and community amateur sports clubs are eligible, and unlike ordinary businesses a charity can still claim even if more than half its work is in the public sector — a carve-out written specifically for the sector. Two conditions bite: a company with a single director cannot claim if that director is the only employee incurring secondary NI, and where charities are connected only one of them may claim. The allowance is not automatic. You claim it through your payroll software or an Employer Payment Summary, and you claim it again at the start of each tax year.

Two statutory pay rates are worth budgeting for at the same time: Statutory Sick Pay is £123.25 a week for 2026/27, or 80% of average weekly earnings if that is lower, and Statutory Maternity Pay is 90% of average weekly earnings for the first six weeks then £194.32 a week, or 90% of earnings if lower.

Worked example — what your first two employees actually cost. Illustrative figures for a charity in the 2026/27 tax year.

You hire a project coordinator at 30 hours a week on £14.00 an hour: £21,840 gross for the year, comfortably clear of the £12.71 floor. Employer National Insurance is 15% of (£21,840 − £5,000), which is £2,526.00. Pension: qualifying earnings are £21,840 − £6,240 = £15,600, so the employer 3% is £468.00 and the employee's 5% is £780.00 out of their pay.

You then hire a part-time fundraiser at 15 hours a week on £13.50: £10,530 gross. Employer NI is 15% of (£10,530 − £5,000) = £829.50. Qualifying earnings are £4,290, so the employer 3% is £128.70.

Employer National Insurance for the year totals £3,355.50 — and the £10,500 Employment Allowance wipes all of it out, so you pay nil. Your real cost is the two salaries plus £596.70 of pension: £32,966.70.

Now the version that goes wrong. Forget to claim the allowance and you have handed HMRC £3,355.50 you never owed — roughly a quarter of the fundraiser's post. It is one tick in the payroll software, and it lapses every 5 April.

Freelancers: status is a fact, not a choice

A freelance fundraiser, sessional youth worker or bookkeeper is genuinely self-employed only if the working reality says so: they control how and when the work is done, they can send a substitute, they carry some financial risk, they work for others, and there is no obligation on either side to offer or accept the next piece of work. A written contract saying “self-employed” carries almost no weight against those facts.

Two separate regimes sit here and they are routinely confused. The off-payroll working rules (IR35) apply where the worker supplies their services through their own limited company and the client is medium or large — most charities are below that size threshold, in which case the worker's own company makes the status determination. The ordinary employment status rules apply to everyone else and never switch off. If you engage a sole trader directly and HMRC later decides they were an employee, the charity is the one holding the bill: the PAYE and employee National Insurance you should have deducted, the employer National Insurance on top, interest, and a penalty. HMRC's Check Employment Status for Tax tool gives a determination HMRC will stand behind if your answers are accurate, and printing the result before the engagement starts costs nothing.

The pattern to watch for is the long-running “freelancer”: someone who has invoiced you monthly for three years, works set days, uses your equipment, reports to your manager and does not work for anyone else. That is an employee whatever the invoice says.

Trustees: the rule that catches boards out

The starting point is that trusteeship is unpaid. A trustee cannot be paid for being a trustee unless the governing document expressly allows it or the Charity Commission authorises it, and either route requires the conflict of interest to be handled properly.

Two things are commonly muddled with that rule.

  • Expenses are not a payment. Reimbursing costs a trustee reasonably incurs in the role — travel to meetings, childcare that lets them attend, telephone costs — is not a trustee benefit at all, and the Commission actively encourages it because unreimbursed expenses quietly exclude people who cannot afford to serve. Reimburse against receipts and record it.
  • Paying a trustee for goods or services is different again. Section 185 of the Charities Act 2011 gives a statutory power to pay a trustee, or a person connected with one, for supplying services to the charity — and since the Charities Act 2022 that power extends to supplying goods too. It comes with conditions: the governing document must not prohibit it, the payment must be reasonable, the decision must be in the charity's best interests, it must be set out in a written agreement, the authority must be in place before the goods or services are supplied, and the trustees receiving payment must be a minority of the board and take no part in the decision. Section 188 defines “connected person” widely — spouse or civil partner, child, parent, grandchild, grandparent, sibling, and businesses those people control or have a substantial interest in.

What section 185 does not cover is employing a trustee as a member of staff. That needs authority in the governing document or Commission consent, and it is the single most common reason a small charity ends up in correspondence it did not expect. CIC directors are in an entirely different position: a CIC is a company, its directors can be paid, and the pay is disclosed in the annual CIC34 report — see how to set up a CIC, step by step.

Volunteers: the £25-a-week trap

Volunteers for a charity, voluntary organisation, associated fundraising body or statutory body are exempt from the minimum wage — but only while they receive no monetary payment beyond actual out-of-pocket expenses and only limited, specified benefits in kind. The exemption is fragile in three specific ways: a round-sum allowance that is not tied to a receipted cost is monetary payment; benefits with a real value (equipment to keep, tickets, a share of proceeds) are payment; and a promise of paid work later can itself make someone a worker now. An individual cannot sign away the minimum wage, so a volunteer agreement does not fix any of this.

Worked example — the thank-you that became a wage bill. Illustrative figures, 2026/27.

A community charity gives its volunteer minibus driver £25 a week “for their trouble”, with no receipts. He drives eight hours a week, on a rota, to a timetable the charity sets.

Because the payment is not reimbursement of a receipted cost, the voluntary worker exemption does not apply and he is a worker. At the National Living Wage of £12.71, eight hours is £101.68 a week. He has been paid £25, so the shortfall is £76.68 a week — £3,987.36 across a year, before holiday pay.

HMRC's penalty for underpaying the minimum wage is 200% of the arrears, subject to a minimum of £100 and a maximum of £20,000 per worker. On £3,987.36 of arrears that is £7,974.72. Pay the arrears in full plus half the penalty within 14 days of the notice of underpayment and the penalty halves to £3,987.36. Because the arrears exceed £500, the charity is also eligible to be named publicly.

Total exposure from a £25 note: roughly £7,975 and the charity's name in a government press release. Reimburse the fuel against a receipt instead and the exposure is nil.

What to do this week

  1. Open your payroll software and confirm the Employment Allowance is claimed for 2026/27. If it is not, claim it — it is worth up to £10,500 and it does not roll forward.
  2. Check the lowest hourly rate you pay against £12.71, £10.85 and £8.00. Salaried staff on long hours can slip under the floor without anyone noticing, because the test is pay divided by hours worked.
  3. List everyone invoicing you monthly. For anyone who has done so for more than a year on set days, run HMRC's Check Employment Status for Tax tool and keep the printout.
  4. Read the payments clause in your governing document — the actual clause, not what someone remembers it saying — before any trustee supplies goods or services to the charity.
  5. Find every volunteer receiving regular money and check each payment is matched to a receipt. Replace any round-sum allowance with receipted reimbursement now, not at year-end.

How we help

We run payroll and pensions for charities and social enterprises, claim the Employment Allowance, keep an eye on the wage floor as rates move each April, and tell you before a freelancer or a volunteer arrangement becomes a liability. It sits inside our social-sector packages, from £39 + VAT a month, alongside the filing deadlines we track for you. Get started.