Paying students who work on your startup is not the same as paying an employee at a normal company. The right category — employee, worker, contractor or volunteer — depends on how the relationship actually works, not what you call it. This page sets out the four categories, the payroll obligations each creates, and when equity or options are a better answer than cash.
| Category | Who it covers | Minimum wage | Pay via PAYE? | Pension auto-enrol? |
|---|---|---|---|---|
| Employee | Full employment relationship with mutuality of obligation and personal service | Yes (NMW/NLW) | Yes | Yes if earnings > £10,000/yr |
| Worker | Casual, hourly, zero-hours; still owed basic rights | Yes (NMW/NLW) | Yes | Yes if earnings > £10,000/yr |
| Self-employed contractor | In business on their own account, substitutable, bears financial risk | No | No (they invoice; self-assessment) | No |
| Volunteer | Narrowly defined; no obligation to attend or perform, no reward beyond expenses | No | No | No |
HMRC and employment tribunals look at the reality of the arrangement, not the label on the contract. Calling someone a volunteer because you do not want to run payroll does not make them one.
For 2026/27, the UK rates:
These apply to employees and workers — which is where most student contributors sit. Verify against GOV.UK before publishing a rate — the April 2026 uplift is in force. Internships are a trap: an intern doing real work is a worker and must be paid at least NMW. “Unpaid internships” are lawful only for genuine shadowing or for students doing a required part of a UK degree course.
True volunteers must have no contractual obligation to attend or perform. If you can discipline them for not showing up, they are not volunteers. Expenses can be reimbursed on an actual basis; a flat “volunteer stipend” of £25 for a half-day shift is NMW-dodging and will be treated as pay.
For a student society that genuinely runs on volunteers — organising events, writing a magazine — this is fine. For a startup that depends on contributors turning up to deliver client work, the relationship is almost always worker or employee.
If a student contributor is on a Student route visa, their visa conditions permit employment up to 20 hours per week during term time and full-time during vacations. Self-employment and business activity are prohibited.
For the startup paying them, this means:
Our international students spoke covers the visa side in more detail. This page is about the employer-side payroll.
Once you pay anyone through PAYE (including a founder on £12,570), you need:
The Employment Allowance for 2026/27 is £10,500 off employer’s NI. It is not available to companies where the only employee is a sole director, which is where most pre-revenue spin-outs sit at incorporation. Once a second employee or director is added and paid above the secondary threshold (£5,000 for 2026/27), the Employment Allowance becomes available.
Student loan repayments are collected through PAYE for employed graduates. The 2026/27 thresholds (verify against GOV.UK):
HMRC tells the employer which plan via a Student Loan Start Notice (SL1). A graduate founder paying themselves above these thresholds has repayments collected automatically.
Students invoicing as self-employed contractors (through their own limited company or sole trader) are only allowed where the relationship genuinely is self-employment. HMRC’s CEST tool and the IR35 case law tests (control, substitution, mutuality of obligation) apply the same way as for a mid-career contractor.
For a small company (fewer than 50 employees, or balance sheet < £5.1m, or turnover < £10.2m), the off-payroll working rules (IR35) do not shift the determination to the client — the contractor remains responsible for their own status assessment. Most pre-revenue spin-outs sit comfortably as small.
Spin-outs frequently prefer giving contributors a stake rather than paying cash they do not have. The three main routes:
Enterprise Management Incentive is the standard UK tax-efficient option scheme: no income tax or NI on grant or (usually) exercise, 18% CGT on sale under Business Asset Disposal Relief (2026/27 rate; verify, see spin-out equity spoke). Eligibility: company fewer than 250 FTEs, gross assets £30m or less, qualifying trade, independent (a university minority is usually fine). The individual must work at least 25 hours a week or 75% of their working time for the company — a part-time student doing 10 hours a week does not qualify for EMI.
A separate class of ordinary shares that only participate in value above a hurdle. Common for part-time contributors who cannot hold EMI. Priced carefully (ideally with a valuation and a section 431 election), they can be issued cheaply without immediate income tax.
Tax-advantaged options outside EMI. Lower limits (£60,000 of options per employee) but no working-time test, so a part-time student can hold CSOP options.
Yes, within the right scheme. EMI needs the student to be working 25+ hours a week or 75% of their working time. For part-time students, CSOP or growth shares are the usual alternatives.
Not if there is an obligation to attend or perform. A true volunteer can choose not to turn up without consequence. If the student is delivering work the company depends on, they are a worker.
Yes. Any work for a UK employer counts toward the 20-hour term-time cap, including work for a company the student has shares in. Being a shareholder does not change the visa condition.
Yes if the student has another job (so their personal allowance is used elsewhere) or if the payment is a salary rather than reimbursement. If earnings are below the Lower Earnings Limit (£6,500 for 2026/27, verify) and the person has no other employment, a PAYE scheme is not strictly required — but running one is usually simpler.
Only if the relationship is genuinely self-employment under IR35 tests. For a Student route visa holder, running their own limited company is a visa breach. For a UK national or graduate-visa holder, it is possible but the IR35 status still has to work.
Official guidance: National Minimum Wage rates, Employment status, PAYE for employers, EMI. AccTek is independent of HMRC and GOV.UK.
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Related: university spin-outs and student startups (hub) | society or limited company? | student-run business challenges | EMI founders’ guide (2026/27) | payroll & PAYE
Godwin Pinto ACA (ICAI) is the founder of AccTek and a member of ICPA, with 20+ years of experience in accounting and tax for contractors, startups and SMEs. Previously at PwC.
AccTek is a member firm of the Institute of Certified Practising Accountants (ICPA), and our founder is a member of the Association of International Accountants (AIA) holding an AIA Practising Certificate. Our accountants hold qualifications and accreditations from trusted professional bodies including the AIA, ICPA, AAT and ACCA.
