Calculating employee numbers

This helpsheet has been issued by ICAEW’s Technical Advisory Service to help ICAEW members to understand how to calculate employee numbers for the purpose of determining the size of a company or group and for disclosure in the accounts.

Members may also wish to refer to the following related helpsheets:

• Do I have to disclose employee numbers?
• Is a company or group small?
• Is a company micro?

The number of employees is an important part of the criteria for determine company size (see Is a company or group small? or Is a company micro? helpsheets) and is also required to be disclosed in the accounts (see Do I have to disclose employee numbers?).

When considering a standalone company, the number of employees is calculated in the same way to both determine the size of the company and disclose the number of employees.

When considering a group scenario however, the number of employees to determine the size of the group is calculated differently from the number of employees to be disclosed in the group accounts. This is considered in further detail below.

When determining whether a group is small in size, section 383(5) states that the aggregate figures are ascertained by aggregating the relevant figures determined in accordance with section 382 for each member of the group.

Put simply, this means we add up the number of employees we have calculated for each group entity in accordance with section 382.

Example

Holdings Ltd has 30 employees as calculated under section 382 for its year ended 31 December 2020. On 30 June 2020 it acquired 100% of Subordinate Ltd which has a year end of 31 October 2020 and for that year has 35 employees as calculated under section 382.

It does not matter that the year ends do not coincide or indeed that the subsidiary was only a member of the group for six months. We calculate the employee numbers for the subsidiary following the instructions in section 382 (per section 383(7)(b), as the year ends are not co-terminus, we base the calculation on the subsidiary’s period ended last before the parent company period end), we calculate the employee numbers for the parent, and then add the two figures together. The resulting number of employees for the group is 65. We do not average out the employees for the six months of ownership of Subordinate Ltd over the 12 month accounting period of Holdings Ltd.

Employee serving more than one group company

Where one individual serves more than one group company (for example a parent and its two subsidiaries) consideration should be given to the structure of the arrangement.

If the individual is employed by one company which then recharges the other group companies for its employee’s time, then we have one employee.

If, however, the individual has contracts of service with each of the three group companies, then they would count as one employee in each company, and three employees therefore for the group purposes.

If the number of employees is critical in determining group size, great care is needed in the calculation.

When preparing group accounts, the number of employees disclosed for the group may not be the same as the figure calculated for determining the size of the group. This is because s411(7) of the Companies Act 2006 says that s411 (information about employee numbers and costs) applies in relation to group accounts as if the undertakings included in the consolidation were a single company.

As a result, an employee with contacts of service with more than one group entity would only count as one employee for disclosure purposes in the group accounts.

Additionally, where entities are member of the group for part of the year, they only affect the average calculation for the part of the year during which they were such a member.

ICAEW members, affiliates, ICAEW students and staff in eligible firms with member firm access can discuss their specific situation with the Technical Advisory Service on +44 (0)1908 248 250 or via webchat.