Employed or Self-Employed – that is the Question

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We are often asked to advise on a worker’s employment status – whether they are employed or self-employed. The answer to this question will be dependent upon the terms and conditions relating to the role they fulfil. It is vital that employers correctly determine the employment status of their workers as there can be some hefty penalties if they get it wrong. The employment status will determine whether the individual has deductions for tax and national insurance made from any remuneration by the employer or whether they are required to account for these deductions themselves. Does the person work under a contract of employment or a contract for services and what is the reality of their relationship? The Courts have laid down some factors and tests to determine the nature of a contract. As a rule of thumb, if the answer to the following questions is “yes”, then the worker is more than likely to be deemed to be an employee:
  • Does the person have to carry out the work themselves?
  • Can they be told at any time what to do, where or when to carry out the work and how to do it?
  • Can they work a prescribed number of hours?
  • Can they be moved from task to task?
  • Are they paid by the hour, week or month?
  • Are they entitled to any overtime pay or a bonus payment?
However, if the answer to the following questions is “yes”, then they are more likely to be self-employed:
  • Can the person hire others to carry out the work?
  • Do they risk their own money?
  • Do they provide the resources they need to carry out the work, eg items of equipment, PC, vehicle, etc?
  • Do they agree to carry out a piece of work for a fixed price no matter how long it takes to do the job?
  • Do they carry out work for several different people?
  • If they make an error, do they have to correct it in their own time and at their own expense?
More information on this rather complex topic can be found on the HMRC website.

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