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Should your worker be employed or self-employed?

14 November 14 | By: Jas Jhooty


There are tax and National Insurance Contribution advantages to both the hirer and the worker if the worker can determined as being self-employed rather than an employee. However this is not a matter of personal choice or else everyone would say they are self-employed.

Surprisingly there is no statutory definition that determines a worker’s employment status. Instead it has been left up to the law courts to formulate case law that has resulted in the following questions needing to be answered about the nature of the engagement between the hirer and the worker: –

Is the service of a personal nature?
  • Is only the sub-contractor allowed to perform the work?
  • If so this would be seen as an indicator towards employment.
Is there a mutuality of obligation?
  • Is the work of a short-term nature or is there an ongoing obligation for the contractor to keep the sub-contractor on, and for the sub-contractor to keep working for the same contractor?
What degree of control does the engager have?
  • Is the relationship between the two parties that of Master & Servant?
  • Does the worker have set hours of work?
  • Can they decide to work from their own offices/home or do they have to attend the company office between set hours?
Has the worker the right to substitute their work to someone else?
  • This is very important indicator towards self-employment as employees cannot do this.
  • If they are allowed to do so in the contract, has this ever happened?
Does the worker provide their own equipment?
  • If the worker was truly in business in their own right they would be expected to provide their own equipment.
  • E.g. you wouldn’t be expected to provide spanners and other equipment to a self-employed plumber who has gone to your house to fix a leak.
What is the degree of financial risk/ opportunity to profit enjoyed by the worker?
  • Employees get paid an hourly rate regardless of the quality of their work.
  • People in business in their own right charge by the task irrespective of how long it takes them to complete the task.
  • If they perform the task quickly they will profit more.
  • If they do shoddy work they will have to put it right at a cost to themselves as they cannot charge any more.
Does the engager provide Benefits-in-Kind to the worker?
  • Does the sub-contractor receive medical health insurance, company cars, mobile phones etc. paid for by the firm?
Is the worker part and parcel of the organisation?
  • Are they listed in the firm’s telephone directory?
  • Do they have the firm’s email address?
  • Indicators towards a permanent arrangement
Are there trappings of trade present?
  • Does the sub-contractor advertise their services – website/flyers/business cards?
  • Do they issue their own branded invoices and give 30 days terms for payment?.
  • Do they ever have to take credit control action to enforce payment etc.
  • Do they hold Professional Indemnity Insurance?

Determination of employment status

All of the answers to these questions are assessed in conjunction to arrive at the true employment status
  • If on balance the answers indicate employment then all payments have to go through the payroll
  • If on balance the answers indicate self-employment then payments can be made gross via invoice

These same questions are used to ascertain whether a Personal Service Company falls foul of IR35 legislation.

How emTax can help

Employment status enquiries are popular with HMRC who often insist that self-employed subcontractors should be classified as employees. However the HMRC view may not reflect the full picture, with employment status being a very ambiguous and complex area. The repercussions for the employer can be enormous with huge PAYE and Class 1 NIC liabilities arising if HMRC’s views remain unchallenged. If you are subjected to an employment status enquiry our advice is to ask one of our expert consultants to represent you as soon as possible.

As always prevention is always better than cure so it would be prudent to contact us to review your current arrangements when it comes to engaging with self-employed subcontractors or Personal Service Companies before HMRC start any enquiries. We can advise you on engagement practices and leave you with tailored contracts for services that should leave you ‘audit-proof’.

For more advice on this or any other employment tax matter, do not hesitate to contact us.


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