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Are my workers employed or self employed ?

A person who provides work to an individual is responsible for correctly establishing the employment status of the worker.  For tax and National Insurance contribution (NIC) purposes that is whether the worker is an employee or self-employed.

Why employment status matters

An individual’s employment status affects the amount of tax and NICs they pay, how they pay them, their employment rights, and if applicable their employer’s responsibilities.

EmploymentstatusMethod of paymentEmployment rights
EmployeeThe employer deducts tax and NICs at source from the employee’s pay under the Pay As You Earn (PAYE) system An employee has a wide range of rights, including entitlement to:·         statutory sick pay;·         maternity/paternity pay; and·         holiday pay.Where necessary, the employer’s disciplinary and grievance procedures apply to an employee, as does the employer’s redundancy policy
Self-employedSelf-employed individuals are normally exempt from PAYE and instead report and pay tax and NICs personally through the self-assessment tax systemA self-employed individual does not have the rights of an employee, for example they are not entitled to holiday or sick pay

If an employer incorrectly treats an employee as self-employed, it can cost the employer (or sometimes the employee) a lot of money to put things right. 

An individual can have one employment status for tax and NICs purposes and a different one for employment law purposes. For example, taxi drivers in the gig economy may be self-employed for tax and NICs purposes but a ‘worker’ for employment law purposes and as such entitled to some employment rights. 

Establishing an individual’s employment status

There is no comprehensive definition in law to say whether an individual is an employee or self-employed. An individual’s employment status is established by weighing up all relevant facts and looking at the overall picture. The factors to be considered are derived from case law.

To emphasise, self employment is a matter of FACT NOT CHOICE

Summary of key factors to be considered:

For employmentAgainst employment
There is an employment contract  There is no employment contract
The engager controls the way the work is doneThe worker controls how they do the work
The worker must do the work themselvesThe worker can send someone else to do the work on terms of their own choice and pay them out of their own pocket
The worker does not bear the losses nor keep the profitsThe worker bears the losses and keeps the profits
The worker does not correct unsatisfactory work in their own time and at their own expenseThe worker corrects unsatisfactory work in their own time and at their own expense
The engager decides where the worker must workThe worker decides where to work
The worker is paid a regular salary by the engagerThe worker invoices the engager for work done
The worker receives benefits in kindThe worker is only paid in cash, cheque or bank transfer
The engager provides the tools and equipmentThe worker provides their own tools and equipment
The engager lays down regular and defined working hoursThe worker decides when they want to work
The engager cannot withhold paymentThe engager can withhold payment until the work is done as agreed
The engager can dismiss the workerThe engager cannot dismiss the worker or cancel the work once the work is agreed, without compensation
The worker works for one engager at a time or a few regular jobsThe worker has lots of engagers at the same time
The engager and worker understand the relationship to be that of employer and employeeThe engager and worker understand the worker to be self-employed
The worker does not risk their own moneyThe worker risks their own money in the business
  • “worker” refers to the person who does the work (not a “worker” for employment right purposes): and
  • “engager” refers to the person for whom the work is done (this could be the individual’s employer)

Please contact us for further information

Disclaimer:  This App and its contents have been produced as a helpful reference point.  The information should be used as a guide only and your specific circumstances are best discussed directly with us.

No reliance should be placed on this material and no action should be taken without seeking the appropriate professional or legal advice. Although the authors make reasonable efforts to ensure the content of this App is accurate and up to date, the authors make no representations, warranties or guarantees that the content is accurate, complete or up-to-date and accept no responsibility whatsoever for any loss occasioned by anyone acting on information within this App.

Category: Employers
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