It can be important to decide whether someone is an employee or self-employed for tax and well as employment rights. Some statutory rights (e.g. unfair dismissal) only apply to ‘employees’ although some also apply to ‘workers’ (e.g. protection from discrimination in relation to the protected characteristics).
The following factors can be helpful in deciding whether a particular arrangement makes an individual an employee or not. However the decision will be made on the overall impression created by the arrangement and not on the number factors indicating employment compared with the number suggesting self-employment.
1. Mutual Obligations
Perhaps the most important test is whether the firm has to supply work and if they do whether the individual has to carry out that work. If the firm doesn’t have to provide any work and even if they do the individual doesn’t have to accept it that suggests the individual is self-employed.
2. Carrying on Business
Another factor is whether an individual can be said to be carrying on a business on his own account. If he is he will be self-employed but if he is part of someone else’s business he is likely to be an employee.
Factors indicating the individual is carrying on a business include if the individual is:
- risking their own money;
- providing their own equipment;
- working for a number of firms;
- able to profit by efficient organisation or by reducing overheads.
3. Contract Terms
In a marginal case what any contract between the individual and the firm says as to the status of the individual can be indicative. However the parties cannot choose whether the individual is employed or not. H M Revenue & Customs and Employment Tribunals will look at what actual happens not what the contract says should happen.
If the contract has terms usually found in a contract of employment the contract is likely to be an employment contact. These terms include:
- holidays;
- sick pay;
- pension arrangements;
- overtime arrangements;
- rights to terminate on notice.
4. Personal Service
A self-employed person is contracted to carry out a particular job. If there are restrictions on who can do the work that suggests an employment arrangement. If the person is self-employed they should be able to send someone else to carry out the work.
5. Control
If the firm can direct when, where and how the individual does his work then he is likely to be an employee. On the other hand if the individual has discretion over these matters that suggests he is self-employed.
Any sort of disciplinary procedure in the contract suggests it is an employment contract.
6. Tax
If an individual pays tax and national insurance on a self-employed basis it in indicative that he is not an employee. However it is not conclusive if other factors suggest employment.
7. Payment
If someone is paid by the hour or some other regular period they are likely to be employed. If they are paid for completing a particular piece of work they are more likely to be self-employed.
HM Revenue & Customs have useful guidance on this question at http://www.hmrc.gov.uk/employment-status/index.htm
