Employed or Self Employed

Are they employed or self-employed?

Employment is a complicated matter. Many advisors over-simplify the matter but we have covered the subject in depth, as it is VERY important and can be VERY costly to you if you get it wrong. So when is a worker employed, and when self employed?

Firstly, it is worth looking at what we mean by “employed”. It is common practice for some employers to try to get their staff considered ‘self-employed’. It is common that these staff will pay their own tax and NI, holding service contracts and believe themselves to be self-employed. However, in law it does not matter what has been agreed or who has paid the tax and NI, whether a person is legally classed as employed or self-employed is found in the fairly complex criteria of whether a master / servant relationship exists. The factors in establishing this are: who dictates what work is done, where and how? Who provides the tools of the trade? Who covers absenteeism, who is responsible and who can nominate someone to cover? Is pay made based on quantity, or is it based on a regular amount of pay in each period?

Regardless of what the contract between the parties states, if an ‘employee’ can show that there is a master/servant relationship under those guidelines, that employee is likely to be able to enjoy employee rights, such as the right not to be unfairly dismissed.

Further, HMRC have their rules about who should pay NI and tax – and the levels at which this should be paid. Their own view is that it is the employer’s responsibility to get this right so, if you employ people and call them self employed, you can find HMRC requiring you to pay seven years lost revenue of tax and NI contributions when they catch up with you!

The two main points to remember is that the answer is not as objective as many would like it to be and that it is vital that you get this right if you engage someone.

There is no simple objective way to decide whether someone is employed or self-employed; it is a much more subjective matter than you might realise. For further information you might look at http://www.hmrc.gov.uk/leaflets/es-fs1.pdf (correct at time of writing and available from us if required). Further HMRC have an “Employment Status Indicator” at (again, correct at time of writing) http://www.hmrc.gov.uk/calcs/esi.htm.

All of this is covered in depth on our transport manager’s CPC course, in order to ensure that you don’t make a costly mistake when running an operation.