Determination of Employment Status

In the course of performing temporary business, there is sometimes a blur between employment and self-employment. It can cause confusion for clients or contractors when taking on labour to assist in the performance of their tasks. As a result, the HMRC has set up some rules to be used as a guide to help clients determine whether the subcontracted labour can be classed as employed or self-employed, thereby exempt from PAYE.

Individuals and their employers may have to pay unpaid tax and penalties or lose entitlements to benefits if their employment status is wrong.

To be employed involves having a contract of service with an employer, therefore the employee is paid in a set period and amount to perform certain duties. Taxes and national insurance are deducted of the source from employee wages, also the employee is paid for duties, regardless of how they have performed or how well the business is performing.

A person is self-employed if they run the business for themselves and take responsibility for its success or failure. Self-employed individuals are not paid through PAYE, also do not have the rights and responsibilities of employees. It is a contract of services.

An individual can be both employed and self-employed at the same time, if they work for an employer also run their separate business outside their employment hours.

The main criteria used to determine if a subcontractor is self-employed are if they:

  1. Can work for more than one client at the same time.
  2. Decide what work to do and when, where or how to do it.
  3. Can hire someone else to do the job.
  4. Are responsible for fixing any unsatisfactory work in their own time.
  5. Provide tools and equipment for their work.
  6. Set the prices for their services with the client concerned.
  7. Can choose which jobs to take on and refuse.

If an individual can satisfy all or almost all the criteria above, they can be classed as self-employed, therefore will not be subject to the restraints of employment.

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