Employed or Self-employed?
Part I of this document deals with the following
Self-employed or Independent Contractor
Zero Hours Contracts
Part II describes the HM Revenue and Customs’ definitions
of employee and the self employed
Employed or self-employed 1
Employee, Worker, Self-employed
Whether someone is an employee working under a contract of employment
or a self-employed person (independent contractor) working under a
contract to provide services depends upon the true nature of the agreement
entered into by the parties.
If the employer has:
a duty to provide work;
controls when and how it is done;
supplies the tools or other equipment needed to do it; and
pays tax and national insurance contributions on the worker‟s behalf
then it is likely that the worker is an employee.
If, on the other hand:
the worker can decide whether or not to accept work;
how to carry it out;
makes his/her own arrangements for holidays or sickness absences;
pays his/her own tax and national insurance contributions; and
is free to do the same type of work for more than one employer at the
This points towards the person being self-employed or an independent
The fact that a worker is described, either by him/herself or by the
employer, as being self-employed does not necessarily mean that this
is actually so.
Neither does the fact that the worker does the job on the employer‟s
premises or from his/her own home determine the issue.
The important question is whether or not the worker is genuinely in business
on his/her own account.
An independent contractor who is under obligation to perform the work
personally will normally be a worker. For the status of worker to apply it
Employed or self-employed 2
will be necessary to show the existence of a contract and the services must
be provided on a personal basis. If an individual is free to substitute another
individual to carry out the work, and the other party to the contract is a
client or a customer, then the individual may well be excluded from the
rights that apply to workers.
A worker is entitled to certain employment rights including the National
Minimum Wage; the Working Time Regulations(paid annual leave); Part-
Time Workers Regulations, etc. Workers are also covered by discrimination
legislation: Race, Sex, Disability, Sexual Orientation, Religion/Belief and Age
If a dispute arises in which employment status is in doubt, this can be
considered as a preliminary issue by the Employment Tribunal or the court
concerned, taking into account all factors relevant to the case.
Casual employment refers to a situation where an individual supplies labour
or services to another under an irregular or informal working arrangement.
Casual workers are generally classified as independent contractors rather
than employees. But as workers they are obliged to deliver the work
personally (see above).
Even if such workers are employees, their engagements are often of a
temporary nature and do not allow them to accrue the continuity of service
that is necessary for employment protection rights. However, they will be
entitled to such rights which do not require continuous service, see below.
The fundamental principle that applies to casual work is that there is no
obligation to provide work and no obligation to accept it. Workers are free to
work when they wish and employers are free to hire when they wish.
Claims by casual staff to employee status generally fail through lack of
mutuality of obligation which is considered to be an essential prerequisite
of the existence of a contract of service.
Short-term Contracts of Service: a particular hiring may take the form of
a contract of employment and duration of each is not a decisive factor. If a
contract of employment is found to exist in respect of a specific
engagement, the nature of that contract will depend on circumstances: it
may be a contract of indefinite duration or a fixed-term contract, including
one to carry out a particular task which ends when the task is completed. An
employer‟s failure to renew a fixed-term contract amounts to dismissal (the
Employed or self-employed 3
document Fixed Term Contracts has more details at
However, where a working arrangement settles into an informal but regular
pattern over a period of time, it may be possible for an individual to argue
that a contract of service exists. For example, working every summer for the
same employer over a period of years.
As far as the Courts are concerned, even where there are clear gaps
between periods of work these may often be considered as temporary
cessations of work and therefore ignored: up to 31 weeks has been held as
temporary. But courts look at existing length of service compared with the
break or breaks before concluding whether a break has occurred.
Furthermore, a job finishing on Friday and a new job beginning on the
following Monday can equal continuity. For more on this point see Global
Casual staff will generally qualify as Workers for the purposes of the
legislation which requires worker status – the Working Time Regulations, the
National Minimum Wage, Part-time Workers Regulations. In general, they
will also be able to take advantage of discrimination legislation – Sex, Race,
Disability, Sexual Orientation, Religion or Belief, Age Discrimination, etc.
This is a missleading term, widely used by voluntary sector employers, to
describe workers who are employed on a regular basis to carry out specific
work „sessions‟. The term is most commonly used for workers such as adult
education tutors, youth workers, play workers etc. The legal definition of
such workers is that they are part time workers, even if they only work
once a week (teaching on a Saturday) or less frequently (delivering a class
once a month).
It does not matter that such workers may only be employed during term
time, and may be annually (or termly) issued with new contracts. These
devices do not limit these workers‟ rights. The fact that the work is only
term time does not affect continuity of employment, as the holiday breaks
merely define the times the worker is not working during the contracted
period – in the same way that, for many workers, the weekend operates.
The situation is often confused by the nature of the employment: it is not
uncommon for organisations to expect these workers to arrange their own
tax and NI contributions, believing that a tax status affects the workers‟
employment status. Often such workers are viewed as freelancers rather
Employed or self-employed 4
The reality is that in law the situation may be quite different. This is
especially likely to be the case where the workers are expected to carry out
the work themselves, are working at a time defined by the employer, in a
defined workplace, using the employers‟ materials and equipment and are
subject to the employer‟s rules. Employment courts almost invariably rule in
such cases that these workers are in fact employees and thus have
employment rights like other employees.
A Global Contract may be implied where there is a relationship of such a
long-standing nature that, even though work is done on a casual basis, in
reality the employer is under a continuing obligation to provide work which
the worker is likewise obliged to accept. Therefore, continuity of employment
can be established. The fact that an individual is free to work for another
employer during periods when s/he is not required will be a relevant but not
A succession of short-term contracts of service will not necessarily lead to a
global contract as it may not be possible to establish sufficient continuity of
employment. A gap between contracts will operate to break continuity unless
it can be seen as a temporary cessation of work or an arrangement whereby
the individual in question is to be regarded as continuing in employment.
However, if a global contract of employment is found to exist, it will
generally be an open-ended or permanent contract of employment.
Employed or self-employed 5
Zero Hours Contract
A Zero Hours Contract is a permanent contract with no defined hours, with a
requirement made by the employer that the employee will work hours as set
by the employer. These may alter from day to day, or week to week – so the
worker may work 35 hours in one week and none the following one, but will
have employee status throughout.
The provision of annual leave in the Working Time Regulations applies to
workers on zero hours contracts. Holiday pay will be worked out by taking
the average pay over the 12 weeks immediately preceding the holiday.
Weeks where an employee has not worked should not be counted.
A zero hours contract can be seen as a positive move – acknowledging that
a worker is an employee with certain rights, as described in a contract of
employment, whilst at the same time acknowledging that the employer
cannot guarantee any particular amount of work. This can resolve a
potentially expensive conflict as to whether, for example, a casual selected
from a pool or bank is in fact an employee with continuity of employment
because of the custom and practice of frequently reselecting the same
individual from the pool (because they are always available, or are better
workers, etc). It can also usefully highlight the issues arising around notice
as explained above.
If you pay your volunteers anything in addition to direct expenses against
receipts, they may be considered employees in the eyes of the law. This
includes training which does not directly benefit the work they do for your
If they are deemed employees, you will incur employer‟s obligations
including having to pay them the minimum wage; providing them with paid
annual leave; deducting tax and National Insurance contributions and paying
employers‟ NI contributions, including any backdated payments.
This material does not give the full statement of the law. It is intended for
general guidance only and is not a substitute for professional advice. No
responsibility for loss occasioned as a result of any person acting or
refraining from acting can be accepted by the writer or LVSC.
For Part II – HM Revenue and Custom’s definitions, see next page
Employed or self-employed 6
Employed or Self-employed, the HM Revenue and
(taken from http://www.hmrc.gov.uk/employment-
A worker‟s employment status, that is whether they are employed or self-
employed, is not a matter of choice. Whether someone is employed or self-
employed depends upon the terms and conditions of the relevant
engagement. The tax and National Insurance contributions (NICs) rules do,
however, contain some special rules that apply to certain categories of
worker in certain circumstances. See section on special cases.
If you work for someone else, it is important to know whether you are
working for that person in an employed capacity or in a self-employed
capacity as an independent contractor. If you are an engager, it is your
responsibility to correctly determine the employment status of your workers.
A worker‟s employment status will determine the charge to tax on income
from that employment or self-employment. It will also determine the class of
NICs, which are to be paid.
Employed or self-employed?
In order to answer this question it is necessary to determine whether the
person works under a contract of service (employees) or under a contract for
services (self-employed, independent contractor). For tax and NICs
purposes, there is no statutory definition of a contract of service or of a
contract for services. What the parties call their relationship, or what they
consider it to be, is not conclusive. It is the reality of the relationship that
In order to determine the nature of a contract, it is necessary to apply
common law principles. The courts have, over the years, laid down some
factors and tests that are relevant, which is included in the overview below.
As a general guide as to whether a worker is an employee or self-employed;
if the answer is 'Yes' to all of the following questions, then the worker is
probably an employee:
Do they have to do the work themselves?
Can someone tell them at any time what to do, where to carry out the
work or when and how to do it?
Can they work a set amount of hours?
Can someone move them from task to task?
Are they paid by the hour, week, or month?
Employed or self-employed 7
Can they get overtime pay or bonus payment?
If the answer is 'Yes' to all of the following questions, it will usually mean
that the worker is self-employed:
Can they hire someone to do the work or engage helpers at their own
Do they risk their own money?
Do they provide the main items of equipment they need to do their
job, not just the small tools that many employees provide for
Do they agree to do a job for a fixed price regardless of how long the
job may take?
Can they decide what work to do, how and when to do the work and
where to provide the services?
Do they regularly work for a number of different people?
Do they have to correct unsatisfactory work in their own time and at
their own expense?
A contract is an agreement between two or more parties. It can be written,
oral, implied or a combination of these.
The main elements of a valid contract of service (employment), or a contract
for services (self-employment), are:
the intention to enter into legal relations
an offer (usually of work) and its acceptance (an agreement)
consideration (for example, in return for performing work the worker
Once it is established that a contract exists, it is then necessary to establish
the terms and conditions of work agreed between the worker and the
engager and, having completed this exercise, to apply case law laid down by
the courts over the years. The basic approach of the courts is to identify the
factors present; weigh those that point to self-employment against those
that point the other way; and then stand back and consider the picture that
emerges. There are, however, certain factors that must be present in a
contract of service. See below the relevant factors the courts may take into
account in determining employment status.
What the parties call their relationship, or what they consider it to be, is not
conclusive. It is the reality of the relationship that matters. Nevertheless,
the intention of the parties has to be taken into account and can be decisive
where the relationship is ambiguous and, or where the other factors are
Employed or self-employed 8
Relevant factors used to determine employment status
Recent court cases indicate there is no single satisfactory test governing the
question whether a person is an employee or self-employed. One must
consider all the factors that are present in, or absent from, a particular case;
weigh those pointing to employment against those pointing to self-
employment; and then stand back and consider the picture that emerges.
The result may be that a person is considered to be in business on his own
account (self-employed) or is an employee.
The following factors are not an exhaustive list but they do include the more
It is a necessary condition of a contract of service that the worker is required
to provide his or her services personally. Consideration must therefore be
given to whether or not a worker could provide a replacement worker in his
or/her absence. This is usually referred to as a right of substitution.
Where both the worker and his or her engager understand that a suitably
qualified or skilled person can (or must) be provided by that worker in his or
her absence the situation is very likely to be self-employment.
The absence of a right of substitution (in other words a requirement for
personal service) does not necessarily mean that the worker will be an
employee. A requirement for personal service may exist in situations of
employment and self-employment. See below for more information on
Mutuality of obligation
The minimum obligations that are necessary for a contract of service are the
obligation on the part of the worker to give personal service and the
obligation on the part of the engager to pay the worker for that service. An
employment contract will often also indicate that the engager will provide
work for the duration of the contract during the agreed working hours.
Right of control
The employee must be subject to a certain degree of control by the engager
although control need not be exercised in practice. It is the right of control
that matters. The engager may control how a worker performs his services,
what tasks have to be performed, when and, or where they must be
The fact that a worker may be told how to perform duties will usually be
seen as a strong pointer to employment but, where the worker is an expert
(For example, a ship‟s captain, consultant brain surgeon and so on), the
absence of this aspect of control would probably not be seen as material.
The employee will usually be expected to work set hours each day or week
but may be permitted to work flexible hours and to work at the employer‟s
premises or at other places with the agreement of the employer. The self-
employed person is more likely to have the freedom to do work when and
where he or she wants.
Employed or self-employed 9
Right of substitution and engagement of helpers
Some contracts give the worker a right to send a replacement or engage a
helper. Where the worker has to pay that person this would be regarded as
an indicator of self-employment. The degree to which it points in that
direction would depend on the particular circumstances of each case.
Relevant considerations would include whether the engager reserved the
right to reject a substitute and whether the right was exercised on a regular
The worker may, however, only have a right to propose a substitute rather
than a right to actually send a substitute, and this would probably be seen
as only a mild pointer to self-employment.
Provision of own equipment
A self-employed contractor generally provides whatever equipment is
needed to do the job (though in many trades, such as carpentry, it is
common for employees, as well as self-employed workers, to provide their
own hand tools).
The provision of significant equipment (and, or materials) which is
fundamental to the engagement is of particular importance. For example,
where an IT consultant is engaged to undertake a specific piece of work and
must work exclusively at home, using the worker‟s own computer
equipment, that will be a strong pointer to self-employment. But where a
worker is provided with the necessary equipment, materials and so on by
the engager that points to employment.
Individuals who risk their own money by, for example, buying assets needed
for the job and bearing the running costs and paying for overheads and large
quantities of materials, are almost certainly self-employed. Employees are
not usually expected to risk their own capital.
An example of a financial risk is where a skilled worker incurs significant
amounts of expenditure on training in order to obtain the skills needed,
which is used in subsequent engagements. This can be treated as a pointer
to self-employment, in the same way as investment in equipment to be used
in a trade, if there is a real risk that the investment would not be recovered
from income from future engagements. Self-employed workers may also be
required to rectify unsatisfactory work in their own time for no additional
Financial risk could also take the form of quoting a fixed price for a job, with
the consequent risk of bearing the additional costs if the job overruns. The
risk of making a loss is a very strong indicator of self-employment and can
be decisive on its own.
Opportunity to profit
A person whose profit (or loss) depends on the capacity to reduce overheads
and organise work effectively may well be self-employed. People who are
paid by the job will often be in this position. For example, a person who
Employed or self-employed 10
quotes a fixed price may well be able to complete the task ahead of schedule
or at a lower cost than originally envisaged. People who provide their own
materials may be able to profit by getting a good price on the materials or
by charging more for them.
Length of engagement
By itself, the length of a particular engagement may have little importance in
determining employment status, although it is more likely that an employee
will have an open-ended contract.
It is; however, common these days for employees to be engaged on fixed
term contracts. Where a person undertakes a number of short-term
engagements for different engagers and runs the risk of bad debts, incurs
expenditure in the course of obtaining engagements and so on, he or she
may be regarded as self-employed. On the other hand, a person engaged on
a short-term contract may be regarded as a casual employee. This factor
must be viewed in the light of all the different aspects of a person‟s work.
Part and parcel of the organisation
At one time this was considered to be a test of employment or self-
employment, but it is now viewed as one factor to be considered with all the
Establishing whether a person becomes „part and parcel‟ of a client‟s
organisation can be a useful indicator in some situations. For example,
someone taken on to manage a client‟s staff will normally be seen as an
integral part of the client‟s organisation and this may be seen as a strong
indicator of employment.
The presence, in a contract, of benefits such as paid leave, membership of
firm‟s pension scheme, right to car park space, canteen facilities and so on is
a good indicator that an employment relationship exists. A contract of
employment may also contain access to a grievance procedure and the
worker may be subject to disciplinary procedures.
The absence of such benefits may be viewed as a pointer to self-
employment but the lack of these is usually as a consequence of the
intention of self-employment. It may be necessary to consider whether
employees of the engager, who do similar work, have access to such
benefits. A comparison might also have to be made between the rates of pay
of those employees and the „contract‟ worker, as the latter may be paid a
greater rate in order to compensate in part for the absence of such benefits.
Right to terminate contract
A right to terminate an engagement for a reason other than serious breach,
by giving notice of a specified length, may be viewed as indicative of a
contract of employment, but, at best, would only be regarded as a minor
factor. Such a provision is unlikely to be found in a contract for services,
which usually ends on completion of the task, or if the terms of the contract
Employed or self-employed 11
In deciding a person's employment status it may sometimes be necessary to
take into account factors which are personal to the worker and which have
little to do with the terms of the particular engagement being considered.
For example, if a skilled worker works for a number of clients throughout the
year and has a business-like approach to obtaining engagements (perhaps
involving expenditure on office accommodation, office equipment and so on)
this will point towards self-employment. Personal factors will usually carry
less weight in the case of an unskilled worker, where other factors, such as
the high level of control exercised by the engager, are likely to be conclusive
The intention of both parties can be decisive where the factors pointing to
employment and to self-employment are evenly balanced. But a stated
intention, for example, for self-employment is of no consequence where the
facts point clearly to employment.
Whether a worker is an employee or self-employed depends on a range of
factors, but the final opinion is not reached by adding up the number of
factors pointing towards employment and comparing that result with the
number pointing towards self-employment. The courts have specifically
rejected that approach.
It is a matter of evaluation of the overall effect, which is not necessarily the
same as the sum total of all the individual details. Not all details are of equal
weight or importance in any given situation. The details may also vary in
importance from one situation to another.
When the detailed facts have been established, the right approach is to
stand back and look at the picture as a whole, to see if the overall effect is
that of a person working in a self-employed capacity or a person working as
an employee in somebody else's business. If the evidence is evenly
balanced, the intention of the parties may then decide the issue
Casual, or part-time working
The same considerations to determine employment status will apply even if
the worker works part-time or on a casual basis.
More than one job
If a worker has:
more than one job
works for a number of different people for a few days or weeks at a
it is necessary to answer the questions for each job.
Employed or self-employed 12
If the worker provides services to many people, and does not work regularly
for one person to the exclusion of others, this may affect whether the work
for each is as an employee, or as a self-employed person.
Just because a worker is self-employed in one job, doesn’t
necessarily mean he or she will be self-employed in another job.
Equally, if a worker is employed in one job, he or she could be self-
employed in another.
A worker could even be an employee and self-employed at the same time.
For example, he or she could
be employed as a part-time shop assistant and spend the rest of their
time running their own business from home
or work full-time as an employee at a company, and run a part-time
business in the evening or weekends
The worker may have a number of casual or part-time activities, and may be
an employee in some and self-employed in others. It all depends on the
You can ask your local Status Inspector for an opinion as to the employment
status of your workers.
Alternatively you can obtain a HMRC „view‟ of the employment status of your
workers by using the Employment Status Indicator (ESI) tool (available at
http://www.hmrc.gov.uk/calcs/esi.htm) . Provided the answers given to the
ESI questions accurately reflect the terms and conditions under which the
services are provided at the relevant time of the contract, HMRC will be
bound by the ESI outcome where the engager or their authorised
representative provides copies of the printer-friendly version of the ESI
Result screen, bearing the 14 digit ESI reference number, and the Enquiry
Details screen. You should also retain a copy of the written contract (if
available) in relation to the engagement which the print-out refers along
with any other documentation you relied on when completing the ESI.
PEACe, October 2009
LVSC’s Personnel, Employment Advice and Conciliation
The material in this document does not give a full statement of the
law, nor does it reflect changes after October 2009. It is intended
for guidance only and is not a substitute for professional advice.
No responsibility for loss occasioned as a result of any person
acting or refraining from acting on the basis of this material can be
accepted by the author or by LVSC.
Employed or self-employed 13