Definition of being Employed or Self Employed

Whether you're employed or self-employed depends on the terms and conditions of your work. It's important to know your employment status because it affects employment and benefit rights, and how you pay tax and National Insurance.

Employment status: basic checks to help you decide

You can usually work out your employment status by asking a few straightforward questions.

You are probably self-employed if you:

• You have the full control of how your business is run.
• It is your own money in the business
• You are responsible for any losses/profits of your business
• Your business provides most or all of the equipment to do the job
• You can higher other workers to carry out the work at your own expense
• It is your responsibility to correct unsatisfactory work in your own time and expense
• You are responsible for paying your own taxes and National Insurance

You are probably employed if you:

• have to do the work yourself
• work for one person at a time, who is in charge of what you do and takes on the risks of the business
• can be told how, when and where you do your work
• have to work a set amount of hours
• are paid a regular amount according to the hours you work, and get paid for working overtime - even if you do casual or part-time work, you can still be employed

You can also be employed and self-employed at the same time, perhaps by working for an employer during the day and running your own business in the evenings. Think about each contract separately - you may find that you are self-employed for one but employed for another.

There's no legal definition of employment or self-employment, so if there's doubt about someone's employment status the decision is made by referring to previous judgments - known as 'case law'. Whether you are employed or self-employed depends upon the facts of your working arrangements, what your contract says, or a combination of both.

Should it go to an Employment Tribunal they will look at the employment relationship and how it works to determine your employment status. They will consider whether:

• The work has been undertaken by you personally, and/or sent a substitute or sub-contracted the work
• Your end client has a significant degree of control, over you
• Salary is paid to you on a regular basis
• Your employer deducts tax and National Insurance (rather than you being responsible for making these payments)
• You receive holiday pay, sick pay, maternity pay etc
• Your work is carried out at the clients premises and use your their tools and/or facilities
• You become integrated in the organisation (for example you may be subject to the company grievance procedure or appear on the organisational chart)
• You have any financial risk or reward, for example bonuses depending on how quickly or well the work is performed
• You work exclusively for one business rather than performing work for a number of 'customers'
• You are given an 'employment contract' or any other documentation which describes you as an 'employee'.

If you are self-employed

You are responsible for your own tax and National Insurance contributions. This means telling HM Revenue & Customs (HMRC) about your income by filling in a Self Assessment tax return.

You should register for tax and National Insurance with HMRC as soon as you start working for yourself. If you delay registering, you may have to pay penalties.

Depending on what type of National Insurance contributions you pay, you may lose the right to certain benefits, statutory payments, employment rights and the additional State Pension.

If you are employed

If you are employed your employer is responsible for deducting and paying your tax and National Insurance contributions through the PAYE (Pay As You Earn) system.

You are also entitled to certain rights and benefits, such as maternity or paternity leave, sick pay, Jobseeker's Allowance if you lose your job and a State Pension (including the additional State Pension) when you retire.

Being self-employed for tax purposes will generally mean you are self-employed in regard to employment rights. It is, however, possible to be self-employed for tax purposes and the Employment Tribunal finds you are ‘employed’ under employment law. Any decision HMRC may have arrived at in regard to your employment status can be overridden by an Employment Tribunal.

You should seek expert advise if you are in any doubt as to your employment status.

The following link takes you HM Revenue & Customs ‘Employment Status Indicator’ tool. It may help you in deciding your status.

http://www.hmrc.gov.uk/calcs/esi.htm