Employment status
Self-employed and contractor
A person is self-employed if they run their business for themselves and take responsibility for its success or failure.
Self-employed workers are not paid through PAYE, and they do not have the rights and responsibilities of an employee.
If someone:
- becomes self-employed, they must check if they need to set up a business
- stops being self-employed, they should tell HM Revenue and Customs (HMRC)
Someone can be both employed and self-employed at the same time, for example if they work for an employer during the day and run their own business in the evenings.
Employment rights
Employment law does not cover self-employed people in most cases because they are their own boss.
If a person is self-employed, they have:
- protection of their health and safety
- protection of their rights against discrimination (in some cases)
- the rights and responsibilities set out by the terms of the contract they have with their client
Working out if someone is self-employed
HMRC may regard someone as self-employed for tax purposes even if they have a different status in employment law.
Employers should check if a worker is self-employed in:
- tax law - in case the worker is exempt from the employer’s PAYE scheme
- employment law - in case the worker has employee or worker rights
Individuals and their employers may have to pay unpaid tax and penalties, or lose entitlement to benefits, if their employment status is wrong.
Checking if they’re self-employed for tax purposes
For tax purposes, you can check someone’s employment status online to see if a worker should be classed as employed or self-employed.
There are special rules for businesses supplying workers, for example an employment agency.
Checking their employment rights
If someone is self-employed, they do not have the rights and responsibilities of an employee or the rights and responsibilities of a worker.
Someone is probably self-employed if they’re self-employed for tax purposes and most of the following are true:
- they put in bids or give quotes to get work
- they’re not under direct supervision when working
- they submit invoices for the work they’ve done
- they’re responsible for paying their own National Insurance and tax
- they do not get holiday or sick pay when they’re not working
- they operate under a contract (sometimes known as a ‘contract for services’ or ‘consultancy agreement’) that uses terms like ‘self-employed’, ‘consultant’ or an ‘independent contractor’
Contractors
A contractor can:
- be self-employed
- have the employment status of a worker
- have the employment status of an employee if they work for a client and are employed by an agency
There’s a special scheme for self-employed contractors and sub-contractors working in the construction industry called the Construction Industry Scheme (CIS).
Contractor rules changed on 6 April 2021. Your employment status and the way you pay tax may have changed. Check the off-payroll working rules for IR35.