Employee vs Self-Employed – it matters for employers too

Driven by cut-backs in the public sector and the poor economic climate, the number of self-employed people in Britain rose significantly at the end of last year to a record 4.14 million (pdf). Many of these are likely skilled and experienced workers laid off from jobs in both the public and private sectors. The increased pool of flexible labour – and their higher visibility courtesy of the internet and the rise of social media such as Linked In – will no doubt accelerate the trend for companies to engage self-employed individuals, many of which may have previously worked for those same companies.

A matter of fact in law

However, just because a company believes a person to be self-employed rather than an employee does not make it so. It is important that as an employer you understand the difference between a contract of service (employee treatment) and a contract for services (self-employed). This is objectively legally defined, and cannot simply be declared. Unfortunately we see some employers simply declare that significant numbers of their employees are ‘self-employed’.

To make life easier, HMRC have an online Employment Status Indicator. It takes you through a series of questions to help you determine whether someone is an employee or self-employed.

Ensure you're on the right side

Getting it wrong can be an expensive matter. As an employer you are under a legal obligation to operate PAYE and NIC correctly, and if you do not do so you might not be able to recover unpaid taxes from the employee. It is imperative that someone is responsible for employee taxes. Often this is delegated to the payroll section, but the role is often more of a legal/tax professional nature. It is a sad fact that we are often only called in when an expensive mistake has been made. If your company would like an employee tax health check please contact us.

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