Employed or self-employed?

An employed person is someone who works under a contract of service. He/she will normally be integrated into the organisation, and the work will be carried out for the employer, according to the employer's instructions and under the employer's control. An employee will often work exclusively for one organisation.

A self-employed person is someone who contracts out his/her services and who is therefore normally free to work for more than one organisation. A self-employed person is not under the control of the organisation for whom he/she is working, and will often have the right to send a suitable substitute to carry out the work.

This might be done by a Consultant's Agreement or Contract for Services under which a person, usually with specialist skills, is contracted to complete a particular piece of work or whose services are retained for a certain number of days per year.

Tax and National Insurance affairs

The distinction of employed or self-employed is important because a self-employed person must organise his/her own income tax and National Insurance contributions.

A contract for such a person is known as a contract for services and is therefore not a contract of employment.

Great care should be taken before treating someone as self-employed as, if the assumption is incorrect, the organisation could be liable for the income tax and National Insurance it should have deducted under Pay As You Earn (PAYE) legislation.

Employment Tribunals

An individual who is truly self-employed is unable to bring legal proceedings in the Employment Tribunal (for example, for unfair dismissal or discrimination).

If this person is, in fact, employed, the organisation may find it has unexpected legal obligations being enforced against it.

There are a number of legal tests that may be considered by Employment Tribunals to establish whether a worker is an employee or not.

These include mutuality of obligation, the degree of control and financial risk, among others. Further information can be found at the following links:

Reviewed and updated by the HR Services Partnership – April 2010.

Back to Contracts, Terms and Conditions of Employment.