Businesses should regularly review whether individuals working for them are correctly classified as employees, workers or self-employed. Getting employment status wrong can result in unexpected tax liabilities, penalties and loss of employment rights.
Employment status affects both the rights of the individual and the responsibilities of the business. However, a person’s employment status for employment law purposes may differ from their status for tax purposes, so employers need to consider both.
An employee usually works under an employment contract and has greater employment rights, including protection against unfair dismissal, subject to qualifying conditions, and entitlement to statutory payments.
A self-employed person generally runs their own business, takes responsibility for its success or failure and is responsible for their own tax and National Insurance obligations. However, the label used in a contract is not enough on its own. HMRC and employment tribunals will consider the actual working relationship.
Factors that may indicate employment include regular working hours, supervision and control by the business, the provision of equipment and the inability to send someone else to carry out the work.
Businesses should use HMRC’s employment status checking tool, Check employment status for tax (CEST), where appropriate. The CEST tool gives HMRC’s view of a worker’s employment status, based on the information provided.
