GovWire

You need to know their employment status

Part of the amount of tax and national insurance you must pay to HM Revenue and Customs (HMRC) depends on the employment status of the operatives you deploy that is, whether they are employed or self-employed.

You should check their employment status in both of the following:

• employment law to see whether they have an employees rights
• tax law to see whether you are responsible for PAYE and National Insurance contributions

You and they may have to pay unpaid tax and penalties if their employment status is wrong.

Use the guidance HMRC provides

HMRC provides guidance and tools to help you work out if someone is employed or self-employed.

You should:

• use their Check Employment Status for Tax (CEST) tool
• read their employment status guidance
• read their employment status manual

Or you can contact HMRC directly.

Think about the contract

You need to work out whether the contract you have with the operatives you deploy is a contract of service (employment) or a contract for services (self-employment).

Contracts may be written, oral, implied or a combination of all 3. This means that the contract may not be defined in just 1 document. It can include:

• any instructions, handbooks, or other documents that form part of their working relationship with you
• what you say or do and what they say or do
• what happens in practice

Work out the employment status of your operatives

You can use the employment status indicators derived from case law to determine someones employment status.

Some of these indicators are:

• mutuality of obligation
• personal service
• control
• financial risk
• business on their own account

We explain each of these below. The ESM0500 - Guide to determining status section of HMRCs employment status manual provides more detail.

Mutuality of obligation

Mutuality of obligation establishes whether a contract exists. A contract exists when a worker accepts your offer of work and you pay for the services provided by the worker.

This can be present in both employed and self-employed engagements and does not determine the nature of the contract between you.

Personal service

Someone who is employed must provide a personal service that is, they must carry out at least some of the work themselves. Linked to personal service, is whether a worker has a genuinely unrestricted right to provide a substitute.

A genuine unrestricted right of substitution may negate an employment relationship. That will only be the case if the substitution clause is so wide as to permit, without breach of contract, the worker to decide never to personally turn up for work at all. The worker would be responsible for sourcing and paying an alternative worker to provide the services, which neither you nor the end client could veto.

If you or the end client are able to restrict a workers ability to provide a substitute, or could veto this, then such a restricted right to substitution would not prevent the worker from providing a personal service.

Control

You must have a sufficient right of control over the operatives you deploy for a contract of employment to exist.

There are 4 elements of control to consider. These include control over what, where, when and how the work is done. You do not need all 4 elements to be present to have a sufficient right of control.

It is the right to exert control that is significant, not whether that right is exercised.

Financial risk

A strong indication of self-employment is whether the worker incurs any financial risk whilst carrying out the work for you. Financial risk means risking their own money by buying assets and paying their running costs, overheads and materials.

Financial risk in this context does not include such things as:

• travel expenses to/from the place they are working
• paying for their own clothes
• use of their own small equipment, such as a phone, torch or pen

This is because these things are common to both employed and self-employed workers.

Business on their own account

A person is probably self-employed if they are responsible for:

• investing in capital
• managing overheads, wages and debts
• making a profit or a loss

Other factors

The presence or absence of rights or benefits is not a significant factor in whether someone is employed or self-employed, nor is the intention of either party. To determine if an operative is employed or self-employed you need to establish all of the facts and then make an informed decision by looking at the whole picture.

Employment status: read our example

Our employment status example features typical working arrangements for the private security industry. It shows how you can apply the employment status indicators to real-world situations.

Rules for employment intermediaries (agencies)

An employment intermediary is a person or business who arranges for someone to work for a third person. They are also often known as an agency or employment business.

You are an employment intermediary if you supply workers to work for a client or another employment intermediary, and the client then pays you or someone connected to you for the workers services. The client is who the worker does the work for.

If you are an employment intermediary there are special agency rules that apply if the workers are not already employees.

The agency rules will apply when:

• the individual workers personally provide services to a client, regardless of whether they have a right to provide a substitute (see Employment intermediaries: personal services and supervision, direction or control)
• such services are provided, or the client pays for such services, as a result of a contract between the client and you

When the agency legislation applies, the worker is treated as holding an employment with you and you are responsible for operating PAYE/NI.

The agency legislation does not apply to you if you can provide clear, unequivocal evidence that no-one has the right of supervision, direction or control over how the operative provides their services (see ESM2037 in particular), or show that the workers are already engaged as employees with PAYE/NI being fully accounted for.

Find out more about the agency legislation

You cannot use HMRCs 