Employed or Self-Employed?
People working for many employers at the same time are frequently not able to discern in what capacity – as self-employed or employed – they provide service. In order to find out if you are employed or self-employed, it is necessary to determine whether you work under contract of service or contract for service. The former means you are employed, the latter – self-employed. This legal distinction is crucial, since, as HM Revenue & Customs emphasises, your employment status is not a matter of your choice, but of the actual legal relationship between the contract parties.
In order to determine the nature of your employment contract, you can respond to the following questions.
If all your answers are “Yes”, you certainly work on the basis of a contract of service, so you are employed.
- Do you have to do the work yourself, without employing any other people?
- Can someone tell you how to exactly fulfil your duties?
- Can you be moved from task to task or workplace to workplace?
- Do you have to work a set of hours per day, week or month?
- Are you paid by the hour, week or month?
- Can you get overtime pay or bonus payment?
If all answers to the below questions are “Yes”, you certainly work on the basis of a contract for service, so you are self-employed:
- Can you hire someone on your own expense to help you?
- Do you risk your own money?
- Do you use your own equipment?
- Are you paid for the job done regardless of how long it takes?
- Do you have to correct shortcomings and defects on your own?
- Do you regularly work for a number of different employers?
It has practical consequences whether you are employed or self-employed, of which the most important are:
- Employees regularly receive wages and salaries in accordance with their contracts of employment, whereas the self-employed are paid for the specific job done.
- Employees pay their income taxes and NICs under the PAYE systems. As self-employed you have to pay flat rate Class 2 NICs quarterly as well as Class 4 NICs and Income Tax on your all earnings including business profits following the end of the tax year.