Employment status

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Self-employed and contractor

A person is self-employed if they run their business for themselves and take responsibility for its success or failure.

Self-employed workers are not paid through PAYE, and they do not have the rights and responsibilities of an employee.

A worker must tell HM Revenue and Customs (HMRC) if they think they have become self-employed.

Someone can be both employed and self-employed at the same time, for example if they work for an employer during the day and run their own business in the evenings.

Employment rights

Employment law does not cover self-employed people in most cases because they are their own boss.

If a person is self-employed, they have:

  • protection of their health and safety
  • protection of their rights against discrimination (in some cases)
  • the rights and responsibilities set out by the terms of the contract they have with their client

Working out if someone is self-employed

HMRC may regard someone as self-employed for tax purposes even if they have a different status in employment law.

Employers should check if a worker is self-employed in:

  • tax law - in case the worker is exempt from the employer’s PAYE scheme
  • employment law - in case the worker has employee or worker rights

Individuals and their employers may have to pay unpaid tax and penalties, or lose entitlement to benefits, if their employment status is wrong.

Checking if they’re self-employed for tax purposes

You can check someone’s employment status online to see if a worker should be classed as employed or self-employed.

If you cannot check online, contact HMRC.

There are special rules for businesses supplying workers, for example an employment agency.

Checking their employment rights

If someone is self-employed, they do not have the rights and responsibilities of an employee or the rights and responsibilities of a worker.

Someone is probably self-employed if they’re self-employed for tax purposes and most of the following are true:

  • they put in bids or give quotes to get work
  • they’re not under direct supervision when working
  • they submit invoices for the work they’ve done
  • they’re responsible for paying their own National Insurance and tax
  • they do not get holiday or sick pay when they’re not working
  • they operate under a contract (sometimes known as a ‘contract for services’ or ‘consultancy agreement’) that uses terms like ‘self-employed’, ‘consultant’ or an ‘independent contractor’

Contractors

A contractor can:

There’s a special scheme for self-employed contractors and sub-contractors working in the construction industry called the Construction Industry Scheme (CIS).

Contractor rules changed on 6 April 2021. Your employment status and the way you pay tax may have changed. Check the off-payroll working rules for IR35.

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Part of Get your business ready to employ staff: step by step

  1. Step 1 Decide what type of employee you need

    1. Check whether you need full time or part time staff
    2. Check the different types of employment status

  2. and Check you can afford to take on employees

    1. Check how much the National Minimum Wage is
    2. Find out how much National Insurance you need to pay for your employees
    3. Check how much sick pay your employees are eligible for
    4. Check how much you need to pay towards your employee's pension
    5. Check how much Maternity Leave you need to pay your employees
    6. Check how much Paternity Leave you need to pay your employees

  3. Step 2 Make your workplace safe and accessible for employees

    1. Prevent discrimination
    2. Make your workplace accessible for employees with disabilities or health conditions
    3. Keep employee information and data safe
    4. Fire safety
    5. Health and safety

    You also need to make checks when you recruit and employ someone.

    1. Find out what you need to check when you employ someone

  4. Step 3 Register as an employer and set up PAYE

    You need to register with HMRC so you can pay tax and national insurance for your employees.

    1. Register as an employer and set up PAYE
    2. Choose how to run payroll
    3. If you decide to run payroll yourself, choose payroll software

  5. Step 4 Check your responsibilities around workplace pensions

    1. Understand your pension responsibilities as an employer

  6. Step 5 Get Employers' Liability insurance

    1. Find out about Employers' Liability insurance

  7. Step 6 Recruit and employ staff

    1. Employ someone