Am I self-employed? A guide to working out your employment status

Am I self-employed or employed?

If you don’t fit neatly into either category, it can be hard to tell. Perhaps you have more than one job. Or you freelance, but more as a long-term contractor for the same company than as a sole trader with a small business of your own.

Either way, whether you’re self-employed or employed, this guide is designed to run through your employment status meaning. According to gov.uk there are five ‘main types of employment status’, so this guide should help you work out where you fit in.

From there, you can get more information on your rights and benefit entitlements. If you’re technically employed, for example, your employer will have certain responsibilities they need to meet.

1. What is an employee?

Gov.uk defines an employee as ‘someone who works under an employment contract’. But this is a bit vague, as contractors and other types of self-employed people often have a contract with the client they’re working for.

The easiest way to work out whether you’re an employee is by answering the following questions. If the answer is ‘yes’ to most of them, you’re probably an employee:

Are you an employee?
Are you required to work regularly (unless you’re on leave, including holiday, sick leave or maternity leave)?
Do you need to do a minimum number of hours? And do you expect to be paid for the time worked?
Do you work from the business’s premises or at an address specified by the business?
Is it just you who can perform the role (for example, you can’t send someone else to do your work instead)?
Does the business deduct tax and National Insurance contributions from your wages?
Do you get paid holiday?
Are you entitled to contractual or Statutory Sick Pay and maternity or paternity pay?
Can you join the business’s workplace pension scheme?
Do the business’s disciplinary and grievance procedures apply to you?
Does your contract set out redundancy procedures?
Does the business give you materials, tools and equipment for your work?
Is this the only business you work for? And if you have another job, is it completely different from your work for this business (for example, you work as a receptionist but also run a pet grooming service at the weekend)?
Does your contract, statement of terms and conditions, or offer letter use terms like ‘employer’ or ‘employee’?

Am I an employee? Other things to check

You might be an employee but have a different status with the business for tax purposes. If you’re unsure, ask your employer to run through this with you.

If your employment status was worked out incorrectly, you and your employer may have to pay outstanding tax and other penalties, or you may lose your entitlement to benefits. It’s worth checking everything’s in order.

Employees can also be employee shareholders.

2. Self-employed meaning (including contractors)

Again, we’ll start with a gov.uk definition. You’re self-employed if you run your business for yourself and ‘take responsibility for its success or failure’.

Another clue is how you’re earning money for your work. If you’re self-employed, you won’t be paid through employee Pay As You Earn (PAYE). And you won’t be entitled to the rights and responsibilities that apply to employees.

To work out if you have self-employed status (or contractor status), ask yourself the following questions. If it’s ‘yes’ to most of them, you’re probably self-employed:

Are you self-employed?
Are you in business for yourself? This means you’re responsible for its success or failure, making a profit or a loss.
Are you free to decide what work you do? And when, where and how you do it?
Could you hire someone else to do the work, if you wanted to?
If there was a problem with your work, would you be responsible for fixing it in your own time?
Do you and the employer agree a fixed price for your work, regardless of how long the job takes to finish?
Do you use your own money or funding to buy what’s needed to run the business and deliver for the employer?
Are you free to work for more than one client?
Are you exempt from PAYE?

The following questions relate to your employment rights. You’re probably self-employed and don’t have employee rights if you answer ‘yes’ to most of these:

• do you put in bids or give quotes to get work?
• do you tend to supervise yourself when working?
• do you submit invoices for the work you’ve done?
• are you responsible for paying your own National Insurance contributions and tax?
• are you exempt from holiday pay or sick pay?
• do you work under a contract (often called a ‘contract of services’ or ‘consultancy agreement’) that uses terms like ‘self-employed’ or ‘independent contractor’?

What’s the difference between ‘contractor’ and ‘self-employed’?

A self-employed person is someone who works for themselves, not as an employee. From hairdressers to market stall traders, they provide services and products to clients and customers, usually for an agreed or advertised cost.

Contractors can also be self-employed, but they perform tasks on a contractual basis, rather than selling any products or rolling, bookable services. For example, a plumber would work for a client according to an agreed, one-off contract. You could repeat it, but as another contract. A market stall trader, on the other hand, isn’t contracted to sell you bananas.

A contractor can be self-employed, employed or a worker (see below), depending on whether they work for an agency or not.

For contractors working in the construction industry, check out the Construction Industry Scheme (CIS) for details on your HMRC status.

Self-employed but working for an employer

It’s possible to be employed and self-employed at the same time, for example the person who works as a receptionist during the week and runs a pet grooming business on the weekend.

If this sounds like you, make sure your daytime employer has your employment status filed correctly and that you’re up to date with your responsibilities for the self-employed work you’re doing on the side.

Check up on your second job tax responsibilities and how to achieve a good work life balance.

Are there employment rights for self-employed people?

Your employment rights, and how they’re different for you as a self-employed person, are another key consideration. Being your own boss means employment law doesn’t give full cover, but your health and safety will still be protected, and sometimes you’ll be protected against discrimination. Check your client contracts and highlight what’s been agreed so you’re fully informed.

Finally, if you’ve become self-employed, it’s very important that you let HMRC know. Any changes in your employment status should be flagged to HMRC, so double-check all your records are correct.

3. What is a worker?

If you answer ‘yes’ to most of these, it’s likely that you’re a worker. Check your contract or ask your employer if you’re not sure:

Are you a worker?
Do you have a contract or arrangement to do work for a ‘reward’ (see below)? This can be written or verbal.
Is this reward for money or a benefit in kind (for example, promise of contract or future work, perks, or a loan)?
Do you have a limited right to subcontract the work?
Do you have to report for work, even if you don’t want to?
Does your employer have to have work for you to do as long as the contract or arrangement lasts?
Are you doing the work outside of setting up a limited company structure (for example, an arrangement where you run your own limited company and the ‘employer’ is a customer/client)?

If most of these apply to you, as a worker you’re entitled to specific employment rights like statutory leave and national minimum wage protection. So it’s important to get clear about your status and clarify with your employer if you think something’s not right.

Casual or irregular workers

This is a specific type of employment and will usually apply if someone occasionally does work for a business, but that business doesn’t have any obligation to offer them work. The worker is also under no obligation to accept work. A contract like this will use words like ‘casual’, ‘zero hours’ or ‘as required’.

You’ll need to sign up to your employer’s terms and conditions to work, even if it’s only verbally, and you’ll be under some sort of supervision. Unlike some workers, you wouldn’t be able to subcontract this kind of casual work. However, the business should deduct tax and National Insurance contributions from your pay and provide the necessary tools or equipment.

4. Director

If you’re a company director, you’re running a limited company on behalf of shareholders. You may still have an employment contract – it depends on what sort of work you’re doing for that business.

Directors have specific rights and responsibilities. For tax and National Insurance calculations, they’re classed as ‘office holders’.

If you’re a company director, you could still have an employment contract and specific rights. If you’re not sure what these are, seek legal advice or contact HMRC to check.

5. Office holder

A bit more unusual, office holders are defined by gov.uk as people who’ve ‘been appointed to a position by a company or organisation but don’t have a contract or receive regular payment’. These can include company secretaries, club treasurers, trustees, clergy and many others.

For more information check the office holder page on gov.uk.

It’s worth noting that although office holders are different to employees, self-employed people and workers, they may still have an employment contract.

HMRC employed or self-employed tests

These are designed by gov.uk to check your status for tax purposes. You can use them to do a quick employment status check.

Contact HMRC by phone or use the online Check Employment Status for Tax tool.

For more information and an employment status definition

Acas is a great resource for employment status queries in England, Wales and Scotland. For Northern Ireland labour queries, check with the Labour Relations Agency.

More useful articles for the self-employed

• VAT registration – is it right for my business?
• Which bank has the best business bank account?
• What is IR35? A guide for the self-employed
• What does business insurance cover?

Photograph 1: JenkoAtaman/stock.adobe.com