Employed or self-employed – what to consider?

Engaging Freelancers

There are some roles for which you’ll need to hire full or part-time staff. There are others where it’s much more cost-effective to hire expertise on a project or contract basis. But how do you negotiate your way between the two? And what happens if a self-employed contractor or freelance works with you over the longer term? Or, more importantly, how will HMRC view that?

To clear up what can be a grey area, RIFT Legal Services looks at the differences between employing an employee or a self-employed specialist.

EMPLOYEES work under an employment contract and so have extra employment rights and responsibilities that don’t apply to workers who are not classed as employees. These rights include things like sick pay, certain types of leave, notice periods and protection against unfair dismissal.

You can be said to be an employee if you’re required to do a set number of hours, are managed or supervised, work on a PAYE basis and get holiday pay, for example.

SELF-EMPLOYED people are contracted to work on a specific project or contract, bring specialist expertise to the job, are retained for a specific period of time and can often work flexibly.
According to HMRC:

“A person may be an employee in employment law but have a different status for tax purposes. Employers must work out each worker’s status in both employment law and tax law.”

Many companies will recognise the benefits of using freelancers or consultants to operate their business effectively without having the commitment or costs that come with an employee.
If you do decide to employ an expert on a consultancy or freelance basis, there are a few things you need to bear in mind:

Start with a Contract

This is essential to ensuring everyone is clear on their roles and responsibilities, and avoiding any risk of misunderstanding or dispute further along the line. Before any services are provided, make it clear what these should be, how they should be delivered and when, and how any issues that arise should be addressed. Also include details on when the contract should end. For example, on a set date or on project completion.

Clarify ‘Self-Employed’

For both employment and tax purposes, you and your contractor will need to be clear on the terms of the contract and the language used in it. For example, a self-employed freelancer will not have the same employment rights as employed staff, including things such as paid holidays or a pension plan.

Contractors or consultants will generally also provide their own tools or equipment and be free to work for other businesses.

Key factors that decide a contractor’s employment status are:

• If they are subject to your control when providing the service.

• If they have to provide the service personally.

So, when writing up your contract, to retain the integrity of their status as self-employed, you will need to allow the contractor to decide how the service is provided and include the relevant provisions that allows them to bring in someone else to provide the service should they be unable to. Securing expertise and advise on this from tax and legal experts is essential to safe-guarding your business.