Determining Employment Status - Employed or Self-Employed?
The law traditionally distinguishes between a “worker” who works personally under a contract of service or employment (an employee) and a person who works under a contract for services (self-employed or independent contractor).
The distinction between a contract of employment and a contract for services is important as it determines who is liable to pay income tax and national insurance contributions and whether the worker has employment rights i.e. the right to paid holidays etc.
The fact that a worker wishes to be classified as self-employed, does not validate that request, as determination of employment status is a matter of fact or interpretation, not choice.
Any interpretation of a person's status will invariably depend on his or her own particular set of circumstances. To illustrate this, it is possible for a person to be both employed and self-employed whilst working for different employers. It is highly unlikely that a full-time University employee could undertake additional work for the University on a self-employed basis.
The university’s default position is that all “workers” are employees. If there is any dispute about this position, it is essential that employment status is confirmed in advance of commencement of duties.
Tests to determine employment status
Whilst a number of legal tests do exist, the status of a worker is essentially determined by looking at the whole picture of the relationship between the worker and the employer.
The degree of control and direction that the employer exerts over a worker is often a key factor. If the employer determines:
- What needs to be done,
- The way in which it shall be done,
- The means to be employed in doing it,
- The time and the place it shall be done
Factors indicating self-employment
If a worker can answer yes to one or more of the questions s/he is likely to be self-employed.
- Can you hire someone to do the work, or take on helpers at your own expense?
- Can you decide where to provide the services of the job, when to work, how to work and what to do?
- Can you make a loss as well as a profit?
- Do you agree to do a job for a fixed price regardless of how long the job may take?
If the worker can’t answer yes to any of the above questions, s/he is still likely to be self-employed if s/he can answer yes to most of the following questions:
- Do you risk your own money?
- Do you provide the main items of equipment (not the tools that many employees provide for themselves) needed to do the job?
- Do you regularly work for a number of different people and require business set up in order to do so?
- Do you have to correct unsatisfactory work in your own time and at your own expense?
Factors specific to Teaching
A visiting lecturer who gives a one-off or a short series of talks on a subject about which s/he has specialist knowledge and which is not part of a core curriculum, is likely to be self-employed.
Those undertaking teaching on not more than three days in three consecutive months are likely to be self employed.
If there is no immediate financial risk associated with poor performance of teaching this is likely to support employment rather than self employment.
A lecturer required to teach in accordance with a set syllabus would be more indicative of employment than if a lecturer was engaged to talk about a specialist subject but was left to determine the content of the lecturer.
The ability to send a substitute is a strong indicator towards self employment.
How to deal with disputes about employment status.
Where a worker wishes to dispute the university’s decision, s/he should seek an indicative employment status ruling from the HMRC website http://www.hmrc.gov.uk/calcs/esi.htm
It should be remembered that if the University treats a worker as self-employed when the reality of the situation is that the worker should have been treated as an employee, HMRC reserves the right to retrospectively seek payment of the appropriate levels of income tax for up to 6 years. The liability for this payment rests with the recruiting department rather than the worker.
Steps to be followed by Heads of Department when considering appointing a self-employed worker.
1. If appropriate, ensure that the work has been subject to the appropriate tendering process as
set out in the financial regulations.
2. Complete the Employment Status pro forma on behalf of the worker.
3. Ensure the worker has completed the “Contractor Declaration” pro-forma below.
4. Send the completed Employment Status pro forma and the “Contractor Declaration” to Strategic Purchasing before the work commences.
If your chosen supplier is new to the University then a new supplier request form must also be forwarded to Strategic Purchasing.
5. Ensure that a written agreement exists covering what, how and when the work is to be done and the mechanism for payment. Further advice is available from Strategic Purchasing on 94087.