Employment Vs Self-Employment
Here at Stafftax, being employed as opposed to being self-employed is a topic which we get asked about a lot. Whilst HMRC may grant an individual self-employment status, there are still risks that involve both the employer and the worker, all of which must be carefully considered.
To help you cover this tricky topic, we have answered your top FAQs below.
What is the difference between being self-employed and employed?
There are several key differences between an employee and a self-employed individual. Generally, a worker is considered as an employee if they:
• Must undertake the work themselves
• Can be told how, when and where the work should be undertaken
• Work a set number of hours
• Are paid by the hour, week, or Month
• Can be paid overtime or receive bonus payments
Whereas a worker may be considered self- employed if they:
• Can hire someone to undertake the work on their behalf or hire workers to assist them
• Can decided when, where and how to undertake the work
• Regularly undertake work for a number of people
• Agree a fixed price for the work, regardless of how long the job may take
• Must correct unsatisfactory work in their own time, at their own expense
Whilst this list is not exhaustive, we hope that this gives you a good indication of the differences between employment and self-employment. For more guidance on self-employment, please visit the Government’s “Working for yourself” page, which you can read here.
Can domestic employees be self-employed?
This is not a simple yes or no answer, as HMRC issues self-employment status on a case by case basis and will consider several factors when making their decision.
Whilst most domestic roles can be undertaken by either an employee or self-employed individual, it is worth noting that some roles, such as nannies, cannot generally be classed as self-employed, as they often do not meet the criteria as detailed above.
You can use HMRC’s guidance tool, which can be found here, to check whether you should be employed or self employed for tax purposes.
What are the risks of self-employment?
One of the biggest risks to employers when taking on a self-employed individual can occur if an employer fails to undertake any checks to confirm the worker’s self-employment status. If it was later found that the employee is not self-employed, then it is the employer, not the worker, that would be committing a criminal office and may be pursued for any unpaid tax.
There are also risks to the worker, as self-employed individuals do not have the same statutory rights as an employee. For example, self-employed individuals are not entitled to statutory holiday or sick pay, however, may be offered this at their employer discretion.
Can an individual be employed and self-employed at the same time?
There are scenarios where an individual may be both employed, and self-employed at the same time. For example, if they were to work for an employer during the day and run their own business in the evenings. It is worth noting however, that this arrangement may have implications on your tax code, and we would advise any self-employed individuals seek further guidance on this from their accountant.
If you are thinking about taking on an employee, Stafftax are here to help you. Our all-inclusive domestic payroll service includes setting up your Employer PAYE scheme, running your employee’s pay slips and offering unlimited HR support. Find out more here.