A strong indication of self-employment can be the financial risk
which the worker runs in doing the job. In general terms, the
greater the financial risk the stronger the pointer towards
self-employment. Individuals who risk their own money by, for
example, buying assets, bearing their running costs, paying for
overheads and matrials are likely to be self-employed. Employees do
not usually need to risk their own capital. In this context
investment by the individual as a shareholder is irrelevant. It is
perfectly possible for an individual to be an employee of a company
and also be a shareholder of that company.
Where a worker is required to and does correct sub-standard
work in the workers own time i.e. the worker does not get paid
again for correcting the work, then this is a pointer towards
self-employment. The pointer to self-employment will be increased
where the worker must also, and does, supply replacement materials.
For example if a bricklayer has to re-build a wall and supply and
pay for the cost of the mortar/bricks etc this would be a stronger
pointer to self-employment than if the contractor supplied the
replacement materials.
Financial risk may also occur where an individual incurs
significant amounts of expenditure on training to provide
himself/herself with a skill which is necessary for a particular
engagement. This can be treated as a pointer to self-employment if
there is a real risk that the investment would not be recovered
from income from future engagements.
The absence of financial risk does not always mean the
worker is an employee. Nor does the absence of what would normally
be regarded as a business organisation. Yet it is fair to say that
workers without either are unlikely to be self-employed.
An example of an exceptional case is the session musicians
who were held to be working under contracts for services. They did
not have their own business structure or risk their own capital.
The Court's decision was based largely on the fact they remained
essentially freelance musicians pursuing their own professions as
instrumentalists with individual reputations even when playing for
an orchestra. [Addison and others v The London Philharmonic
Orchestra Society Limited (1981) ICR261 and Midland Sinfonia
Concert Society Limited v The Secretary of State for Social
Services (1981) ICR454.]
