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Taking on a new employee
Employment status: employed or self-employed?
New employee: using the right tax code
New employee - special situations
When an employee leaves or retires
If an employee or pensioner dies
File your PAYE in-year forms online: P45, P46, etc
Common errors to avoid when filing forms P45 and P46 online

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Employment status: employed or self-employed?

Employment status: employed or self-employed?

It's your responsibility to correctly determine the employment status of your workers - that is, whether they're employed by you or self-employed. This depends on the terms and conditions of your working relationship with each worker.

It’s important to get your workers’ employment status right because it affects the way tax and National Insurance contributions (NICs) are calculated for them. And it determines whether or not you have to operate PAYE (Pay As You Earn) on their earnings.

This guide explains how to work out whether a worker is an employee or self-employed. It lists the key factors that affect employment status, and it explains how HM Revenue & Customs (HMRC) can help you get it right if a worker’s status isn’t clear.

On this page:

What does employment status mean?
How to determine a worker's employment status
Asking HMRC for a decision
Next steps when you know a worker's employment status
More useful links

What does employment status mean?

The term ‘employment status’ refers to whether a worker is employed or self-employed. This affects the tax and NICs that are due on their earnings. So if you don’t get it right, you could end up having to pay extra tax, NICs, interest and possible penalties later.

If you take a worker on, then you’re responsible for determining their employment status - this applies for all workers, whether they're full-time, part-time, permanent, temporary or casual.

Employment status isn’t a matter of choice for either you or your workers. It’s a matter of fact, based on key terms and conditions of your working relationship with them - for a list, see the next section. In most cases these terms and conditions will be reflected in your contract with the worker. But even if a contract says a worker is self-employed, if the facts indicate otherwise then the worker may be your employee.

Note that a worker can:

be both employed and self-employed at the same time - for example, working as an employee during the day and running their own business in the evenings
change employment status from contract to contract - the fact they were employed on their last contract (whether with you or another employer) doesn’t mean anything if the facts of their next contract point to them being self-employed

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How to determine a worker's employment status

In most cases, employment status is straightforward. As a general rule, a worker is:

employed if they work for you and don’t have the risks of running a business
self-employed if they’re in business on their own account and are responsible for the success or failure of their business

The sections below contain a series of further pointers that will help you determine a worker’s employment status. And you can also use HMRC’s online Employment Status Indicator tool - see 'Asking HMRC for a decision' below.

Indications that a worker is your employee

An individual is likely to be employed by you if most of the following statements apply to them.

You can tell them what work to do, as well as how, where and when to do it.
They have to do their work themselves.
You can move the worker from task to task.
They’re contracted to work a set number of hours.
They get a regular wage or salary, even if there is no work available.
They have benefits such as paid leave or a pension as part of their contract.
You pay them overtime pay or bonus payments.
They manage anyone else who works for you.

Indications that a worker is self-employed

If any of these statements applies, your worker is likely to be self-employed.

They can hire someone else to do the work you’ve given them, or take on helpers at their own expense.
They can decide where to provide their services, as well as when and how to do the work you’ve given them.
You pay them an agreed fixed price - it doesn't depend on how long the job takes to finish.
They can make a loss or a profit.

Even if none of the statements in the previous list applies, your worker is still likely to be self-employed if most of the following apply to them.

They use their own money to buy business assets, pay for running costs, etc.
They’re responsible for putting right any unsatisfactory work, at their own expense and in their own time.
They provide the main tools and equipment needed to do their work.

Different rules for certain types of worker

For some categories of worker, there are different rules from the usual employment status ones for working out how tax and NICs should be deducted from their earnings.

Contact your Tax Office for guidance if you need more information about tax and NICs for any of the following:

agency workers
company directors and other 'office holders' such as liquidators, administrators, auditors and receivers
cleaners
workers who supply their services through an intermediary - the rules are sometimes referred to as IR35 (see ‘More useful links’)
workers who supply their services through a managed service company (see ‘More useful links’)
a number of other occupations, including divers, some teachers and lecturers, examiners, moderators, invigilators, entertainers, returning officers and counting officers
if your spouse works for you
if a relative works for you in your private residence (for example, as a gardener, carer, cook, etc)

Find contact details for your Tax Office

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Asking HMRC for a status opinion

There are two main ways that HMRC can help you make sure you have the employment status of a worker right.

Use the online Employment Status Indicator

The Employment Status Indicator (ESI) is an online interactive tool that asks you a series of questions about the working relationship between you and your worker. It is the quickest way of getting HMRC’s view on whether a worker is employed or self-employed.

HMRC will accept the tool’s outcome as binding, as long as your answers accurately reflect the terms and conditions under which your worker provides their services. You must also retain a printout of:

the ESI result screen
the Enquiry Details screen showing your replies to the questions asked

You can use the ESI for all workers except some who are covered by different rules, listed in the previous section.

Use the Employment Status Indicator

Contact your Tax Office

You can also request a written opinion on a worker's employment status by contacting the Status Inspector in your local Tax Office. Provided you accurately explain all the relevant facts to them, HMRC will accept the inspector’s opinion as legally binding.

Contact the Status Inspector at your Tax Office

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Next steps when you know a worker's employment status

You should keep a record of any information you used to make your decision about their employment status.

If the worker is employed by you

If the worker is your employee, then you must use the PAYE system to deduct and pay HMRC any tax and NICs that’s due on their earnings.

If the worker is your first ever employee then you’ll also have to register as an employer so that HMRC can set up a PAYE scheme for you and help you get started.

Read about what to do when you take on a new employee

How to register as an employer

If the worker is self-employed

If the worker is self-employed, you don’t need to operate PAYE on their earnings. Self-employed individuals are responsible for calculating and paying their own tax and NICs on any payments you make to them.

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