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.
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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:
In most cases, employment status is straightforward. As a general rule, a worker is:
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 status opinion' below.
An individual is likely to be employed by you if most of the following statements apply to them:
If any of these statements applies, your worker is likely to be self-employed:
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:
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 HMRC Status Customer Service Team for guidance if you need more information about tax and NICs for any of the following:
There are two main ways that HMRC can help you make sure you have the employment status of a worker right.
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:
You can use the ESI for all workers except some who are covered by different rules, listed in the previous section.
You can also request a written opinion on a worker's employment status by contacting the Status Customer Service Team. Provided you accurately explain all the relevant facts to them, HMRC will accept the team's opinion as legally binding. Follow the link below to contact the Status Customer Service Team.
You should keep a record of any information you used to make your decision about their employment status.
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.
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.