Making decisions about employment status

Did you miss the the factors which may be considered by HMRC when deciding someone’s employment status?

Why is employment status important?

An individual’s employment status determines, for example:

• their liability to account for income tax (via PAYE) and national insurance (NI) contributions;
• statutory protection afforded to ‘employees’ and ‘workers’.

‘Employees’ qualify for statutory employment protection, such as the right to claim unfair dismissal, redundancy payment, statutory sick pay and statutory maternity leave and pay.

‘Workers’ are a broader category; they don’t qualify for statutory employment rights, but working time regulations (including the right to paid holiday) and discrimination legislation do apply.

Employment status checklist

The tests applied by HMRC, and the courts, when determining an individual’s employment status are similar, but there can be differences. HMRC has an online tool which will help, but there is no definitive test that employment tribunals use – it varies between cases.

This is a non-exhaustive list of factors which may be considered by HMRC, or the courts, when determining an individual’s employment status.

• Are there mutual obligations?
• Is the individual obliged to provide their services personally? Can they use their own staff to support them?
• Is the individual under the control of the organisation?
• How is the individual paid? Are they entitled to benefits?
• Is the individual taking financial risk? Do they have the opportunity to profit?
• What is the nature and length of the engagement?
• Can the individual work for other organisations?
• Is the individual integrated into the organisation?
• Who provides the facilities and equipment?
• Who is responsible for paying tax and NI contributions?
• How do the parties ‘label’ the relationship?

Points to note

This guidance is indicative; in practice, it is rare that all the above factors will point to an individual being self-employed. However, the more indicators that point to self-employment the better, as there is a lesser chance that they may be considered a ‘de facto’ employee.

An individual’s employment status for tax purposes, and for the purposes of statutory employment protection, are separate questions. It is possible that HMRC classes an individual as an employee, where an employment tribunal would decide otherwise.

An individual engaged by a public sector body or recruitment agency via an intermediary (such as a personal service company) can be deemed an employee of the public sector body, or agency, for tax purposes under IR35 rules.​