DairyCo

Self-Employed Legal Definitions

Published 23 September 10

Legal definitions of self-employment

There are several 'official' definitions of the difference between being employed and being self-employed, the main differences tending to be influenced by the remit of whichever official government body is providing them.

Her Majesty's Revenue and Customs (HMRC) provides the following definition:

In order to answer this question it is necessary to determine whether the person works under a contract of service (employees) or under a contract for services (self-employed, independent contractor). For tax and NICs purposes, there is no statutory definition of a contract of service or of a contract for services. What the parties call their relationship, or what they consider it to be, is not conclusive. It is the reality of the relationship that matters.

In order to determine the nature of a contract, it is necessary to apply common law principles. The courts have, over the years, laid down some factors and tests that are relevant, which is included in the overview below.

As a general guide as to whether a worker is an employee or self-employed; if the answer is 'Yes' to all of the following questions, then the worker is probably an employee:

• Do they have to do the work themselves?
• Can someone tell them at any time what to do, where to carry out the work or when and how to do it?
• Can they work a set amount of hours?
• Can someone move them from task to task?
• Are they paid by the hour, week, or month?
• Can they get overtime pay or bonus payment?

If the answer is 'Yes' to all of the following questions, it will usually mean that the worker is self-employed:

• Can they hire someone to do the work or engage helpers at their own expense?
• Do they risk their own money?
• Do they provide the main items of equipment they need to do their job, not just the small tools that many employees provide for themselves?
• Do they agree to do a job for a fixed price regardless of how long the job may take?
• Can they decide what work to do, how and when to do the work and where to provide the services?
• Do they regularly work for a number of different people?

Source: HMRC

The Health and Safety Executive (HSE) provides the following definitions of the differences between the employed and the self-employed:

Workers will normally be considered to be your employees, irrespective of whether they are treated as self-employed for tax and National Insurance purposes, if working arrangements are consistent with a contract of employment. Among other things this means you:

• tell them what time to begin and finish work, and agree their holiday periods;
• tell them what jobs to do, how they should be done, and in what order;
• provide the tools and materials for the tasks carried out.

If workers work mainly for your business, work in an agreed way, use tools and materials supplied by you, and are under your control then they will probably be regarded as your employees for health and safety purposes. If this is so then health and safety laws will apply to you in the same way as to any other employer.

Employers have legal responsibilities to employees, e.g. in the provision of training and health surveillance, which they do not have for the self-employed.

The traditional 'self-employed' person or contractor who carries out work for you, such as silage making, can be easily distinguished - they will arrive, within limits, at their own convenience, pack up when they wish, provide their own work equipment etc, and devise a way of doing the job that best suits them. Someone who is truly self-employed would be in control of, and have a stake in, their business which they stand to lose should the business fail.

Source: HSE

Section 53 (1) Health and Safety at Work etc. Act 1974 contains the following definitions:

"employee" is "an individual who works under a contract of employment (or is treated by section 51A as being an employee), and related expressions shall be construed accordingly"

"self-employed person" is "an individual who works for gain or reward otherwise than under a contract of employment, whether or not he himself employs others"

"contract of employment" is "a contract of employment or apprenticeship (whether express or implied and, if express, whether oral or in writing)".

Source: HSE

A more comprehensive guide to employment status and its implications for employers from the HSE can be found here
The Directgov website provides the following distinctions between workers, employees and the genuinely self-employed:

Workers

'Workers' are defined more widely than employees and are different from the genuinely self-employed. The status of worker includes individuals working under a variety of contracts. Employees are workers, but employees have different employment rights and responsibilities than workers.

As a worker you are entitled to core employment rights, including the right to:

• receive the National Minimum Wage
• protection against unlawful deduction from wages
• a minimum period of paid holiday (annual leave)
• minimum length of rest breaks
• not work more than 48 hours on average per week or to opt out of this right if you choose
• protection against unlawful discrimination (including less favourable treatment on the grounds of part-time status)
• protection for 'whistleblowing' (reporting wrongdoing in the workplace).
  
  

You may also be entitled to:

• Statutory Maternity, Paternity or Adoption Pay
• Statutory Sick Pay.

However, you should check your entitlement to these because they depend on a number of different things, including how much you earn.

The key requirements for establishing 'worker' status are that you:

• have to perform work or services personally and cannot send a substitute or sub-contract the work
• are not undertaking the work as part of your own business (e.g. if the 'employer' is actually one of your clients).

Employees

The 'employee' status applies to the largest group of people in the workplace. All employees are workers, but as an employee you have a wider range of employment rights and responsibilities to and from your employer. For example, you will need to give a minimum notice period if you wish to leave your job.

Employees work under an employment contract (also known as a contract of service). This is normally a written contract but doesn't have to be, it could also be spoken or implied or a mix of all three. For more information on employment contracts, read 'Employment contracts'.

As an employee, you rights include all of the rights workers have, plus the right to:

• a minimum statement of employment terms
• statutory sick pay
• minimum notice periods if your employment will be ending (eg if your employer is dismissing you)
• not be unfairly dismissed
• maternity, paternity and adoption leave and pay
• request flexible working
• time off for emergencies
• Statutory Redundancy Pay.

Some of these rights require a minimum length of continuous service with your employer before you qualify for them.

Some employees may also have enhanced entitlements, over and above their statutory rights. These would be part of your employment contract's terms and conditions. For example, your employer could decide to give you more generous notice periods or sick pay.

Self-employed

Employment legislation does not generally cover self-employed people because you are, in effect, your own boss.

You will benefit from protection for your health and safety and, in some cases, protection against discrimination.

Your rights and responsibilities would be set out by the terms of the contract you have with your client.

Self-employed people are usually identified by the fact that they are in business for themselves and provide a service to multiple clients. Self-employed people are generally more independent than workers. They have far greater control over how and when to deliver the service and who delivers it. They will usually be better able to protect their own commercial interests, although they will bear any financial risk from the business they operate.

If you are self-employed, you must:

• register with HM Revenue & Customs (HMRC)
• submit an annual tax return
• account for your own tax and National Insurance payments.

Source: Directgov