What types of employment status are there?

Before deciding whether to employ your best subbies or continue working with them as you do, it’s important you understand the differences between worker, employee, self-employed and contractor.

Worker refers to someone who carries out work personally in exchange for a reward (usually money). Agency workers, workers on a zero-hours contract and casual workers or freelancers will often fall under this category.

They don’t have to work a minimum number of hours, work regularly for the same client or even carry out work at the client’s premises. They do not have to have a written contract (although having one is a good idea), but they may still be entitled to some of the same statutory rights as employees.

Employees work under a contract of employment. They have contracted hours, fixed pay and basic employment rights.

All employees are workers, but an employee has extra employment rights and responsibilities that do not apply to workers who are not employees. A person may be an employee in employment law but have a different status for tax purposes.

Self-employed people and contractors work for themselves. They have more flexibility in who they work with and can work for multiple different clients. They are responsible for managing their own tax and do not have the same employment rights as employees. The employment rights act does not cover them, and they are often viewed as being at greater financial risk.

Does worker status affect employment rights?

Yes. If you are self-employed, you do not have the same rights as employees. These rights may include paid holiday, parental leave, adoption pay, sick pay, holiday pay, national minimum wage, and statutory redundancy payment. Employees are also protected against unfair dismissal and may be able to join a trade union.

How is employment status determined?

The difference between employee employment status and self-employed status is determined by the type of work the individual undertakes and whether the working relationship is one of contractor and subcontractor, client and supplier, or employer and employee. Under employment law, a self-employed person does not have any employment rights.

It is possible to be both self-employed while also having a zero-hours contract or contract of employment with a firm. Some people choose to run their own business around part-time or full-time employment. This does not affect your employment rights under your employment contract but may affect your tax status.

Why is employment status important for tax purposes?

It is important to understand the different types of employment status for tax purposes.

Everyone has to pay income tax and national insurance, but this is done differently depending on employment status. If someone is an agency worker, the agency will usually make tax and NI contributions. If they are employed, the employer will make tax and national insurance contributions. If they are self-employed, they are responsible for their own tax affairs.

However, construction is the only industry to tax the self-employed at the source. This is done under the construction industry scheme (CIS), where the main contractor deducts 20% from a subcontractor’s pay and pays this to HMRC to cover their tax and NI. Most subcontractors can reclaim tax when they submit their self-assessment tax return.

Can you work with subcontractors long-term?

Despite all the myths and mistruths surrounding the use of subbies in construction, there are no laws around how long you can work with a subcontractor.

As long as you have legitimate reasons for working with your subbies the way you do, you can work with subbies for as long as you like and however you like.

But you need to be transparent about it. Because if HMRC ever does enquire into the employment status of your workers, you’ll want to make sure there can be no misunderstanding about whether they are genuinely self-employed.

The HardHats employment status guarantee

HardHats specialises in working with construction businesses that use self-employed subcontractors on a long-term basis. If you only work with subbies on an ad-hoc basis, employ your labourers, or work with bona fide subcontractors, you are unlikely to be at risk of an employment status enquiry.

However, if you work with labour-only subbies on a long-term basis, you could be at risk of an enquiry. And if HMRC does reclassify your subbies as employees, you might be faced with substantial fines.

Unfortunately, the rules around determining a worker’s legal status aren’t always clear. HMRC will take into account all the circumstances surrounding the working relationship to determine what the employment status should be.

The best way to protect yourself from an enquiry is to ensure a robust contract between you and your subbies. This should outline exactly how you work with subcontractors and the business reasons for working this way.

And that’s where HardHats comes in.

We create bespoke, watertight agreements that leave HMRC in no doubt as to the employment status of your subbies. Plus, all our agreements are underwritten by an international insurance company called Markel. They specialise in ‘hard-to-place’ risks that the standard insurers generally avoid and have a history of successful self-employment cases against HMRC.

In other words, we’re so confident in our contracts that if HMRC ever reclassify your subcontractors as employees, we’ll pay any associated costs.

• You can work with subbies as long as you want without employing them

• You can work with subbies however you want without employing them

• Your subbies keep all their hard-earned pay

• You keep control of your payroll (and your cashflow)

• You are fully compliant if HMRC come calling

Still not convinced it’s as easy as it sounds? We get it. You’ve probably heard all kinds of conflicting information about status. So, we’ve put together these frequently asked questions to help you understand how we do what we do.