Contractor Or Worker? Ask These Three Questions To Find Out!

In the last couple of weeks, I have performed quite a few HR Health Checks where I have had to determine whether a team member is a contractor or worker. As part of the health check, I must ascertain if the company has contracts not just for employed PAYE staff but also for contractors. As such, I am often asked “Why do I need a contract for a contractor?” and I thought I would write something to explain why. gjghhk

Just because you say that you are self-employed doesn’t necessarily mean that the taxman will agree with you. It is a very grey area and there are various organisations trying to get the UK tax legislation to simplify the system. Being self-employed or employed is not a matter of choice, it is determined by the facts of each person that is engaged in work.

Definition Of Self-Employed

To determine if you are a contrator or worker, it helps to know if you are self-employed. www.gov.uk defines self-employed as

“A person is self-employed if they run their business for themselves and take responsibility for its success or failure.”

“Self-employed workers aren’t paid through PAYE, and they don’t have the employment rights and responsibilities of employees.

“Someone can be both employed and self-employed at the same time, for example, if they work for an employer during the day and run their own business in the evenings.”

There are three main tests to determine if you are a self-employed or worker.

Mutuality Of Obligation

If you are an employee in your contract of employment it will determine things like working hours and what to happen if you can’t attend work. As an employee, there is an obligation to pay you if your work is not up to scratch (and then we have to look at Performance Management). If workloads suddenly decrease, unless, on a zero hour contract, there is still an obligation for an employer to pay an employee.

Can your contractors turn down work or determine which day they will turn up to complete it?

Let’s give an example from a court case. When a company’s IT and Telecoms systems went down the employees were told to ‘look busy’. Those contractors that were on site were sent home without pay. As a result, the court decided that there was no mutuality of obligation.


As an employee of a company the Employer has all the control as to how an employee carries out their duties. As a contractor, you can exercise your professional judgement in how you carry out your work.

Do you tell your contractors what to do? Are they involved in prioritising your work? If you have a genuine contractor they will be proposing solutions based on their expertise.

Personal Service

If you are an employee then you obliged to complete work given to you by your employer yourself. If you are a contractor then you have the right to appoint a substitute. The HRMC will really look into whether you genuinely have the right to appoint a substitute – even if one is never used.

Ideally, you should be able to prove all three tests but two be okay, the more factors in favour of being a contractor the better.

Why Is It So Important?

Not only could an employer and contractor face a huge tax bill there are also the other benefits that are associated with being an employee. These would include things like the national living wage, holiday entitlement and statutory sick pay to name a few.  With the removal of fees for employment tribunals, we could see more cases coming through where a contractor feels that they are a worker and claiming benefits that they are not entitled to as a contractor.

In Summary:

Make sure that as an employer or a contractor you are clear about status. It is ultimately up to the employer to ensure they are using the correct status. Review any contracts that you might have and assess if someone is a contractor or worker.

If you need help determining whether one of your team mebers is contractor or worker, please fire me an email at [email protected] 


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