Employees and self-employed contractors
For tax and accident compensation purposes, you must decide whether the people who work for you are employees or self-employed contractors. It is important to note that a person can be self-employed in one line of work and still work for someone else as an employee. Read the table below to help you decide. | Generally they are... | if they, for example... | | employees | - do the work themselves, rather than hiring someone else to do it for them
- can be told at any time what to do on the job, or when and how to do it
- are paid at a set rate (for example, hourly weekly, monthly, or per unit of production)
- can get overtime pay or penal rates
- work set hours, or a given number of hours a week or month
- have someone else who sets the standards for the amount and quality of their sales or output
- work at the premises of the person they are working for, or somewhere that person decides
- do the same sort of job as other people who are treated as employees
- are under an employment contract, or any law that says how their relationship with their "employer" should be run
- are prevented from doing work for anyone else
- have to follow the rules or procedures of the person they are working for.
| | self-employed | - decide or control how they do the work - see the examples below
- invest or risk their own money in the activity in any way - see the examples below
- provide the major assets or working equipment needed for the job (not just small tools, work clothing and/or vehicle to get to and from work)
- provide or pay for their own training
- are responsible for getting the work done - see the examples below
| Next steps | If you employ ... | then you... | See... | | an employee | - register as an employer, and
- deduct PAYE at the rate indicated in the IR340 or IR341.
| How to register as an employer | | a self-employed contractor performing duties listed in the PAYE deduction tables (IR340) and (IR341), these can be found on the website. | - register as an employer, and
- deduct tax at the withholding rate indicated in the IR340 or IR341.
| How to register as an employer Activities subject to withholding tax | | a self-employed contractor performing duties not listed in the IR340 or IR341 | don't need to deduct tax. | | | If they... | then they, for example... | | decide or control how they do the work | - decide when they take their holidays
- decide when, where and what hours they work
- decide the standard or quality of work
- decide how much they get paid and how.
| | invest or risk their own money in the activity | - could sell the business
- could support the business with their own money, for example lend it money or provide some working capital (excluding shares obtained from any employee share purchase plan)
- are responsible for losses or their own bad management
- are responsible for management and investment decisions for the business.
| | are responsible for getting the work done | - can get other people to work with or for them, without needing to get permission from anyone else
- pay these people from their own funds
- are free to work for other people
- advertise their own account
- can't do the job (for example they are sick) they organise a replacement
- their contract says they'll be penalised in some way if they stopped work, or left without completing a particular project
- must correct unsatisfactory work in their own time and at their own expense.
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Last updated 24 June 2010
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