Employee or self-employed contractor - what are the differences?

elljay

Hi all, I was due to start in a new job as an employee but they have now told me that they would prefer me to be a self-employed contractor. I don't really mind either way, I would quite enjoy the freedom that being self-employed would bring me but I just need to be fully informed. As the original agreement has changed I will be meeting with them to thrash out terms of the contract next week. Could anyone advise me what sort of things I need to sort out with them. I've already checked out what I think I initially need to do on my side in the immediate term,eg National Ins and tax, but what else should I be concerned about that will be different from being an employee? Pension? Holiday/Sick leave? If I know now before meeting with them I'll be able to negotiate terms. Apparently as a charity, it's better for them to do it in this way.

I'll mostly be working at their premises with their office equipment so I think this makes things slightly different too.

Thanks very much. Liz

LittleVoice

If you are self-employed, you will have no employment rights - no holiday pay, no statutory sick pay, no employer sick pay, no employer stakeholder pension contribution, no security of tenure.

Really it would be for HMRC to decide whether your work could be self-employment. Will you be working for any other organisation? Will you work in their premises and use their equipment or your own (and you have said it is their premises and equipment)? Would you be able to get the work done by some other person or does it have to be done by you? Can you decide how and when you do the work? It's the answers to questions like those which will establish whether you can be self-employed - not the advantage to the charity or to you.

Tallymanjohn

Useful link to help you check out your status:

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/WorkingAndPayingTax/DG_4015975

elljay

Thanks both, I've had a look at the HMRC site and still feel confused. I don't really run my own business as such, I just do bits of work as and when living off my savings gets perilously close to the edge. I also work 6 hrs a week in a shop (which I'll keep on) but according to the HMRC website I can be both employed and unemployed at the same time anyway. I will be able to work when I want as long as I do the job that's required, originally it was going to be 20 hrs a week as an employee so I still plan on doing roughly that. I'll be doing the work myself mostly in their premises and using their equipment - occasionally elsewhere or at home when I'll probably use my own pc. Security isn't a problem, if this job finishes I'll still have the shop job/what's left of the savings/ find another job but if they do want me to be a contractor I need to bring the lack of sick/holiday/pension pay etc into the negotiations to change the rate of pay. I know it's a charity but it isn't very professional for them to see me as a mug either!

It may well be that after discussions they would prefer me to be an employee after all, as I said I'm not bothered either way, just want to get things right at the start, and I just want to get on with the job really!

Thanks - Liz

PasturesNew

It is not for you or the employer to decide if you are employed or self-employed. The Govt give a list of things to check if you are or not.

Many employers are using this method to get round their (increasing) responsibilities.

I have been in the same situation you are in many many times. What I have done over the years is buid up a number of income streams so that I am always running as self-employed "in the background".

Yes, look at the extra effort you have to go to to be self-employed (saving them their duty to you as an employee)

If you don't want to be self-employed, but DO want the job, then you might meet with them and say you have investigated it and then produce the list by the Govt and point out that it isn't YOUR decision or THEIRS but how the Govt will perceive the arrangement. Should the Govt investigate you/them then you can walk away scot free and the Govt would be chasing them for back payments of tax/ni etc - and you would be awarded back holiday pay .... so they might now wish to reassess their proposal.



As a rule of thumb, if somebody asks me to be self-employed I'd be looking at 33% to 50% more than the employed hourly rate, minimum. This is based on the fact I know the work and know how demanding/intrusive the work would be in my other commitments.

The last job I converted from employed to self-employed, I went from £9/hour pay to £12/hour.

Some work is simply not worth doing on a self-employed basis if the level of interference (for no reward) is significantly higher than the reward (e.g. a piece rate). Often in these arrangements they end up calling you in for meetings, and they don't expect to pay you for your time. Or they start requiring overly complex reports on your work/progress which eat into the time you have available to do the actual work. I had one client contracted at £20/hour for just 5 hours a month. And they wanted reports that would have taken me 3 hours! And they wanted me to go and see them once a month (2 hours). Maths didn't add up!

elljay

Many thanks. Yes like you I've been running as low key self-employed in the background for a couple of years to keep me covered with NI and have done my own tax for a few years too, even though on PAYE for some of that time with an employer.

I can't see these people being thrilled with having to pay me up to 50% extra but realistically they would've been having to pay that anyway if I was an employee. The rate would've equated to gross £20 k p.a. (£11-£12 per hour) pro rata (20 hrs)to me, with their expenses on top.

There are other issues too, one being line management. Obviously they can't line manage me now, although they will have to manage the contract. I'll also have to pay for any training or professional updating I'll need, rather than have them pay for it so that needs to be included too.

I'm, very grateful for the advice on here, it's really helpful - and all I want to do is get on with the job!
Thanks again, Liz

mrsmoneypenny9

I think you should be very careful about accepting self employed status, I was sacked without warning and for no other reason than my boss was ina bad mood and upset because of IR investigation into his business, I had worked for him for 5 years, had never recieved sick pay/holiday pay or any other benifits.

He would not have been allowed to get away with the way he traeted me had I been a paye employee, like you it was at his request that i became Self Employed to save himself money on e'ers NI Contr and other benifits.

i would not put myself in that position again.

3plus1

You haven't given me very much information to go on, but you don't sound as if you'd be self-employed to me. If I'm right, and you should be treated as an employee, and this company says no, you're self-employed and treats you as self-employed... HMRC won't care. If you should be treated as an employee, that's how they'll treat you.

Generally speaking, you're probably an employee if:

• You don't choose your work hours. You come into work when you're told to.
• You use tools/equipment provided by the company, rather than your own gear.
• You only carry out work for the one company.
  

Now, as far as tax is concerned, if you're self-employed, chances are you'll be paying less NI. If you don't earn very much, you can even get out of paying NI altogether. (Although of course if you don't pay NI in one year, that year doesn't count towards your state pension. It's a trade off.)

That might be a little bit advantageous to you. However... it's a damn sight more advantageous to the company, as they get out completely of paying employer's NI.

So this is why you should be wary - the last thing you want is an investigation by HMRC. Not pleasant.

Now, with reference to your employee rights... Well, if you're self-employed, if you don't work, you don't get paid. Okay, holidays, maybe, you can budget around those. But what happens when you get sick? No one can predict if they're going to be healthy all year, and if you're unable to work for an extended length of time, you're going to find yourself struggling financially with no sick pay.

You'll also find that it's easier for the company to sack you.

Now, I don't think there's anything wrong with being self-employed, as opposed to employed, when the circumstances are legit. However... when it looks like the company is trying to pull a fast one and declare you as self-employed when you're really not... that's when you've got to put your foot down and scream.

At the end of the day, if it costs you the job... so what? It may also have cost you a lot of grief from the tax man. And if a company makes it clear from the start that they're going to play with underhand techniques, you're not exactly going to have a lot of job security or job satisfaction.

It could just be that the people in charge of employing you don't really understand the tax implications of what they're asking you to do, and that they are in the wrong. So talk to them. Find out where you both stand.

Definitely don't start work until/unless you get this sorted!!

elljay

Thank you. I have today received the agreement - it's very legalese and 5 pages of it, but the following couple of paras make the situation in relation to my status very clear. All the asterisks denote the name of the organisation. There's also nothing in it about how much they're going to pay me, the initial offer was as employee, as contractor I need to ask for more at some point.
11.1 You will be an independent contractor and nothing in this agreement shall render you an employee, worker, agent or partner of ***** and you shall not hold yourself out as such.
11.2 You shall be fully responsible for and indemnify ****** against any liability, assessment or claim for:

(a) taxation whatsoever arising from or made in connection with the performance of the Services, where such recovery is not prohibited by law;
(b) any employment-related claim or any claim based on worker status (including reasonable costs and expenses) brought by you or any substitute against ****** arising out of or in connection with the provision of the Services. ****** may satisfy such indemnity (in whole or in part) by way of deduction from any payment due to you.
The other bit I don't know how to deal with relates to insurance:

8. INSURANCE AND LIABILITY You shall have personal liability for any loss, liability or costs (including reasonable legal costs) incurred by ****** in connection with the Services and shall maintain in force during the period of this agreement adequate insurance cover with reputable insurers acceptable to *****.


Thank you so much for your help - Liz