A worker is not an employee when they are self employed. However, it is not enough to just class a person as employed or self-employed, there is a distinct set of circumstances that when applied to the relationship between the worker and the 'work provider' will determine the correct status of the worker which has great significance legally.
An employee is an individual who has entered into or works under a contract of employment as opposed to a self-employed person who would normally have a contract for services. This is all well and fine so long as a physical document exists. Where it gets complicated is that a contract need not be in writing, it can be a mixture of verbal, implied and working customs and practices. In the event of a dispute an Employment Tribunal will decide the status of the worker.
One of the main tests for an 'employee' is that: is the 'employer' obliged to provide work and is the 'employee' obliged to personally perform that work, if this is true then there is a strong chance that there is an employer / employee relationship.
To help make this decision or to further prove or disprove the decision there are a number of statements and circumstances specific to each status, this is called the multiple-factor test and is used by an Employment Tribunal to reach a balanced decision. Below are some of the main factors but there are more less important factors that can used should the main ones provide an inconclusive result.
| Factor | Employee | Self-Employed |
| Is the worker contracted to provide the work personally? | Yes. | No. Can send along a substitute if unable or unwilling to do the work personally. |
| Does the worker work exclusively for the other party? | Yes. | No. Can do work under two or more contracts with different parties at the same time. |
| Does the worker work as part of the other’s business? | Yes, an integral part of his employer’s business, working within the core of the business. | No. Works as and when required. |
| Does the worker provide his own equipment? | Employer provides all tools, machinery and equipment required. | Most often provides his own tools and equipment. |
| Does the worker provide his own support staff? | Employer provides all required support staff. | Provides own support staff as required and pays them directly at own expense. |
| Is the worker responsible for own profit and loss? | Not able to increase profits over and above wage received. | Ability to enhance profit by maximising efficiency. Puts errors right at his own cost. |
| Tax, NI and VAT arrangements. | All dealt with by employer. Subject to PAYE rules. | Produces own accounts and paid on invoice. |
| Is the arrangement designed purely to achieve tax advantages and/or to avoid employment legislation? | If yes, it is likely to fail and the worker will be regarded as an employee. | |
| Does the worker receive paid holidays, sick pay and/or a company pension scheme and does he receive regular wages? | Yes. | No. |
| Is the worker subject to disciplinary action in the event of misconduct or poor work performance? | Yes. | No. |
