The rules around distinguishing between an employee and an independent contractor may be subtle, but getting it wrong and breaching IR35 rule can result in serious tax and legal consequences for your business!
We thought we’d try and clear this blurred line and clarify the differences!
The three main differences are:
Employees generally have limited control over their work, their hours these are set in place at the commencement of employment and the relationship is ongoing. They are restricted from working for another company, customer or generating their own work. Contractors on the other hand cannot be treated with the same level of control, dictating their own working hours, working on multiple projects for multiple businesses simultaneously. A business has no obligation to provide the contractor with work and employment rights do not apply to the relationship.
Employees are generally paid a regular set amount, agreed on the commencement of their employment in return for working the set agreed hours. The employer will also deduct tax and national insurance contributions from their wages, whereas contractors will need to invoice for their services at an agreed rate per day/week month or fixed price basis. They are not paid via PAYE therefore are responsible for looking after their own tax and NI contributions.
Whilst contractors do have certain protections, for example for their health and safety whilst on business premises and, in some instances, protection against discrimination, they are not entitled to any employee benefits such as paid holidays, sick pay, company pension or medical insurance.
This can be a grey area, which many employers struggle with, so hopefully the above has given you some starting points to think about!
There is a third status known as a ‘worker’, sitting somewhere between an employee and contractor. This category of the workforce have some, but not all employment rights, as an employee would but more than a contractor. The classification depends on the level of flexibility of the working relationship … but we’ll leave that for another day!
If you need any HR help, advice or tips, get in touch.