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Self-employment and 'off payroll' working

The law traditionally distinguishes between a “worker” who works personally under a contract of service or employment (an employee) and a person who works under a contract for services (self-employed or independent contractor).

The distinction between a contract of employment and a contract for services is important as it determines who is liable to pay income tax and national insurance contributions and whether the worker has employment rights i.e. the right to paid holidays etc.

The fact that a worker wishes to be classified as self-employed or Personal Service Company, does not validate that request, as determination of employment status is a matter of fact or interpretation, not choice. 

Any interpretation of a person's status will invariably depend on his or her own particular set of circumstances. To illustrate this, it is possible for a person to be both employed and self-employed whilst working for different employers. It is highly unlikely that a full-time University employee could undertake additional work for the University on a self-employed basis.

The university’s default position is that all “workers” are employees. If there is any dispute about this position, it is essential that employment status is confirmed in ADVANCE of commencement of duties.

Tests to determine employment status

Whilst a number of legal tests do exist, the status of a worker is essentially determined by looking at the whole picture of the relationship between the worker and the employer.

The degree of control and direction that the employer exerts over a worker is often a key factor. If the employer determines:

the more likely it is that the worker is an employee.

Factors indicating self-employment

If a worker can answer yes to one or more of the questions s/he is likely to be self-employed.

If the worker can’t answer yes to any of the above questions, s/he is still likely to be self-employed if s/he can answer yes to most of the following questions:

Factors specific to Teaching

A visiting lecturer who gives a one-off or a short series of talks on a subject about which s/he has specialist knowledge and which is not part of a core curriculum, is likely to be self-employed. 

Those undertaking teaching on not more than three days in three consecutive months are likely to be self employed.

If there is no immediate financial risk associated with poor performance of teaching this is likely to support employment rather than self employment.

A lecturer required to teach in accordance with a set syllabus would be more indicative of employment than if a lecturer was engaged to talk about a specialist subject but was left to determine the content of the lecture.

The ability to send a substitute is a strong indicator towards self employment.

How to deal with disputes about employment status

Where a worker wishes to dispute the university’s decision, s/he should seek an indicative employment status ruling from the HMRC website, using the employment status Service.

It should be remembered that if the University treats a worker as self-employed when the reality of the situation is that the worker should have been treated as an employee, HMRC reserves the right to retrospectively seek payment of the appropriate levels of income tax for up to 6 years. The liability for this payment rests with the recruiting department rather than the worker.

Steps to be followed when considering appointing a self-employed worker OR Personal Service Company (PSC)

1. Complete the employment status checker on HMRC website (ESS)

2. Save outcome as PDF with worker name as reference

3. Ensure that a written agreement exists covering what, how and when the work is to be done and the mechanism for payment - attach to ESS outcome

4 . If the ESS indicates PAYE is to be operated - advise worker and submit payment request to Payroll using External Payment form. If worker is a PSC forward to Finance Payment Section

5. If the ESS indicates PAYE is NOT applicable payment can be made by Finance Payment Section, forward invoice for processing.

Any queries regarding the above guidance please contact University Payroll and Pensions team.

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