Employment law, HR

Employing self-employed staff?

Bryan Brown | 18 March 2021 | 3 years ago

Employing self-employed staff?

Employment law can get tricky, especially if this is your first time looking to employ staff. Different types of contracts work for different businesses and you need to know your business needs as well as the legality of different routes of employment before you start the employment process.

A lot of employment questions, especially for small businesses, surface around self-employment. Can a self-employed person employ others? Can a business employ self-employed workers? Are self-employed workers considered employees?

In this article we will address some of these more common questions and give you the tools you need to start your hiring process. Knowing what the law says will help you make informed decisions and hire the best people for your business with complete peace of mind.

Before we begin, here’s a quick recap on who is classed as self-employed:

  • A person who is fully responsible for the success or failure of their business
  • Sole proprietors, partnerships, and limited liability companies (LLC) – unless taxed as a corporation
  • A person who is responsible for their own finances, including remuneration for work, all business incomes and expenses, taxes, and contributions.

Can a Self-employed person employ people?

The good news is that if you are registered as self-employed, you can still employ people you’re your business. HMRC has set out a seven-step checklist to help you employ someone and one of the most important things as a first-time employer is to make sure you are registered as an employer. You won’t be able to pay your employee until you are registered and you need to let HMRC know at least four weeks before you employ your first staff member, so make sure you set this up as a priority.

There are certain stipulations and regulations that you need to follow, so make sure that you are in line with these guidelines. You will need to have a steady enough income stream to pay your employee, and remember that you will also need employment insurance and will be responsible for handling all taxes and contributions for your staff.

You will also be responsible for proving a contract if the work will last more than a month.


Can I employ self-employed staff?

Having multiple income streams is not uncommon nowadays and that means you can be both employed and self-employed. If you are looking to hire someone who is self-employed as an employee, there are no rules that say that person is ineligible.

Your responsibility towards a self-employed employee is the same as any other employee. That means that even if they are self-employed and paying National Insurance contributions, you will need to pay those contributions as well. You are also still responsible for any of the normal employer-employee agreements including sick leave, holidays, and pension.

There are far more ramifications for a person who is self-employed than there are for the employer. They will need to add their employed income to their self-employed income on their tax returns and will need to make sure they are properly balancing their jobs.


Are self-employed considered employees?

Depending on the type of contract you draw up, your self-employed workers may be classed as employees. If you hire them as freelancers, consultants, contractors, and in some cases on a zero-hour contract, then they will not be considered employees. Ultimately though, it comes down to how you word your contract and what your business needs.

True employees will receive a regular salary, have access to benefits, not need to complete their own taxes as their employer is responsible for this, and will have a contract of employment. There are five tests used to decide if a person is an employee, so if you are in doubt or are trying to decide if you should hire an employee, these are the things to think about

  1. How much control do you have? An employer has more control in what tasks an employee does and how they do them
  2. How integrated is the person into the company? If a person is in the office regularly, takes part in staff meetings and staff incentives, or is otherwise heavily involved in the daily actions of the business then they are more likely to be an employee
  3. Is there a mutuality of obligation? You are obliged to give your employee work and they are obliged to accept. A person working as a worker or freelancer is under no obligation to accept work you offer them, but you are also not under obligation to give them regular work. (Check out zero-hour contracts, however, if you want to employ someone without mutuality of obligation)
  4. Can the person be substituted? If someone else can do the work instead then they are not replacing a true employee
  5.  Who is responsible for economic reality? Who is at risk if they fail to do the job? If you bear the burden of that risk, then you are usually the employee. A person who is not employed usually will not be paid for work that is substandard, incomplete, or missing.

Should I become an employer?

Although there are a lot more responsibilities involved in being an employer – a term that only refers to a person who is a registered employer with employees – there can also be a lot more advantages.

Employment may be right for you if:

  • Your business is getting too big for you to handle
  • Your business is growing rapidly, and you want to prepare for expansion
  • You have used non-employees before and know that you need someone more permanent, or you need more control in the business relationship
  • You are financially secure and able to employ someone
On the other hand, sticking to hiring a freelancer or consultant might be better if:

  • You only need someone on a short-term basis
  • You are uncertain of the frequency or volume of work that will be coming in
  • You run a highly personalised business where a larger business model might take away from your niche or brand (losing you business in the long run)
  • You are not financially stable enough to offer a salary and benefits
  • You don’t have the capacity to handle employer responsibilities.


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