There are different laws and regulations for employed and self-employed people, and this extends to agency work. So if you’re doing work for an agency, it’s important to know whether you’re self-employed or an employee.
What’s the Difference Between Employed and Self-Employed?
Essentially, you’re self-employed if you’re in business for yourself – whether you’re a sole-trader, a freelancer, a partner in a trade firm, or a small-business owner. When you’re self-employed, you get to decide when and where you work. You also get to make all of your own arrangements for sickness, holiday and pensions, and you’ll pay your own tax and National Insurance.
On the other hand, you’re an employee if you have an open-ended employment contract with a business. Whether you work full-time or part-time, you’re a permanent member of staff. Your employee will decide when and where you work. They’ll also pay tax and National Insurance on your behalf.
So in short, you’re self-employed if you work for yourself. But you’re employed if you work for someone else.
Am I Self-Employed or an Employee?
Think about your circumstances and your working arrangement and it should become clear. But when it comes to agency work, there are a couple of arrangements where the lines between employees and self-employed people are less clear.
Under UK law, all employees get basic rights including statutory sick pay, holiday pay, redundancy pay, and other legal protections. Some businesses might class their employees as “self-employed” so as to avoid having to provide these essential employment rights.
There’s a set of tax rules that the government uses to help enforce these rights. It’s called IR35, and you can read our full guide to IR35, what it is and how it works.
But self-employed people can also fall foul of IR35 rules. This is why it’s important to understand, when working for an agency, whether you’re self-employed or an employee.
Self-Employed and Working for One Agency
It’s not unusual for self-employed people to do most or all of their work for one agency. You might develop a close working relationship with a single agency. They might make give you so much work that you simply don’t have to find work from anyone else. Or you might get involved with a large project that takes months or years to complete.
So you might end up in a situation where you’re an independent self-employed worker, but all your work comes from a single agency. Does this mean you’re an employee of this agency?
It largely depends on the exact nature of your working contract. If the agency can define your working hours, or outline exactly how you must carry out your work, then HMRC may recognise you as an employee – even if you’re still registered as self-employed!
We have a full guide to being self-employed and working for one company. It explains how you can enter into such an arrangement while remaining self-employed, and how to avoid costly IR35 investigations.
Hidden Employees at Self-Employed Arrangements
Some unscrupulous agencies may have a workforce made up of people who are, to all intents and purposes, employees. The agency will dictate how and when their staff works, and they may impose disciplinary procedures if they’re dissatisfied with any member of staff’s conduct.
So these members of staff will essentially be employees. However, the agency may class their workforce as “self-employed contractors”, as a means of getting around the statutory requirements that exist for employees.
This is a bad situation for any worker to find themselves in. You’ll get the worst of both worlds – none of the benefits that come with being an employee, such as all the statutory protections. But nor will you get any of the freedom and independence that comes from being self-employed.
So if you suspect you’re in a bogus self-employed arrangement with an agency, it’s best to get advice from official government sources. Start by heading to the government’s self-employment page, to check whether your employment status is genuinely self-employed.
Self-Employed? Don’t Leave Yourself Vulnerable to IR35
There are many benefits to being self-employed. But all the freedom and independence can mean compromising on certain statutory rights and legal protections. And as we’ve seen, if HMRC is suspicious of your working practices, it can trigger a costly IR35 investigation.
But at Tapoly, we specialise in affordable insurance packages for self-employed freelancers and contractors. This can include Legal Expense insurance, which can cover you if you ever need to make a claim against an unscrupulous agency, or defend yourself against an IR35 investigation.
If you have any questions, or you’d like to discuss your options, you can contact the Tapoly team at firstname.lastname@example.org, call our info line on +44(0)207 846 0180, or use the chat box on our website.