Employer Independent Contractor Guidance (UK)

Topics Covered

• Benefits of hiring an independent contractor
• Risk of hiring an independent contractor
• Best Practices for hiring an independent contractor
• Legal requirements and compliance for an independent contractor

Before hiring an Independent Contractor, you need to ask yourself:

• What are your employment needs?
• How many hours do you need (each week / each month)?
• How long do you need the worker? Temporary or Indefinitely?
• Will the demand for work grow as your company grows?
• Do you need them onsite, remote, or hybrid?

HMRC Independent Contractor vs Employee Guidelines

HMRC determines employment relationship status through the rights and responsibilities of an employee. The rules that define an employee are vague, using words like "probably" and "most" ("Someone who works for a business is probably an employee if most of the following are true..." -GOV.UK). This allows HMRC to use discretion in these cases, and so if it seems like an employee relationship, they have the ability to classify it as an employee relationship. The key to how the UK government classifies the employee relationship centers around the concept of “control,”; i.e., how much control the organization has over the worker. The more control the organization has over the worker, the more likely HMRC will reclassify the worker as an employee.
Per GOV.UK:

• they’re required to work regularly unless they’re on leave, for example they’re on holiday or on sick leave or on maternity leave
• they’re required to do a minimum number of hours and expect to be paid for time worked
• a manager or supervisor is responsible for their workload, saying when a piece of work should be finished and how it should be done
• they cannot send someone else to do their work
• they get paid holiday
• they’re entitled to contractual or Statutory Sick Pay and to maternity pay or to paternity pay
• they can join the business’s pension scheme
• the business’s disciplinary and grievance procedures apply to them
• they work at the business’s premises or at an address specified by the business
• their contract sets out redundancy procedures
• the business provides the materials, tools and equipment for their work
• they only work for the business or if they do have another job, it’s completely different from their work for the business
• their contract, statement of terms and conditions or offer letter (which can be described as an ‘employment contract’) uses terms like ‘employer’ and ‘employee’

The Risk

The significant risk is that the government will reclassify an independent contractor into an employee. As a result, the organisation will be retroactively liable for any employment taxes and national insurance that should have been paid during the time of the contract and could be responsible for any actions the contractor took that the organisation would have been responsible for if they were an employee, and likely will receive fines or penalties. And note, if they find one independent contractor that should be an employee, they will look at all of them. They may even include previous independent contractors who worked with the organisation and no longer work with it.

Best Practices for Hiring an Independent Contractor:

• No legal forms are needed to hire an independent contractor; however, it is best to have a written contract should HMRC decide to audit you. It'll prove your relationship isn't a “disguised employment.”
• Specify in your contracts that you’re availing of the services of an individual as an independent contractor.
• Agree upon established clear deadlines or milestones for the task(s) or project(s). Independent contractor relationships should not be ongoing, open-ended, or permanent. Otherwise, they may be deemed an employee relationship.
• You typically can only dictate the results or output of the project, not how, when, where, and how long the work should be done.

Appendix

Am I Responsible for the Legal Requirements and Compliance of the Independent Contractor?

One of the great things about independent contractor relationships is that, typically, your organisation shouldn’t necessarily be responsible for the contractor's compliance. Any contract should state that the contractor is responsible for following all laws and regulations. You will not be liable for their insurance or taxes; unless your government reclassifies the independent contractor as an employee.

Insurance

Your organisation does not hold any liability to ensure the independent contractors have any required national insurance or registration. All liability falls on the independent contractor. Therefore, it is best to include language in an independent contractor agreement that implicitly states the independent contractor holds liability for these areas.