A Simple Guide To Self Employment
Interpretation
In this document the following words are used:
Self-employed contractor – a person supplying goods or services, a small organisation with a single person acting as a sole trader. A self-employed contractor is often referred to as a "freelancer" but this is not the correct term as a freelancer can also be paid under PAYE for all or some of the work he or she carries out for his or her clients.
Client – customer or the person or organisation contracting the goods or services, usually the organisation paying the invoice.
Introduction
A self employed contractor is contracted by a client to provide goods and or services and is therefore a trade supplier, as a trade supplier there is no entitlement to any benefits such as sick pay, holiday pay, pensions, Per Diems (PDs) and benefits provided by the client to their employees.
A self employed contractor should have made adequate provision for insurance covering the scope of work they have been contracted to provide, typically this should include Public and Employees Liability, Contractors All Risks covering plant and equipment, Travel and Medical insurance. The client may stipulate the amount of cover required as in some contractual situations the amounts of cover must be the same amongst all contractors – this is especially so in the case of Public Liability Insurance.
Self employed contractors also have their own responsibilities under the Health and Safety at Work Act 1974 (HASAWA), and will be required to make adequate provision for Personal Protective Equipment (PPE), Risk Assessments, Method Statements, Safe Systems of Work, First Aid, Accident reporting etc.
Self -employed contractors are advised to have a contract between themselves and any clients with whom they are engaged to provide services for.
A contract between a self employed contractor and a client is a contract to supply services, it is not a contract of employment or contract of service. It will assist in establishing a self employed contractors status and will go some way in protecting both the parties in the event of a dispute.
Any contract should be issued by the self employed contractor to a client stating the self-employed contractors terms and conditions of business, a contract issued by a client – e.g. a service company or an artist/artist management company, to a self employed contractor may be construed as a contract of employment.
A sample contract is attached at the end of these guidance notes for use by the self-employed contractor.
Areas marked < …… > indicate any details that need entering - this may be a name, date, monetary sum or figure.
These should be completed at the time of negotiation with the client.,
The list of Clauses contained within the sample contract are by no means an exhaustive list, The self-employed contractor may wish to add additional Clauses to suit their own particular needs. Additionally they may find that the Client wishes additional Clauses to be added or for changes made to existing Clauses.
This is only to be expected but it is advised that legal advise be sought if the self-employed contractor is not 100% certain of the meaning or validity of a particular Clause.
It is also suggested that any paragraphs, lines or words that are struck out or altered should be initialled by both parties and dated.
The notes that follow give guidance as to what the Inland Revenue and the Health and Safety Executive (HSE) consider to be a self-employed contractor but each and every case is different, for further advice contact your local area Tax Office.
It cannot be stressed to often that a self-employed contractor is not an employee and holds all the responsibilities of a person running their own business. A self-employed contractor is in fact considered to be an employer by he HSE and the Inland Revenue as he employs himself, he has all the responsibilities of both an employer and employee! The information contained here is given in good faith but neither the author or Stagesafe is not responsible for the accuracy of the information nor for the failure of a person to act or not to act on the information provided.
Health and Safety Duties Of the Self Employed
Self –employed contractors have certain duties under the Health and Safety at Work etc Act 1974 (HASAWA.)
These duties include:
- If they are also an employer, to fulfil the duties of an employer.
- To conduct their undertaking in such a way as to ensure, so far as is reasonably practicable, that both themselves and other persons (not being their employees) who may be affected thereby are not exposed to risks to their health and safety.
- Not intentionally or recklessly to interfere with or misuse anything provided in the interests of health, safety or welfare in pursuance of any of the relevant statutory provisions.
- To provide, or ensure that there is provided, such equipment, if any, as is adequate and appropriate in the circumstances to enable them to render first aid to themselves while at work.
- To provide their own Personal Protective Equipment (PPE) and/or clothing.
It is a legal requirement under the HASWA and the Management of Health and Safety At Work Regulations 1992, to produce a written Health and Safety Policy Statement and Risk Assessments if you employ five or more people.
However, under HASWA if a significant risk could be created to a large number of people, a risk assessment, written proof of a safe system of work and training would still be required from a self employed contractor (business) with fewer than five employees. An example of this would be a rigger.
A "self-employed" person has the responsibilities of both an employer and an employee, they employee themselves.
What Is Self-Employment?
The HSE consider that self-employment is someone who employs themselves, they may also be an employer.
This same view is adopted by HM Tax Inspector as a definition of who is "self-employed" as opposed to an employee but with many additional indicators.
HM Tax Inspector’s are also asking self-employed persons if they are allowed to put someone in to do the job on their behalf, they consider that self-employed contractors must be allowed to assign a job. Obviously, this kind of substitution does not hold with employment, similarly, a self-employed contractor does not work under supervision.
If you work for an employer who covers you under their Employers Liability Insurance then the chances are you are an employee even if you pay your own Tax and National Insurance contribution. This is even more the case if you work under supervision such as a "stage hand/local crew" person may do.
Employers need to take care as well, you may end up with a large bill for National Insurance Contributions for your self employed contractors who you thought were paying their own N.I. contributions, this has already happened to at least one company in our industry and it cost them a fortune!
Clients undertaking the services of self-employed contractors are advised to keep evidence of the defining criteria used to determine “self employed” status. It is no longer acceptable for a self employed contractor just to state that they are a “self employed” and provide a schedule D number.
Typical defining criteria will consist of a questionnaire about the self employed contractor, the services provided, qualifications and training information, bank details, Tax and National Insurance details, written evidence of your trading status e.g. accountants letter or letter from the Inland Revenue and Insurance details. Once the client has satisfied themselves of your “self employed” status they will treat your invoice for payment as trade invoices, otherwise they have to treat you as an employee and deduct tax and NI at source.
It is very important to ascertain a self-employed contractors status as to whether they are in fact employed or self-employed. No client in their right mind should use self-employed contractors unless they carry insurance suitable for the scope of work they have been contracted to carry out.
If the client (as an employer) intends to cover individuals under their own employers/public liability insurance they may then become an employee of the client who then has to take all the responsibilities of an employer.
Clients, Production Managers, Crew chief/bosses take note, you may have employees you did not think you had together with all the responsibilities for Health and Safety, Tax, National Insurance, sick pay, holiday pay and Working Time Regulations.
The more you provide for self employed contractors, the more likely that they may be classed as your employees.
Below are some simple checks which can be applied that will give indications to the status of self employed contractors:
Indications towards being employed
- Your client deducts Tax and National Insurance from you at source
- You work for long periods for the same client
- Your client supplies all the tools (other than just small hand tools) and materials
- Your client provides Employers Liability Insurance cover for you
- You work under supervision
- You can't sub contract the job
- You are told where to work, how to work and what time to start and finish work
- You have a 'contract of service'
- You expect your client to give you work and he expects you to accept the work
- You work for a daily or hourly rate
- You don't risk your own money and there is no possibility that you will make a financial loss
- You can not profit from the good management of the business
- You work at the premises of the person you work for, or at a place or places he or she decides.
Indications towards being self-employed
- You don't work under supervision
- You work for a number of different clients
- You provide your own tools (other than just small hand tools) and materials
- You have a ‘contract for services’.
- You hold your own Public Liability Insurance (and Employers Liability Insurance if you also employ people).
- You provide your own Personal Protective Equipment, Clothing and a First Aid Kit to treat your self if injured at work.
- You can sub-contract the job or provide a deputy to carry it out.
- Your contract does not have ‘mutuality of obligation’ i.e. on an employer to provide work, and a worker to accept it.
- You employ other people and pay them out of your own pocket.
- You produce properly printed invoices (not from a Challenge Invoice Book)
- Within the overall timescale of the project, you can choose how and when the work will be carried out.
- You have the final say in how the business is run.
- You have to correct unsatisfactory work in your own time and at your own expense.
- You can profit from the good management of the business
- You use "entrepreneurial skills", in other words, you take business risks. It is possible for you to loose money as well as make it. You are paid an agreed amount for the job regardless of how long it takes you.
One of the checks that employers can make to ascertain that the "labour only contractors" they intend to appoint are genuine self-employed persons is by getting them to quote for the jobs available and not offering a weekly, daily or hourly rate of pay. Strictly speaking the quote from a self-employed person should include things like transport, accommodation, PDs and subsistence
Quoting for a job uses "entrepreneurial skills" and is an "acid test" for true self employment but even then it may be possible to do the occasional job for a daily or hourly rate, for instance, if it proves to be extremely difficult to quote a price to do the whole job because until you start you don't know how long it's going to take or what is involved. This seems to be acceptable as long as it's only occasional and does not represent the majority of your work. Purchase Orders, Invoices and Contract Schedules should never include daily, weekly or hourly rates of pay, the hours to be worked or start and finish times.
Invoices raised by self-employed contractors should be all encompassing and typically use phrases like “For goods and services provided on ABC event as per our (verbal) quotation”. It is suggested invoices are not split into days, hours, weeks etc unless used to indicate additional services outside of the original quote, or as suggested in the paragraph above, if it is difficult to quote due the nature of the contracted work.
A number of companies in our industry who use the services of self-employed contracts are now insisting these self-employed persons become "Limited Companies" before they will use their services. These companies often claim that there are advantages to the self-employed to trad as a Limited Companies. The advice of various Accountants was that it was a disadvantage to becoming a Limited Company unless your business has a turn over of a least £100,000 per year and the responsibility under the IR 35 regulations all rest with the self-employed contractor.
The only people who can really decide if you are genuinely self employed or not are the Inland Revenue and even then it's quite possible for each local area office to give a different definition and ruling on each case.
All the information I have given here acts only as indicators but it's a fair bet that the more indicators you have pointing towards self-employment, the more likely you are to be “self-employed”.
Employers must remember that self-employed persons are not "short term employees" and must not be treated as such.
Employment status is not a matter of choice. People are self-employed if they are in business on their own account and bear the responsibility for it's success or failure.
HMC&R quote that "The tax rules for self-employed people are designed to reflect the day-to-day transactions of the true risk-taking entrepreneur. Genuine self-employment is about being in business on one's own account and not simply applying a label of self-employment".
The self-employed are advised to use the services of a Charted Accountant to assist and advise them on there financial affairs and to keep business and personal bank accounts separate. You are required to register as self employed with HM Customs and Revenue within three months of starting work as a self employed person. The simplest way of paying National Insurance by a self-employed person is by Direct Debit.
Click here for a draft contract (PDF)
Bear in mind that because you are self-employed in one job doesn't necessarily mean you will be in your next job.
Insurance
Public Liability Insurance
This insurance can protect you if there is a claim against you or your business under your legal liabilities towards employees or the public. To have Public Liability Insurance is not a legal requirement but it does demonstrate a commitment to your business and your professionalism. Self - employed persons should consider Public Liability Insurance essential. Don't be surprised if you are turned down for some jobs if you don't have the required insurance!
New regulations will require businesses and self-employed persons to hold the same level of cover as their clients, for instance, if a self-employed sound engineer is engaged to provided services to an audio company that holds £10,000,000 Public Liability cover the self-employed sound engineer will also require £10,000,000 of Public Liability Insurance cover.
Employer’s Liability Insurance
This is an essential legal requirement.. If you have employees, subcontractors or self-employed persons working for you, you have legal liabilities towards them. Employer’s liability insurance can offer protection if one of them brings an action against you for any accident or injury connected with your business. It is one of the few types of insurance that is compulsory in the UK for anyone who pays a wage or instructs others in their work even though they are not employed by them. Crew Chiefs, Stage, Tour and Production Managers should make a special note of this, you will need Employers Liability Insurance if you give instructions or orders to crew even though they are not employed directly by you.
Although public liability insurance is not compulsory, we believe it is essential for a person or business that is involved with the public.
Any liability policy can cover you (in your professional capacity) if you are found liable to pay costs and/or damages in a court of law.
Public liability insurance should protect you if, in the course of your business or profession, you are liable for costs in the event of:
- Accidental injury to a member of the public
- Damage to someone else's property (third-party property)
- Always check that your insurance will cover you for what you need - don't assume - you may find you are not covered for damage to someone else's property (such as your clients equipment).
Having insurance will not protect you against criminal activities and breaching health and safety law is a criminal offence, but it will give you protection against civil claims should you fail in your duty of care. Don't be fooled into thinking insurance is a substitute to following health and safety regulations, that is most certainly not the case.
Specialist insurance packages for freelances and companies working in the live music and events industries are available from the following brokers:
Other Links
Inland Revenue manual on determing self-employment:
