As a self-employed trades contractor in the UK, it’s important to know what your employment rights are. Most tradespeople, when they’re first starting, will work for someone else. They sign an employment contract that says they’ll get paid a certain amount of money for a certain amount of work. This means their income and hours of work are relatively standard.
But for some tradespeople, the next logical step is to start their own trades business. When you work for yourself managing all your own clients, you are no longer considered an employee. You are now a self-employed (or independent) contractor.
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There’s a lot to think about when starting a business. It’s not a hard task changing your employment status – this generally happens automatically when you register as a sole trader or limited company. But it’s the niggly details that can cause problems if you don’t understand what your rights are as a contractor.
Short on time? Skip ahead!
- 1. What's the difference: employee vs contractor?
- 2. What employment rights do independent contractors have?
- 3. Don't worry, it's not all bad news
- 4. Construction Industry Scheme (CIS)
- 5. Know your rights, stay informed, be prepared
1. What’s the difference: employee vs contractor?
In UK law, three key factors separate employees and contractors:
Mutuality of obligation: an employer’s obligation to give work and an employee’s obligation to complete it. Contractors are not required to accept or be offered work.
Control: how much control a person has over the hours worked per week. Contractors have a lot more freedom over their hours and tend to set their own work schedules.
Substitution: who actually does the work. A contractor can use employees to do the work, where an employee is hired to do the work.
Contractors – what you need to know
A self-employed tradesperson is the exact definition of a contractor. You’re hired for your specialised skills, to work on a specific project over a set period.
You’re paid per job, rather than an annual salary. You invoice for the work you do, are responsible for your own tax and insurance, work with multiple clients, make your own job schedule and use your own equipment. If you make a mistake, you fix it – and the cost comes out of your pocket.
It’s because of this freedom and independence, that many tradesmen in the UK start contracting in the first place.
On the fence: the worker
This is where the water gets a little murky. You can be an employee and a self-employed contractor at the same time, and this is called the ‘worker’ employment status.
Particularly when first stepping into self-employment, you might work part-time for another contractor while building up your roster of clients. Another example is when you’re contracted by a government agency to do certain work during busy periods of the year. They’re not obligated to give you work, but when you are on the job you have no control over when and where you work.
While this work status is becoming increasingly common in the UK (and around the world), it does create a few grey areas.
When does a contractor become an employee?
Regardless of what is written on paper, it’s your working arrangement with a client that determines your employment status.
Remember those three key factors we mentioned previously – mutuality of obligation, control and substitution? If there is a shift in one of those three areas, your relationship with that client may have evolved into an employee one.
If this happens, you may technically be entitled to the same rights as an employee.
2. What employment rights do independent contractors have?
What are your employment rights as a contractor? The short answer is, you don’t need them. More importantly, trying to get employment rights as a contractor is a bit of a legal hornet’s nest.
Advantages for contractors
Demand for contractors is high in the UK, which means most new contractors can build a steady stream of income relatively quickly. Because you can pick and choose your hours and how much you charge per job, you’ll tend to earn more than employee equivalents. Some would argue that good contractors may even enjoy greater job security compared to full-time employees.
It’s for these reasons (and others, like claiming expenses) that contractors don’t get the same employment rights as employees.
Disadvantages for contractors
Under specific circumstances, contractors may be able to claim employment rights – but it’s a notoriously messy path to take. It’s not uncommon for a tradesperson to pick up recurring work with a client – like ongoing maintenance, for example. But there are some projects where the work becomes so time-intensive that you’re unable to take on any other jobs.
Under circumstances like this, contractors have been known to claim employee rights under the Employment Rights Act 1996 to resolve any issues. But, fair warning, you’ll have to work hard to prove your position. Even then, there is no guarantee that you’ll be afforded the same privileges and protections as an employee.
3. Don’t worry, it’s not all bad news
Why it’s important to get your employment status right
Knowing what your employment status is will determine which employment rights apply – for example, redundancy, maternity leave, or sick pay.
While you’re working as a self-employed contractor, it’s good to know what these rights are – in case you find yourself in a sticky situation.
Taking on employees or contractors
You also need to know what your obligations are if you make the shift to employer. Wrongfully classing an employee or contractor can lead to lawyers, paperwork and forking out thousands of dollars in backdated pay.
Regularly review your contracts
The best thing you can do as a self-employed contractor is to keep your work contracts and employment agreements under review. Make sure your rights and responsibilities are set out clearly in your terms of business. Keep an eye on working relationships to ensure they’ve not changed over time.
4. Construction Industry Scheme (CIS)
The Construction Industry Scheme was put in place to stop subcontractors from avoiding tax payments. Contractors are now obligated to deduct money from subcontractors' pay before they get it, handing it straight to HM Revenue and Customs (HMRC). These deductions go towards subcontractors' tax and National Insurance.
Contractors must be registered as part of the scheme. Subcontractors aren't forced to register, but the deductions will be at a lower rate if they do.
If you're a contractor and haven't yet registered for CIS, visit the online portal to get started.Tip: Have the following information ready before you start:
- Email address
- Employer Reference Number (ERN)
- 13-digit Accounts Office reference number
5. Know your rights, stay informed, be prepared.
Over time, your trades business will grow and change. When you first start, you might work part-time while contracting or move straight into business with a full client list. You might choose to take on a couple of subcontractors during busy times of the year or even sign a full-time employee.
Whatever your mix of workforce, you need to know what your rights are as a contractor, and the obligations you’re expected to meet as an employer. That way, if you ever find yourself in a sticky situation you’ll know what to do to get yourself unstuck.
For more information, please visit the UK Government website. If you are a contractor working in the construction industry, take a look at the Government Construction Industry Scheme (CIS).