Employment status of contractors and subcontractors: Tax and workplace rights
Why determining the employment status of contractors and subcontractors matters.
The employment status of those who do work for you has implications for tax and workplace rights:
- an employee has a contract of service, eg, a contract of employment, with you as an employer
- a contractor has a contract for services with your business, while a subcontractor has a contract for services with your business if you are the main contractor
As such, neither contractors nor subcontractors will normally be considered as your employees. Instead, they might be self-employed, agency workers, or employees of another business.
Establishing employment status for contractors and subcontractors
However, even though a worker may be described as a contractor or subcontractor, it is still possible that, under the law, they may actually be considered your employee.
If so, they would therefore have the full range of employment rights, eg, the right to claim unfair dismissal and the right to maternity, paternity, and adoption leave and pay.
If you are unsure, you must take steps to clarify their employment status.
You can also contact the Labour Relations Agency (LRA) for further advice on Tel 03300 555 300 or the Equality Commission for Northern Ireland on Tel 028 90 500 600.
Tax for contractors and subcontractors
If you use contractors and/or subcontractors, you will not generally make tax and National Insurance (NI) deductions or employer NI contributions. However, some exceptions may apply. See off-payroll working (IR35).
Special rules apply if you are a contractor using subcontractors in the construction industry - see Construction Industry Scheme.