What is bogus self-employment and how does it affect me?
Self-employment should be empowering: you get to choose your own hours, be your own boss, and keep all of the profits from your work.
There are downsides, of course. You get no employee benefits like sick pay and holiday pay, you’re responsible for your own tax and National Insurance, and your income can often be unpredictable.
Then there’s bogus self-employment. This is where an employer tells you to register as self-employed when really you should be an employee. Here the employer controls all aspects of your employment without providing sick or holiday pay, avoids giving you any employment rights, and expects you to pay your own tax and National Insurance.
The employee suffers all the disadvantages of being self-employed without getting any of the benefits.
So, how do you know your self-employment status is correct?
You can use HMRC’s tool and answer a series of questions to check, but we’ve listed the main signs to look out for below.
Why does it matter?
Your employment status matters for three reasons:
- If you are self-employed you pay your own tax and National Insurance. If you don’t, you may find you cannot get the full State Pension when you retire, or end up with a large fine for failing to report your income to HMRC. You also pay a different class of National Insurance when self-employed, so you might struggle to claim certain benefits if you leave work.
- You don’t get holiday or sick pay if you’re self-employed. This means if you get sick and have to take time off work, you might be left without any income, depending on your circumstances. You’ll only get ESA if you made the correct National Insurance contributions, and you’ll only get Universal Credit if your savings are below £16,000.
- You have fewer rights when self-employed. Your employer can dismiss you without notice and without following the same procedures as they would if you were an employee. You won’t get any redundancy pay when they do, regardless of how long you’ve worked. Perhaps most importantly, you aren’t entitled to the National Minimum Wage.
So how do you know the difference between genuine and bogus self-employment? Here are the main questions to ask.
Who decides when and where you work?
If you get a rota or your employer decides what hours you will work each week, you’re more likely to be an employee. You’re probably a casual worker if you get offered shifts at set times and have the right to accept them or not.
If you can decide for yourself when to work, you’re more likely to be self-employed. You’re also probably self-employed if you can choose to do the work at a location to suit you, rather than having to do the work from a specific location chosen by the employer.
Who provides your equipment and materials?
Do you buy your own tools? Supply your own materials? If so, you’re more likely to be self-employed. On the other hand, if your employer pays for these things you are more likely to be an employee.
If you could use your employer’s tools and equipment but choose to provide your own out of personal preference, this still points more towards employee status — for example, where a barber brings their own scissors even though the employer provides them as well.
How do you introduce yourself to customers?
Do you tell customers you work for your employer, or do you introduce yourself as working for your own company? The answer to this is likely to be an accurate description of your employment status.
Can you send someone else to do the work?
If you can send someone else to do the work instead of you, you are probably self-employed. However, don’t confuse this with a situation where a different employee, chosen by the employer, is called up to cover your shift. In this case, you would still be classed as an employee. A good rule of thumb here is whether you would have to pay the replacement yourself — if so, you’re likely self-employed.
Are you paid an hourly rate for a fixed number of hours per week? Do you do any additional work for the employer — for example, if it’s quiet does your employer ask you to do their admin? Do you have managerial responsibilities? All of these things suggest an employment relationship rather than self-employment.
Remember, each of these signs point one way or the other, but they don’t give a definite answer by themselves. If you’re unsure and need more support, please call our advisers. Our number is at the bottom of this page.
My employer says I’m self-employed but I don’t think I should be — what should I do?
This will depend on your circumstances and the outcome you want. You can challenge your employer but, bear in mind, you may want to continue working for them and damaging the relationship might not be for the best in the long-run.
You could contact our HMRC team. We can advise on employment issues and help you decide what options and actions are best for you.
Call 01282 616 750 or email firstname.lastname@example.org.
Visit www.burnleypendleca.org.uk for other ways to contact us.
Disclaimer: This information was correct at the time of publishing on 30 November 2021 and is provided as a guide only. It is not a recommendation to take a specific action and we suggest you speak to an adviser if you have any doubt about how the law applies to you.