Are Sub-Contractors Employees?

The majority of sub-contractors will be self-employed, however, if a sub-contractor works only for a particular client, or they are employed by an agency, then they may be classed as a worker or an employee.

As an employer, you should be wary that the HMRC may still class sub-contractors as employees, meaning that you will be liable to pay income tax and National Insurance due on any sub-contractor fees.

Distinguishing between an employee and a subcontractor

To determine whether or not a subcontractor could potentially be an employee, you have to look at the bigger picture.

In a relationship between an employer and employee, it will be a “master-servant” relationship rather than a relationship of equal standing.

Some key differences between a subcontractor and an employee are:

• Employees must carry out the work themselves, whereas sub-contractors can hire someone else to do the work for them;
• Sub-contractors only carry out work when they are needed to; employees have a set amount of hours they may work;
• Employers are not obliged to provide sub-contractors with work;
• Sub-contractors will not be entitled to bonuses, holiday or sick pay, whereas employees will be;
• Employers will normally provide employees with the tools and materials needed to carry out the work, whereas sub-contractors will bring their own.

This list, however, is not exhaustive, and there may be other circumstances that will need to be considered to properly determine an individual’s employment status.

Drafting A Sub-Contractor Agreement

To make sure that you comply with your legal obligations, at the start of any employment relationship, you should provide an individual with the requisite written agreement that will govern the terms and conditions of that relationship.

If they are an employee, it will be a contract of employment, whereas, for a subcontractor, it will be a contract for services.

When drafting an agreement with a subcontractor, employers should be careful to avoid terms commonly associated with employees, such as ‘holiday’ ‘salary’ or ‘misconduct’.

The agreement should clarify the point that a sub-contractor can send someone else in their place to complete the work if needed.

It should also clearly state that the sub-contractor is free to work for other clients, provided that there is no conflict of interest.

Due to the changing nature of the economy, using subcontractors rather than hiring employees, allows companies a greater degree of flexibility, allowing them to hire more or fewer subcontractors depending on business needs.

Subcontractors may also have a unique skillset, due to the experience they have had working in companies.

More Questions About Sub-Contractors

• How To Manage Sub-Contractors
• Do Sub-Contractors Have Employment Rights?
• Are Sub-Contractors Entitled To Holiday Pay?
• Does TUPE Apply To Sub-Contractors?