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When is your self-employed consultant actually an employee?


The nature of work is changing. Gone are the days when having a job necessarily meant working for a company on a long-term basis, on a fixed schedule and under a contract of employment. In today’s market, it is quite the opposite. Over the past decade, there has been a considerable rise in the number of self-employed workers. Traditionally in the arts sector there has always been a pool of highly skilled individuals who work for themselves (providing technical, design, production skills etc) but who do not employ others. This was often necessary to fill gaps of over-demand or to carry out specific projects. This has now expanded to include what has been called the ‘gig economy’ whereby core services are delivered by self-employed contractors engaged on a short term basis or “gig”, often for a particular task only.

As the self-employed and flexible / “gig” economy grows, so does the traditional divide between self-employed / employed blur.

Depending on the factors set out below, it could be that an organisation considers that they have taken on a self-employed consultant when in fact what they have done is hire an employee with all the obligations and costs that arise from that. This is not an insubstantial issue. For example, a report produced by the Citizen’s Advice Bureau in 2015 estimated that 460,000 self-employed consultants were wrongly classified and were collectively owed £6 million in holiday pay.

Furthermore, the complex task of correctly classifying workers and interpreting traditional employment laws to fit pioneering working arrangements has been highlighted though the high profile Employment Tribunal case brought against the taxi app service Uber, by drivers who contest that they are not self-employed contractors but rather “workers” and therefore entitled to holiday pay and the national minimum wage.


A worker can fall within one of three categories:

  • employed (with all full employment rights including holidays, pension, sick pay, national minimum wage right not to be unfairly dismissed after a qualifying period etc.),
  • self-employed (in which there are very few employment protections) or;
  • an intermediate class of “worker” (who are entitled to some elements of the employment protection e.g. paid holidays and the national minimum wage).

There are a range of factors that are taken into account by the Employment Tribunals and HMRC when determining which category a worker falls within. It is not always a straightforward question and there can be many grey areas. For example, in one well known case, the Supreme Court and HMRC, applying the same test, came to different conclusions as to the employment status of workers (Autoclenz Ltd v Belcher and others [2011] IRLR 820 (SC)).

The main factors that are taken into account when deciding the issue are:

  1. Personal Service
  2. Control


In its most simple terms, an employee or worker personally serves their employer. The employer has an obligation to provide work to the employee and the employee is obliged to personally carry out that work out. In effect, it is a master and servant relationship.In contrast, someone who is self-employed and running their own business provides services to a client or customer and that self-employed consultant is free to send a substitute to carry out those services.


This included the power of deciding the task to be completed, the way in which it shall be done and the time it will take, the means to be employed in doing it, andthe place where it shall be undertaken. These factors are considered n together to determine whether one party has control to a sufficient degree for them to be the “master” and the other “servant”. As most highly skilled employees will have considerable autonomy over how and when they carry out their duties, the cases have tended to focus on the extent to which the individual is controlled during their engagement. For example, the extent to which the “master” can submit the “servant” to company processes such as appraisals and disciplinary processes will be important.


In a self-employed / freelance situation, there must be no obligation on the freelance to undertake the work and, for the company, no obligation to provide any work. The less interdependent, the less likely it is that a tribunal will find it to be an employer-employee relationship. Companies should also keep in mind other considerations such as length of contract and benefits offered. The longer (and more exclusive) the contract and the more integrated into the company the individual is, the greater the likelihood of a tribunal finding them to be an employee. In any event, it will also be easier for a freelancer to argue that there was a mutuality of obligation when a contract (particularly an exclusive one) spans several years.

The consequences of getting this wrong can be substantial. An organisation can face claims from self-employed consultants contending that they are due holiday pay, national minimum wage or if engagement has lasted more than two years, claims for unfair dismissal or redundancy. The distinction is also important from a tax perspective as an organisation is required to pay PAYE income tax and national insurance in respect to all employment income. If a self-employed consultant is in fact an employee, HMRC will look to the hiring organisation rather than the self-employed consultant for back tax and the payment of penalties.


When taking on a self-employed consultant it is important to weigh up these factors so that you can be satisfied that the engagement is genuinely one of a self-employed nature and therefore minimise the risk of that arrangement later being classified as one of employment. It is important to document the arrangement in a properly drafted Consultancy agreement. Nonetheless, bear in mind that the contract by itself will not determine the status and if a dispute arises, a tribunal will look at the actual circumstances of the relationship to determine the individual’s employment status.

Should you have any questions or queries in relation to this article please do not hesitate to contact Barry Nichol, Partner Employment and Pensions Unit (barry.nichol@andersonstrathern.co.uk) or Martin Campbell Director of Tax Services (martin.campbell@andersonstrathern.co.uk).

Barry Nichol


For and on behalf of Anderson Strathern

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