Hire or Sub-contract – know the difference and stay out of trouble

Freelance HR Adviser
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There comes a time for many small businesses when a decision has to be made about getting some extra help in.  How you go about doing this is a big decision.  At the very least it’s expensive so you want to get it right.

To start on the right foot you need to decide whether you should employ someone or sub-contract the work. A lot of small companies prefer to sub-contract to avoid having someone permanently employed with all the additional expense it involves.  It is also easier to let a sub-contractor go.  So this might be your preferred route and if your sub-contractor is set up as a limited company or invoices you through an umbrella company, then you shouldn’t have any problems. 

However if your sub-contractor is self-employed without limited company status you need to take care about what your arrangement will be. The HMRC have some very specific criteria around what self-employment is and isn’t and details can be found on their website.  One reason they are so interested is that if you employ someone you pay employers’ National Insurance contributions, which they won’t receive if you sub-contract.  Plus they know that the self-employed offset tax against expenses so they get less again.  In HMRC terms it looks like tax avoidance….

So what are the rules? In essence, if someone works regularly for you, starting and ending when you say, on your premises or using your tools, and they expect you to provide them with work and if you are the only person they work for, it is likely to be an employment relationship. It is what you do that counts not what you call the agreement even if you have signed a contract saying it is a sub-contracting arrangement.

It is not just the HMRC who might cause you problems.  The individual might also decide they should be an employee because they want paid holiday and employment rights, and you would have little defence if the matter went to tribunal.   

Another route, with few risks but more expense, is to take a temp through an agency.  It might help you decide if you really do need someone permanently or on an intermittent basis, which could help you decide whether to hire or sub-contract.


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