What is a Contractor? How is it Different to Being an Employee?

28.03.22

Businesses often use contractors to do work that’s outside of their core business or to complete limited-time projects. For example, a business may decide to renovate its offices, and in this case, it’s likely to use contractors for the task. Or, a business may find that it has landed a big project and needs to increase its capacity for a limited period in order to get the project completed. Using our example, the company or individual contractor who has been engaged to upgrade the client’s office space may decide he needs extra help or expertise to complete the task.

Employment law can be very confusing, but since all work is governed by employment law, it’s very important to know where you stand as a contractor. In this article, we’ll discuss the criteria that determine who is an employee and who is an independent contractor. What is a contractor? What makes you an employee and what is an independent contractor? What are the practical implications you need to know? Knowing your employment status helps you to know your rights as well as your obligations. Let’s explore this topic with special reference to the question “What is a contractor in the UK?”

What is a Contractor?

The term “contractor” doesn’t necessarily indicate your legal status at work. A contractor is a person who works under a fixed-term contract. However, this person could be self-employed, an employee, or have the legal status of “worker.” Confused? Let’s take a closer look at the criteria that determine your legal employment status.

You’re self-employed if you have no employment rights and are not taxed on a PAYE basis. Why no employment rights? Well, you’re your own boss and it’s all up to you! You are, in essence, an independent contractor. How work is done is entirely your business as long as you fulfil the terms of the contract! A general contractor differs slightly from the norm in that he or she oversees an entire project and may subcontract at will to ensure its completion. 

You’re an employee if you work for a business that levies PAYE on your behalf. You have full employment rights and obligations, even though your contract has a limited time-frame and your work is conducted according to your employer’s methodology.

You’re a worker if PAYE is levied. However, you are entitled to some, but not all, the rights of an employee. Once again, your contract has a limited time-frame and should clarify your status. If you are operating through an agency, chances are, you’re a worker.

Under What Circumstances are You an Employee?

If you’re an employee, your contract should stipulate this in so many words. However, it’s possible to be an employee even though there is no written contract. If you don’t have one, and are unsure of your status, you should consult with your employer or an employment law expert. 

Consider these points if you are trying to determine whether you are an employee. If you’re an employee, your work is regular and you’re required to work a certain number of hours. You’re also under the direct supervision of a manager or supervisor and can’t get anyone else to do work on your behalf. 

Can a Contractor Get the Benefits of an Employee While Still Maintaining Independence?

As we’ve seen, it’s important to know what your employment status is. It determines your rights as well as your obligations to your employer. It also determines how you are taxed. If you don’t know who is responsible for what, you’re likely to find yourself in hot water sooner or later.

When you’re an expert in your field, you might prefer to maintain your independence, but at the same time, it can be extremely difficult keeping up with legislative requirements, getting the necessary admin done, and you have no real rights other than the right to be paid for your work. 

Umbrella companies allow you the opportunity of being an employee together with all the attendant rights of an employee, but you still have the freedom to work as though you were a contractor. In essence, you’re responsible for keeping yourself busy, and you can choose your clients, either through an agency, or by contracting directly to the end-user. 

How you work is up to you, and depends primarily on the requirements of your client. Instead of having to invoice and chase up your clients for payments and then having to determine what your taxation on that is likely to be, you simply submit a timesheet. The umbrella company does the rest, including ensuring that your mandatory insurances are up to date and your PAYE is deducted. Like other employees, you’re entitled to basic rights and benefits, but your contracting is still your business. 

It’s a best of both worlds situation, but before you consider joining an umbrella company, you need to ensure that they are professionals who will, themselves, be legally compliant and treat you fairly. Evolve CS is proud of its track record as a trusted umbrella company in the UK. We take care of our contractors, and we work in accordance with the letter of the law. Although in legal terms, you are an employee, we see you as a client, and taking care of you is what we do. Contact us today to find out more about our umbrella services.

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