Guide

Using contractors and subcontractors

Employment status - implications for tax and workplace rights

The employment status of those who do work for you has implications for tax and workplace rights:

  • an employee has a contract of service, eg a contract of employment, with you as an employer
  • a contractor has a contract for services with your business, while a subcontractor has a contract for services with your business if you are the main contractor

As such, neither contractors nor subcontractors will normally be considered as your employees. Instead they might be self-employed, an agency worker or employees of another business.

However, even though a worker may be described as a contractor or subcontractor, it is still possible that - under the law - they may actually be considered your employee.

If so, they would therefore have the full range of employment rights, eg the right to claim unfair dismissal and the right to maternity, paternity and adoption leave and pay.

If you are unsure, you must take steps to clarify their employment status.

You can also contact the Labour Relations Agency (LRA) for further advice on Tel 028 9032 1442 or the Equality Commission for Northern Ireland on Tel 028 9089 0888.

Tax

If you use contractors/subcontractors, you will not generally make tax and National Insurance (NI) deductions or employer NI contributions.

However, special rules apply if you are a contractor using subcontractors in the construction industry - see Construction Industry Scheme.