Chapter 7 Employed or Self-Employed Flashcards
employed or self-employed
Introduction – a contract of service is where an employee works for an employer. A contract of services is where an individual is self-employed.
A worker’s employment status is not a matter of choice, it depends on the conditions of the engagement. The tax treatment is different for employees and self-employed individuals.
Determining status – there is no straight forward test, case law dictated that there must be four factors present for an individual to be an employee: mutuality of obligation, wage paid to the worker (not a third party), personal service and control.
When the factors are present, the courts adopt an economic reality test to determine if an individual is an employee. The following is other factors to be taken into account:
• Degree of integration into the organization – an employee will be integrated into the business of the employer
• Provision of own equipment – an employee is rarely responsible for providing their own equipment
• Basis of payment
• Financial risk – individuals who risk their own money for the job are likely to be self-employed. The risk of making a loss is a strong indicator of self-employment.
• Opportunity to profit – a person whose profit depends on the capacity to reduce overheads and organize the work effectively is likely to be self-employed
• Business organization
• The number and length of engagements – a worker who performs services for a number of different businesses is more likely to be self-employed
• Name of the contract and position of the parties
Mutuality of obligation – where an engager is under an obligation to provide work and the worker is under a similar obligation to accept the work and to perform the tasks, this suggests an individual is an employee. The existence of the obligation will usually be obvious from any service contract between the two parties.
Personal service – where a person does not have to personally perform the services, the arrangement is not employer and employee. An employee has no freedom to send a substitute in their place.
Control – the employee will exercise very little control over what they do on a day-to-day basis. The fact a worker may be told how to perform duties will usually be seen as a strong pointer to employment. Self-employed persons will have more control.
