Using contractors and subcontractors

Employment status - implications for tax and worker rights

Contractors have contracts for services with your business whereas permanent staff usually have contracts of employment.

Subcontractors undertake a contract from the contractor.

The employment status of those who work for you has implications for worker rights and tax. Look up employment status categories in our guide on employment status.

The employment status of contractors and subcontractors can be complicated. Although a worker may be described as a contractor or subcontractor, the law may in fact consider them to be an employee and they will have rights such as the right to claim unfair dismissal.

Read about employment status at the HM Revenue & Customs website.

Tax
If you use contractors/subcontractors you will not generally make tax and National Insurance (NI) deductions.

If you provide your services personally through your own limited company or partnership, IR35 rules could apply. You may then have to account for income tax and NI deductions as if you were an employee.

Learn about IR35 rules from the HM Revenue & Customs website.

Special rules apply to self-employed contractors/ subcontractors in the construction industry - see our guide on the Construction Industry Scheme: the basics.

Worker rights
Contractors, subcontractors and agency workers generally have many of the same rights as permanent staff, including:

• National Minimum Wage regulations - see our guide on understanding National Minimum Wage law.
• Working time regulations - see our guides on Sunday working and night working and hours, rest breaks and the working week.
• Paid leave - see our guide: know how much holiday to give your staff. For agency workers, depending on their contract, you or the agency may be liable to pay this.
• Non-discrimination - see our guide on how to prevent discrimination and value diversity.

Subjects covered in this guide

• Introduction
• Contractors and subcontractors - the difference
• Pros and cons of using a contractor or subcontractor to provide staff
• Employment status - implications for tax and worker rights
• Health and safety requirements for employing contractors
• Other legal points to consider when employing contractors
• Get the most from contractors and subcontractors
• Protect your business from rogue contractors
• Here's how the use of a short-term contractor added value to a project

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