Finance Division, Payroll Section
Employment Status: Financial Procedures
Employment Status
Financial Procedures
Procedures for dealing with self-employed
individuals working for the
University of Salford
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Finance Division, Payroll Section
Employment Status: Financial Procedures
Contents
1. Employment Status
3
1.1
Purpose of this guidance
3
1.2
Who should read this guidance?
3
1.3
Employed or self-employed?
4
1.3.1
Employment
4
1.3.2
Self-employment
5
1.3.3
Lecturers/Teachers/Instructors/Demonstrators
5
1.3.4
External Examiners
5
1.3.5
Consultants
6
1.3.6
Casual/temporary cover
6
1.4
Risks
6
1.5
Importance of compliance
6
1.6
Factors in determining status
7
1.6.1
Company or individual?
8
1.6.2
The right to substitution
8
1.6.3
Right of control over the worker
8
1.6.4
Financial risk to the worker
9
1.6.5
Business structure of the worker
9
1.6.6
Length of engagement
10
2. University Procedures
11
2.1
Status Assessment
11
2.2
Assessment Results
11
2.3
Referring difficult cases
11
3. Useful Contacts
12
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Finance Division, Payroll Section
Employment Status: Financial Procedures
1. Employment Status
1.1
Purpose of this guidance
Employment status is an extremely complex legal issue, which, if not properly
addressed, could result in serious implications for the University as an employer.
This guidance is provided to help staff to understand whether a person is
employed or self-employed, to ensure the correct legal requirements are met and
to explain why this is important.
Please do not agree any contractual arrangements with individuals until you fully
understand this guidance.
Generally, there will be either a contract of employment for staff who are
employed, or a contract for services for workers who are self-employed. This
document should be used as a guide to the procedures to be followed if you are
considering engaging someone on a self-employed basis, i.e. the worker requests
to be paid by invoice.
The purpose of this guide is to set out:
 why it is important to correctly determine whether individuals engaged by the
University can be paid upon submission of invoice (self-employment) or paid
through payroll (employment), and
 the University’s procedures for establishing the employment status of
individuals, and
 the factors which influence the decision on employment status.
1.2
Who should read this guidance?
This guidance is aimed at all Academic/Professional Services administrators,
Finance and HR Staff, and any representative of the University involved in the
stages of hiring a worker for any kind of service (outside of the normal recruitment
procedures). This includes involvement in identifying the need to hire someone,
interviewing applicants, dealing with tenders for services and making payment.
All relevant University representatives should fully understand and follow this
guidance implicitly.
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Employment Status: Financial Procedures
1.3
Employed or self-employed?
Whether an individual is employed or self-employed will depend upon the nature
of the relationship with the person for whom the services are provided. Where two
individuals are engaged to carry out similar work, it is possible for one to be selfemployed and the other to be an employee because they have been taken on
under contracts with different terms and conditions. The aim of determining the
correct employment status is to ensure that payments to individuals are charged
correctly for tax and that the correct class of National Insurance Contributions are
paid.
Payments made to self-employed individuals via invoice under a contract for
services are not subject to HM Revenue & Customs (HMRC) Pay As You Earn (PAYE)
deductions, i.e. Income Tax and National Insurance Contributions (NICs), unlike
payments made to employees via payroll engaged under a contract of
employment. It is important to understand the distinction between a contract for
services and a contract of employment.
Employment status is not a matter of choice. The worker/University cannot label
the contract self-employment just because the worker or the University wishes to
make payment this way, or because the worker is treated as self-employed at
other organisations/institutions for similar work.
There is no statutory definition of ‘employment’ or ‘self-employment’; each case
must be assessed on its own merits, taking into account all factors of the contract.
Relevant factors include:
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whether there is an ultimate right of control on the part of the University over
what tasks have to be done, where the services have to be performed, when
they have to be performed and how they have to be performed
whether personal service is required, i.e. whether the worker has the right to
provide a substitute or engage helpers
who has to provide the equipment/materials
whether the worker has a real risk of financial loss
the basis of payment
whether there are ‘employee type’ benefits such as sick pay, pension
membership, holiday pay, etc.
whether the worker works exclusively for the University
whether the worker holds an office at the University
whether there is a right of dismissal by giving notice of a specific length
factors personal to the worker; number of similar engagements and business
structure.
1.3.1 Employment
If a worker is taken on either part time or full time and the work is similar
to any other employee of the University, a contract of employment must be
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Employment Status: Financial Procedures
issued and payments must be processed via the University’s HR/Payroll
system.
1.3.2 Self-employment
If a worker is taken on to complete a one-off task of limited duration for a
set fee, and is left to complete the task in their own time and at their own
expense, whilst using their own premises, materials and equipment,
generally they can be treated as a self-employed worker, however all
relevant factors of the contract must be investigated.
The worker may not comply with self-employment regulations if there is
any indication of an employee/employer relationship, such as:
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the work is controlled/supervised, or
payments are made as an hourly rate, or
the work carried out is similar to the work carried out by other
employees of the University, or
the worker uses University equipment, premises and materials, or
the worker holds an office at the University.
1.3.3 Lecturers/Teachers/Instructors/Demonstrators
All payments relating to lecturing/teaching must be paid via payroll and, in
general, are subject to PAYE income tax and NICs, as per HMRC legislation,
unless payment is being made to a Limited Company (see 1.6.1)
Full time, part time and hourly paid lecturers/teachers must always be
issued with a contract of employment. Visiting/occasional lecturers/
teachers can be paid via the Fees and Expenses claim form (for one-off/ad
hoc work). All payments are subject to PAYE deductions.
1.3.4 External Examiners
HMRC legislation is very specific for External Examiner payments:
Undergraduate External Examiners
 Fees are subject to PAYE income tax only at Basic Rate
 Expenses are not subject to PAYE deductions.
Postgraduate External Examiners
 Both Fees and Expenses are not subject to PAYE deductions.
NB These payments are made through Payroll, via submission of the
relevant External Examiners Fees and Expenses claim form. Please contact:
SA-LogisticsTeam@salford.ac.uk (Postgraduate and Undergraduate Taught
Programmes) or SA-PGR@salford.ac.uk
(Postgraduate Research
Programmes) for advice on paying External Examiner fees and expenses.
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1.3.5 Consultants
This term is used widely across the higher education sector; however, not
all consultancy work can be treated as self-employment. All factors of the
engagement must be considered to ascertain the correct status.
1.3.6 Casual/temporary cover
If a worker is appointed to cover a University employee who is absent, or to
cover a vacant post, a contract of employment must always be issued and
all payments are subject to PAYE deductions.
Contact your HR Advisor to arrange the appropriate contract of
employment.
1.4
Risks
The difficulty for employers in making the distinction between employment and
self-employment is that, even when both parties explicitly agree that the
contractual relationship is to have the status of a contract for services, rather than
be governed by a contract of employment, this agreement can be the subject of
legal challenge. In some purported self-employment cases, HMRC has claimed
arrears of PAYE from the employer on the grounds that the reality of the
relationship was that of employer and employee under a contract of employment.
The University wishes to minimise the risk of this situation arising and, accordingly,
wishes to ensure that contractual arrangements entered into correctly reflect the
status of that relationship as either one of employment or self-employment.
HMRC has recently increased its attention to payments made to self-employed
workers and the cost to the University in making an incorrect employment decision
can be result in a hefty fine, plus interest and penalties. These penalties may arise
after an original budget has been spent, or a research grant closed, and may cover
a period of several years. It is therefore critically important to establish the correct
status of a worker’s engagement prior to any work being carried out.
1.5
Importance of Compliance
It is the University’s responsibility (not the worker’s) to determine the correct
employment status. If the wrong status is applied, the University may be liable for
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Employment Status: Financial Procedures
unpaid income tax and NICs (both employee and employer contributions), which
could result in a liability for fines, penalties and interest.
If there are any doubts about the contractual arrangement of a worker, you should
always agree a contract of employment and arrange for payment via payroll. If the
worker is genuinely self-employed, he/she should be able to claim any overpaid tax
back at the end of the tax year from HMRC via a self-assessment return.
1.6
Factors in determining status
The responsibility for identifying and establishing the status of an individual rests
with the employing Academic/Professional Services area. If an individual is taken
on to carry out the normal day-to-day work of the University, or to temporarily
cover a vacant position, they must be paid as an employee through Payroll, i.e.
subject to PAYE deductions, irrespective of whether they are registered as a selfemployed worker or not. This is because the work would ordinarily be carried out
by an employee so the relationship is a contract of employment.
However, if an individual is taken on to complete a 'one off’ project or consultancy
task, they may be treated as self-employed if they comply with HMRC legislation.
The employment status of an individual should always be resolved prior to any
work commencing to ensure that no disputes arise over the method of payment to
be used.
If a worker is registered as self-employed in one capacity, this doesn't necessarily
mean they will be self-employed in any other job taken on; a worker can be
employed in one capacity and self-employed in another. It is the reality of the
relationship between the University and the individual that must be assessed.
It is also possible that an individual who is properly considered to be self-employed
when they begin providing services to the University may, over time, become
increasingly integrated into the University to the extent that their status may
change to that of an employee. It is therefore important to ensure:
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that self-employed contractors are not treated as members of staff (e.g.
not issued with a University ID Card, not given the title of a University
office, not managed through normal disciplinary or grievance procedures),
and
if their work with the University lasts for a prolonged period, their case is
reassessed on a regular basis.
Where there is a relationship between a worker and the University for providing
services, there should always be a valid written contract in place. This could be a
contract of employment (employee) or a contract for services (non-employee).
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Employment Status: Financial Procedures
If a contract of employment has been issued by the University’s HR Division, or by
the employing Academic/Professional Services Area, the worker cannot be treated
as self-employed, even when registered as a self-employed worker.
The following factors must be considered when determining the correct
employment status. Please note that each factor in isolation is not an indication of
employment or self-employment; all factors must be taken into account to
ascertain the correct status.
1.6.1 Company or individual?
Limited Company
If the worker is registered with Companies House as a Limited Company, or
invoices on behalf of a registered Limited Company, this immediately
satisfies HMRC regulations and no further checks are required.
This is because it is not possible to have an employment relationship with a
corporate body. However, payments must ALWAYS be made direct to the
company and if the worker requests payment in their own name, or raises
an invoice in their own name, HMRC will conclude that the relationship is
with the worker and not the company. In these cases, complete the
Employment Status Questionnaire to determine the true employment
status.
Small business
If the business is not a Limited Company, the University is, in effect, dealing
with the individual. In these cases, the Employment Status Questionnaire
must be completed to determine the true employment status.
1.6.2 The right to substitution
Ordinarily, a worker is an employee if they are obliged to provide their own
work and skills. If the worker has the right to hire someone else entirely of
their own choosing, and then pay that person from their own pocket, this
may indicate a status of self-employment.
However, if the right to provide a substitute is not allowed/feasible, this
does not necessarily mean that the worker is an employee.
1.6.3 Right of control over the worker
This is not necessarily the same as supervision. The University may have the
right to exert control over a worker but in reality little actual supervision
may take place.
Does the right to control the worker exist in any of the four following
areas?
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Employment Status: Financial Procedures

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control over what work is done
control over where the work is done
control over when the work is done
control over how the work is done.
The more control that exists, the more likely it is that the worker is an
employee.
1.6.4 Financial risk to the worker
If a worker has to incur necessary significant financial risk in order to
perform their duties, this may indicate self-employment.
E.g. a worker undertakes a task for a fixed price of £2,000 (rather than a
price for the amount of time spent) and it is not absolutely certain how long
the work will take, however it is expected to be around two weeks. The
task actually takes three weeks, costing the worker £3,000, but the
University only pays £2,000.
Another measure of financial risk stems from the provision of major
equipment/supplies by the worker. If a worker is required to provide major
pieces of equipment, which are fundamental requirements of their duties,
then financial risk arises from acquisition, maintenance and replacement of
the equipment. This does not include any small tools that a worker may
normally provide for themselves e.g. tradesmen who often provide their
own hand tools (usually through preference).
Again, each case should be viewed on its own merits to form part of the
overall decision.
1.6.5 Business structure of the worker
If a worker has evidence of some kind of business structure, this can be a
useful factor in deciding the employment status. The relevant questions to
ask are:
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is the worker registered for VAT?
does the worker operate a business bank account?
does the worker have the expense of running an office?
does the worker advertise for work?
Whilst a ‘yes’ to any of the above questions alone would not determine the
status, the answers will help to form an overall picture.
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Employment Status: Financial Procedures
1.6.6 Length of engagement
If a worker performs duties on a strictly one-off basis, and the relationship
between the worker and the University is very short, this may be an
indicator of self-employment.
However, this alone is not enough to determine the status.
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Employment Status: Financial Procedures
2. University Procedures
2.1
Status Assessment
To assess the status of the worker, an ‘Employment Status Questionnaire’ must be
completed and signed by both the worker and the 'engager' (the University
employee responsible for the worker’s terms and conditions) prior to any work
being carried out. This questionnaire only takes a few minutes to complete, and
can be found at:
http://intranet.salford.ac.uk/finance/cms/pages/category?id=20
Once this has been completed, it should be signed by both parties and submitted
to the Payroll Section at payroll@salford.ac.uk. The status of the worker will then
be assessed using HM Revenue & Customs’ (HMRC) online Employment Status
Indicator Tool.
2.2
Assessment Results
The results of the assessment of the Employment Status Questionnaire will be
emailed to the engager. If the status cannot be determined from the responses in
the questionnaire, further information may be requested and, in some cases, may
have to be referred to HMRC for a decision.
2.3

If the result indicates ‘employment’, either:
 a contract of employment should be arranged with HR Division, or
 a Fees and Expenses claim form should be completed (for one-off/ad-hoc
work).
Pay As You Earn (PAYE) Income Tax and National Insurance Contributions
will be deducted from the payment.

If the result indicates ‘self-employment’:
 the worker can be set up as a New Supplier with Purchasing/Accounts
Payable, or
 if the worker is already set up as a supplier, an invoice can be submitted to
Accounts Payable.
Referring difficult cases
If the employment status cannot be determined by the Payroll Section, or a worker
disputes the determined status, cases will be referred to HM Revenue & Customs
by the Payroll Section.
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Finance Division, Payroll Section
Employment Status: Financial Procedures
3. Useful Contacts
Payroll Section
payroll@salford.ac.uk
0161 295 4193
Accounts Payable
creditors-finance@salford.ac.uk
0161 295 5042
Purchasing
g.v.jones@salford.ac.uk
0161 295 2504
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