Subcontractor or Employee? Employment Status and False Self-Employment for UK Trades (2026)

Why Employment Status Matters

Employment status is the single thing that decides how someone is taxed and what they're entitled to. It isn't a label you get to choose — it's determined by the reality of the working relationship, and both HMRC and the employment tribunals will look straight through a convenient title to what's actually happening on site.

The consequences split roughly three ways:

• Employee: you operate PAYE, deduct their income tax and National Insurance, pay employer's NIC on top, auto-enrol them into a pension, and give them holiday pay, statutory sick pay and the full set of employment rights (including, after qualifying service, protection from unfair dismissal).
• Self-employed subcontractor: they handle their own tax through Self Assessment. In construction you may have to verify them and deduct CIS from the labour element of their pay, but you don't run PAYE, pay employer's NIC or owe them holiday or sick pay.
• Worker: a middle category that trades often forget exists. A worker isn't a full employee but still gets some key rights — paid holiday, the National Minimum Wage and rest breaks.

The big mistake is assuming you can simply call someone "self-employed", pay them gross or through CIS, and walk away from the rest. You can't. If the day-to-day reality looks like employment, HMRC and a tribunal will treat it as employment regardless of what you both agreed.

The Three Categories Explained

UK law recognises three broad statuses, and a trade business will run into all three at some point.

Employee

Someone who works under a contract of employment. They work the hours you set, do what you tell them, generally use your tools and materials, and are integrated into your business. They get the full package of employment rights and you operate PAYE for them.

Worker

This is the one trades most often miss. A worker performs services personally but with more flexibility than an employee. Even if you don't consider someone a "proper" employee, if they turn up and do the work themselves on a regular basis, they may be a worker — and workers are entitled to paid holiday, the National Minimum Wage and rest breaks. A casual labourer who works for you most weeks, uses your kit and can't send a replacement could easily fall into this bracket.

Self-employed / contractor

A genuine subcontractor is in business on their own account. They take their own jobs, quote their own prices, carry their own insurance, supply their own tools, can profit or lose on a job and can usually send someone else to do the work. They're responsible for their own tax.

One thing that surprises people: status for tax and status for employment rights are decided separately and can differ. Someone can be self-employed for tax purposes but still count as a "worker" with holiday rights, because the two regimes use slightly different tests. This is general information — if it's unclear which bracket someone falls into, get advice.

The Tests HMRC and Tribunals Use

There is no single deciding factor. Both HMRC and the tribunals weigh up the whole picture of the relationship. The same handful of factors come up again and again, and it's worth understanding each one.

Personal service and substitution

Must the person do the work personally, or can they send a genuine substitute in their place? A real, unfettered right to send a suitably qualified replacement (and pay them) points strongly towards self-employment. If you'd never accept anyone but that specific person turning up, that points towards employment.

Control

Do you control what, how, when and where the work is done? An employer telling someone exactly how to do the job, setting their hours and supervising them looks like employment. A genuine subbie typically decides their own methods and hours and just delivers the agreed result.

Mutuality of obligation

Are you obliged to offer work and is the person obliged to accept it? An ongoing obligation on both sides — you keep providing work, they keep turning up — is an employment hallmark. A relationship that's genuinely job-by-job, where either side can say no to the next one, points towards self-employment.

The other factors

• Tools, materials and plant: who provides them? A subbie supplying their own significant kit looks self-employed; someone using all your gear looks like an employee.
• Financial risk: can they actually profit or lose? Do they quote fixed prices for a job, and do they have to put right their own defective work in their own time and at their own cost? Real financial risk points to self-employment.
• How they're paid: a fixed price per job points to self-employment; an hourly or daily wage like the rest of your team points to employment.
• Integration: are they part and parcel of your business, or clearly an outside contractor doing a defined piece of work?
• Exclusivity: do they work only for you, or do they have multiple clients?
• In business on their own account: own public liability insurance, multiple customers, own tools, advertising, their own books — all point to genuine self-employment.

No one factor wins on its own. You weigh them all together and ask what the relationship really looks like.

Status Factors at a Glance

The table below summarises which way the main factors tend to point. Real cases are rarely clear-cut, so treat this as a rough guide rather than a scorecard — and take advice on borderline situations.

The CEST Tool

HMRC provides a free online tool called CEST — Check Employment Status for Tax. You answer a series of questions about the working relationship (substitution, control, financial risk and so on) and it gives an indication of whether the engagement looks like employment or self-employment for tax.

CEST is useful as a starting point and HMRC will generally stand behind a result provided the answers you gave were accurate and reflect what actually happens. But it is guidance, not a cast-iron guarantee — it can return "unable to determine" on genuinely borderline cases, and a result is only as good as the honesty of your inputs. Keep a copy of the answers and the outcome with your records. For anything finely balanced, run CEST and take professional advice.

How CIS Fits In

In construction, most genuine subcontractors fall within the Construction Industry Scheme (CIS). As the contractor you verify the subbie with HMRC and deduct CIS — usually 20% for registered subbies, 30% for unverified ones — from the labour part of their payment, then pay that over to HMRC on their behalf.

Here's the crucial point that trips people up: operating CIS does not make someone self-employed. CIS is a tax-deduction scheme that sits on top of a relationship you've already correctly identified as self-employment. You still have to get employment status right first. If your "CIS subbie" is really an employee on the facts, running them through CIS won't protect you — HMRC can still come back for the PAYE and NIC that should have applied.

False Self-Employment — The Real Risk

False self-employment is where someone is treated and paid as self-employed but is, on the reality of the relationship, actually an employee or worker. It is a real and well-known enforcement area, and construction is squarely in HMRC's sights because of how common the practice has historically been.

If HMRC decides your subbie was really an employee, the consequences land on you:

• You can be made liable for the income tax and National Insurance (including employer's NIC) that should have been deducted through PAYE — often going back several years.
• That bill usually comes with interest and penalties on top.
• The worker may bring tribunal claims — for unpaid holiday pay, unlawful deductions, and potentially unfair dismissal or other employment rights.
• Where agencies or labour providers are involved, there are additional rules (agency legislation and intermediary reporting) that can shift liability around — another reason to take advice if you use a labour supplier.

The financial hit can be severe precisely because it's retrospective: you may have paid the person gross for years, but still owe the tax as if you'd been their employer the whole time.

How to Get It Right When Taking People On

You don't need to be frightened of using subbies — plenty of trade businesses do it perfectly legitimately. You just need to do it properly:

• Assess status honestly against the tests above, and use CEST as a sense-check. Be realistic about what the relationship looks like rather than what you'd like it to be.
• Use proper paperwork — a genuine contract that reflects what actually happens. But remember the reality outweighs the label: a contract that says "self-employed" won't save you if you treat the person like an employee day to day.
• For employees, operate PAYE, deduct tax and NIC, pay employer's NIC, and sort pension auto-enrolment and holiday pay.
• For construction subbies, run CIS correctly — verify them and deduct at the right rate — but only after you've confirmed they're genuinely self-employed.
• Keep records of your status decisions, contracts, CEST outputs and CIS deductions.
• Take advice on anything unclear. An hour with an accountant or employment adviser is far cheaper than a back-tax assessment.

The golden rule: calling something self-employment in a contract counts for very little if the working relationship is really employment.

Practical Tips for Small Trades

Most everyday situations aren't actually that hard to call once you picture the two extremes:

• Likely genuinely self-employed: a one-off subbie who turns up with their own tools and van, carries their own public liability insurance, works for other firms too, quotes you a price for the job, and sorts out any snags himself. He's in business on his own account and just happens to be doing a job for you.
• Looks like an employee: someone who works only for you, week in week out, on hours you set, using your tools and materials, paid a day rate like the rest of your lads, and told exactly what to do and how. That's an employee in all but name — treat them accordingly, with PAYE, holiday pay and the rest.

Plenty of arrangements sit somewhere in between, and that's exactly where false self-employment risk lives. When in doubt, lean towards getting it checked. This is general information, not advice for your specific situation — confirm the current position on Gov.uk or with an accountant before you commit.

Frequently Asked Questions

Can I just pay my labourer as self-employed?

Not just because you both agree to it. If your labourer works set hours for you, uses your tools, is paid a day wage, can't send a substitute and is told exactly what to do, the reality points to employee or worker status — and you'd need to operate PAYE and provide rights like holiday pay regardless of any "self-employed" label. A genuinely independent subbie with their own kit, insurance, other clients and fixed-price jobs is a different matter. Assess the relationship honestly and check with HMRC or an accountant if you're unsure.

What is false self-employment?

It's where someone is treated and paid as a self-employed subcontractor but is really an employee or worker on the facts of the relationship. HMRC can look through the label and pursue the engaging business for the PAYE and NIC that should have been deducted — often with interest and penalties — and the individual may bring tribunal claims for things like holiday pay or unfair dismissal. It's a common enforcement target in construction.

Does CIS mean someone is self-employed?

No. CIS is a tax-deduction scheme for the construction industry — it sits on top of a relationship you've already correctly identified as self-employment. Verifying a subbie and deducting CIS doesn't make them self-employed, and won't protect you if the working relationship is really employment. You have to get employment status right first, then apply CIS where it's due.