, Building
He has been on your books for three years. He drives your van, works the hours you set, uses your tools, takes instruction from your site manager and invoices you every Friday through a limited company with his wife as a shareholder. Somewhere along the line, somebody decided he was self-employed, and nobody has revisited it since.
Construction runs on arrangements like that. Most of them have never been tested, which is a different thing from being correct.
Three statuses, not two
The first mistake is thinking there are two boxes. There are three, and they do not line up neatly between tax law and employment law.
Employee, under section 230(1) of the Employment Rights Act 1996, with the full set of rights: unfair dismissal after the qualifying period, redundancy pay, notice, statutory sick pay, family leave.
Worker, under section 230(3)(b), a middle category for people who undertake to perform work personally but are not in business on their own account with the other party as a client. Workers get the National Minimum Wage, paid holiday, rest breaks under the Working Time Regulations 1998 and protection from unlawful deductions. They do not get unfair dismissal protection.
Genuinely self-employed, in business on your own account, with none of the above.
A person can be self-employed for tax and a worker for employment law at the same time. That combination is common on sites, and it is usually discovered at a tribunal when someone claims several years of unpaid holiday.
What the courts actually look at
The framework comes from Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968], which set out three conditions for a contract of service: the worker provides their own work and skill for a wage, there is a sufficient degree of control by the employer, and the other terms are consistent with employment.
Later cases sharpened it. In Autoclenz Ltd v Belcher [2011] UKSC 41, the Supreme Court held that a written substitution clause that did not reflect the true agreement could be disregarded, so a paper right to send a substitute means nothing if everybody knows only that person turns up. Pimlico Plumbers Ltd v Smith [2018] UKSC 29 found worker status despite a contract describing self-employment, and Uber BV v Aslam [2021] UKSC 5 confirmed that the reality of the relationship governs, not its documentation.
What that means on a site, in practice. Control: who decides what work is done, in what order, at what time and to what method. Substitution: could he genuinely send a competent replacement at his own cost, and would you accept them. Financial risk: does he stand to lose money by quoting badly, does he fix defects at his own expense, does he supply his own materials and significant tools. Integration: is he part of your organisation, on your rota, wearing your uniform, at your team meetings. Exclusivity and duration: three years with one payer looks very different from six clients a year.
Who decides, and who pays if it is wrong
For a plain self-employed engagement, the contractor makes the status judgement and carries the risk. If HMRC concludes the person was an employee, the payer is liable for the PAYE and National Insurance that should have been deducted, plus interest, plus penalties. Employer National Insurance alone is a substantial number across a squad over several years.
Where the worker supplies their services through their own limited company, the off-payroll working rules in Chapter 10 of ITEPA 2003 may apply instead. Since April 2021 these put the responsibility on the client where the client is a public authority or a medium or large private-sector business. The client must issue a status determination statement, stating the conclusion and the reasons, pass it to the worker and to the next party in the chain, and operate a client-led disagreement process. The fee-payer, meaning whoever pays the worker's company, then deducts PAYE if the determination is inside the rules.
Small clients are excluded, using the Companies Act 2006 definition of a small company. The thresholds in that definition were uplifted for financial years beginning on or after 6 April 2025, so check the current figures rather than the ones that were in place when the rules started. Where the client is small, the older rules apply and the worker's own company carries the responsibility.
One improvement worth knowing: since 6 April 2024, where a deemed employer is found liable, HMRC can offset tax and National Insurance already paid by the worker and their intermediary against that liability. The double taxation that made early off-payroll assessments so punitive has been reduced, though not to nothing.
HMRC's Check Employment Status for Tax tool will give you an answer, and HMRC says it will stand behind the result provided the information entered is accurate and reflects the actual working practices. That proviso does all the work. A determination based on a contract nobody follows is worth nothing.
CIS does not answer the question
A very widespread misunderstanding on sites is that deducting 20% under the Construction Industry Scheme settles the status question. It does not. CIS is a mechanism for collecting tax from people who are self-employed. It assumes the answer rather than providing it.
You can operate CIS perfectly, file every return on time, and still have an employment status problem for the same individuals. The two regimes are checked separately, and an HMRC status enquiry into a construction business normally starts with the CIS records because that is a convenient list of everyone to look at.
Getting it written down
If the relationship is genuinely one of self-employment, make the documentation match reality rather than the other way round. That means a contract that reflects how the work is really organised, a genuine right of substitution that you would honour, priced work rather than day rates where the job allows it, and the subcontractor using their own tools and carrying their own public liability insurance.
Review the long-standing arrangements first, because duration is what draws attention. Three years, one payer, fixed hours and your van is not a borderline case being tidied up. It is the case that gets picked.
Where this shows up in the game
Construction firms arrive in Business Baron with the Property & Construction Track, an add-on to the full game. Employment matters run against the law in force that month, and the people you employ directly cost you whether the work is there or not. Getting the status of the people on site wrong is the kind of liability that surfaces later, not on the day.