Not Knowing The Rules Governing Employee Or Self Employed Status Could Cost Thousands

When there is a doubt over status of a worker being an employee or self employed the employer must make the correct decision or face potential serious penalties relating to a change in status that can be applied retrospectively. In the absence of comprehensive legislation guidelines have emerged and must be applied to avoid potential unexpected liabilities of tens of thousands of pounds.

The employment status of a worker can be a veritable minefield for an employer if the wrong decision is made. Should an employer decide the status of a worker is self employed and treat that worker as self employed rather than deducting tax and national insurance the employer could be at risk of incurring a major financial liability for tax and national insurance deductions if the status of the worker is subsequently changed following an Inland Revenue enquiry.

If the status of a worker is changed from self employment to employee by the Inland Revenue the amounts paid to that worker would be regarded by the Revenue as not the gross pay but the net pay after deductions of income tax and national insurance. The re-assessment after adding the income tax and both employee and employer national insurance could increase the cost of that worker by more than 50%.

If a workers employment status is determined as incorrect by the tax authority the date at which the employment status was employee rather than self employment would also be determined. Such a status change and the applicable date could be applied several years retrospectively leading to a significant financial burden.

An employer cannot choose the status of a worker as employee or self employed. The status of the worker is dependent upon the rules of engagement and the working practices that ensue. There is also a tendency with long term engagement of self employed workers for circumstances to change and some changes could change the status of that worker from self employment to employee in the view of the tax authority.

The first essential question to be answered by an employer is whether the worker is being engaged under a contract of employment or whose services are being contracted. Due to the potential serious financial consequences of making the wrong decision it is important that the rules of engagement are set out and agreed in writing.

There is no statutory definition of what constitutes a contract of service and what constitutes a contract for services in relation to income tax and national insurance. In the absence of a statutory definition the interpretation of the nature of the relationship is open to debate and previous court judgments.

General rules which would indicate a worker was an employee would include scenarios such as is the work supervised,Not Knowing The Rules Governing Employee Or Self Employed Status Could Cost Thousands Articles does someone state when, what and where work is done and how it should be done. Can the worker be moved from one task to another and does the worker work to set hours and paid on a set basis of hourly, weekly or monthly or receive bonuses or overtime payments. The existence of such conditions would indicate employee status not self employment.

There are many other factors which may determine employment status, for example if the worker takes the business vehicle home each day that would indicate employee status. Should the worker provide his own tools and equipment to perform the tasks and bear the costs of doing this then self employment would be indicated but should the employer provide such equipment then workers status is more likely to be interpreted as employee.

Factors which may determine self employment would include the worker using someone else to carry out the tasks at their expense, whether the work contained personal financial risk to the worker, has a fixed price been agreed regardless of time taken to perform the work. Other self employment factors would be if the worker can choose when and how to perform the tasks, whether they also work for other organisations and whether unsatisfactory work has to be corrected in the workers own time and expense.

The conditions under which a worker is engaged may be ambiguous and that can lead to problems as long term self employed workers and the relationship with the employer tends over time to slip into a pattern that might be interpreted as closer to that of an employee rather than self employment. In such circumstances what may have started as self employment may later be interpreted as employment in which case the specter of that workers cost being increased to the business by 50% going back years could become reality.

In all cases where there is doubt over the employment status the final decision becomes one of providing evidence and the weight of evidence for one side or the other. Often individual cases can rest on what may have been regarded as insignificant items at the time. For example granting the worker benefits normally associated with employment such as paid leave and even such items as access to subsidized canteen facilities could weigh the balance in favour of employment.

If an employer has doubts on the status of a worker the rules of engagement should be set out in writing at the outset and clarify the status as employee or self employment. If there is any doubt then the safest practice would be to treat the worker as an employee and deduct income tax and national insurance or engage the worker under the CIS sub contractors rules.

As a rough guide to the financial consequences of making the wrong decision or circumstances changing the status of a worker from self employment to employment without deducting tax and national insurance consider this example.

The worker has performed work for the business for 3 years as self employed and has been paid 25,000 pounds per annum. The normal work pattern is interpreted by the Inland Revenue as that of an employee not self employment.

The Inland Revenue could determine income tax of 5,000 pounds and national insurance of 2,000 pounds should have been deducted plus employer national insurance of a further 2,000 pounds. Over three years the bill for getting the decision wrong could result in an unexpected bill for the employer of 27,000 pounds. For a small business that level of additional cost could be the difference between survival and liquidation.

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What Are Pre-Employment Tests and What Do you Need to Know?

What are pre-employment tests. Learn the ABCs of pre-employment tests and how to hire the best and avoid the rest.

What are pre-employment tests?

They are tests that organizations give to job applicants to help them hire employees who are productive,What Are Pre-Employment Tests and What Do you Need to Know? Articles dependable, and low-turnover.

What does research say about pre-employment tests?

Research on pre-employment tests and other prediction methods indicate pre-employment tests are the most method to accurately predict how an applicant may perform on-the-job, if hired.

In contrast, interviews typically are a lousy method to predict an applicant’s job performance.

Also, reference checks, unfortunately, are quite useless, because many companies refuse to reveal negative information about their former employees.

Why are pre-employment tests so accurate at predicting actual job performance?

Pre-employment tests that work well are created after doing In-depth research. The research is done find out which test questions work best in the test, plus make sure the test is both reliable and valid.

What is pre-employment test validity and reliability?

Use pre-employment tests only if they were created using research to establish the test is both (a) valid and (b) reliable.

Validity of a pre-employment test means the test accurately predicts or forecasts exactly what it is meant to predict. For example, if one scale or section of the pre-employment test aims to predict if a job applicant is teamwork-oriented, then that test scale is valid only if accurately measures how much or how little an applicant likes teamwork. Or, if a test scale helps predict Problem-Solving Ability, then that Problem-Solving Ability section must be a valid or accurate measure of Problem-Solving Ability. If a test scale helps predict Theft/Stealing concerns, then it needs to be a valid or accurate prediction of an applicant’s possible Theft/Stealing behavior.

Reliability of pre-employment tests is different than validity. Reliability of a pre-employment test can be established through research in a number of ways. In general, reliability means a test reliably or consistently measures what it is supposed to measure. For instance, if multiple questions predict Teamwork, then those Teamwork questions must overall measure Teamwork and not some other factor. Also, test-retest reliability means that if a job applicant takes the pre-employment test one day and then takes the same test at a later date, e.g., a month later, then the applicant’s scores should be the same in at both times.

In summary, use pre-employment tests only if they were created using research to establish the test is both (a) valid and (b) reliable.

What “Assessments” Are NOT Pre-Employment Tests?

Pre-employment tests are specially researched and created specifically for testing job applicants.

In contrast, some organizations mistakenly use “assessments” meant for training or teambuilding with current employees when they evaluate job applicants. This is wrong to do – for a number of reasons. For instance, such “assessments” are not researched, designed, nor justifiable for pre-employment testing of job applicants. Also, if any question is raised about the use of such “assessments,” the organization certainly may have a very hard time explaining why it used an “assessment” meant for training or teambuilding to evaluate job applicants.

So, only use pre-employment tests that actually are researched and designed to test job applicants. Do not use “assessments” that are not researched, designed, meant for, nor justifiable in your evaluation of job applicants.

What Types of Pre-Employment Tests Might I Use?

Three types of pre-employment tests can help you hire the best.

1. Mental Abilities Tests – help you predict job-related cognitive abilities, such as

a. Problem-Solving Ability

b. Vocabulary Ability

c. Arithmetic Ability

d. Grammar, Spelling & Word Use Ability

e. Ability to Handle Small Details with Speed & Accuracy

2. Behavior Tests – help you predict key interpersonal skills, personality traits, and motivations:

a. Interpersonal Skills




b. Personality Traits

Following Rules & Procedures

Poise Under Pressure


Calm vs. Excitable

Feeling-Focus vs. Fact-Focused

c. Motivations

Money Motivation

Helping People / Service Motivation

Creativity Motivations

Power Motivation

Leaning / Knowledge Motivation

3. Dependability Tests – help you predict key factors, such as,

a. Honesty on test

b. Work Ethic

c. Impulsiveness [may be linked to safety, accidents, & interpersonal conflict]

d. Stealing / Theft concern

e. Substace Abuse concern

Will Pre-Employment Test “Catch” Job Applicant Who Lies on Test?

A correctly designed pre-employment test will detect – or find out – if an applicant lied by giving answers that may make the applicant seem “better or different” than the applicant really is.

In sharp contrast, “assessments” designed for training or teambuilding – and not for pre-employment testing – do not have such a built-in lie detector.

A good pre-employment test can use number of methods to “catch” a job applicant who tries to answer its questions dishonestly. Perhaps the best method involves using a set of truism questions.

You will not “catch” a lying job applicant if you only rely on whether or not the applicant answered different versions of the same question the same. For starters, when test asks different versions of the same question, that is for (a) creating a scale on that topic and also (b) reliability. Here is why that will not catch a lying or dishonest applicant: The liar could consistently answer those questions dishonestly.

Recommendation: Always ask the Business Psychologist who created the pre-employment test how the test will “catch” or detect if an applicant answered questions to “pull the wool over your eyes.”

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