Employee or subcontractor? Why the distinction matters more than the label
29 October 2026Posted by:
Viveka Alvestrand
Content Marketing Manager, Trade Direct Insurance
Calling someone a subcontractor doesn't necessarily make them self-employed. The way you work together can affect their employment rights, how they're taxed, your responsibilities as a business and, in some cases, the insurance cover you may need.
Employee or subcontractor? Why the distinction matters more than the label
You've brought another tradesperson in to help with a job. They invoice you for their work, handle their own tax and you've agreed they're a subcontractor.
Seems straightforward. But does that mean they're legally self-employed?
Not necessarily.
Calling someone a subcontractor doesn't automatically settle their employment status.
The actual working arrangements matter, including how much control you have over their work and how independently they operate.
It may all seem straightforward day to day. But if questions arise about employment rights, tax or insurance, how you actually work together matters more than the label.
Employee, worker or self-employed: what's the difference?
There isn't a separate legal employment status simply called 'subcontractor'.
In Great Britain, employment law recognises three main statuses, each with different rights and responsibilities.
Employee
An employee works under a contract of employment and generally has the broadest employment rights.
These include paid holiday, statutory sick pay where eligible and certain protections against dismissal, depending on the circumstances and applicable qualifying periods.
Worker
A worker has some employment rights without necessarily being an employee.
These include the National Minimum Wage, paid holiday and rest breaks. However, workers don't automatically have all the rights available to employees.
Self-employed
Someone who's genuinely self-employed operates their own business and provides services to customers or other businesses.
They generally have greater control over how they work and take responsibility for their business. Their statutory employment rights are more limited, although contractual rights and certain legal protections can still apply.
An important distinction is that employment status for tax purposes is assessed separately from employment rights. Someone could be treated as self-employed for tax but have worker status under employment law.
That's one reason this topic can catch people out. Different rules can apply depending on whether you're looking at employment rights, tax or insurance, even when the working arrangement itself hasn't changed.
Acas explains the different employment statuses and how they affect working relationships.
Two subcontractors, two different working arrangements
Imagine you're managing a property refurbishment and have brought in two other tradespeople.
The specialist plasterer
You've agreed a fixed price for the plastering. The plasterer provides their own equipment, decides how to organise the work and is responsible for completing the agreed job.
They also carry out work for other customers and can arrange for another suitably qualified person to undertake the work, subject to the agreed terms.
These circumstances may point towards genuine self-employment.
The extra pair of hands
You've also brought in another tradesperson to work alongside your team.
You decide their working hours, allocate their daily tasks and provide the tools and materials. They're paid for their time and are expected to carry out the work personally.
That arrangement could point towards employee or worker status, depending on the full circumstances.
Both tradespeople might send invoices. Both might describe themselves as subcontractors.
But the nature of their working relationships is quite different.
The point is that similar-looking arrangements can be treated differently when employment status is assessed.
These examples aren't enough to establish either person's legal status. They illustrate why the details of the arrangement matter more than the terminology.
What matters when determining employment status?
Employment status isn't decided by any single factor, document or agreement.
Instead, HMRC and employment law guidance look at the overall working relationship.
Some of the main considerations include:
• Control over the work: Does the person decide how to complete the job, or are they closely directed and supervised by your business?
• Providing a substitute: Can they arrange for someone else to carry out the work, or are they personally required to do it?
• Financial responsibility: Do they quote for the work and carry the risk of making a loss, or are they paid for their time regardless of the outcome?
• Ongoing obligations: Is there an expectation that you'll continue providing work and they'll continue accepting it?
• Business independence: Do they operate independently, supply their own equipment and negotiate work with other customers?
None of these provides a definitive answer in isolation.
For example, a subcontractor using materials supplied by the main contractor doesn't automatically become an employee. Similarly, someone supplying their own tools isn't necessarily self-employed.
Labour-only subcontractors work under your direction and control, much like an employee, with you usually determining how and when the work is carried out.
Bona fide subcontractors operate as independent businesses, working under their own direction and generally providing their own tools, equipment and insurance.
Working regularly for the same business doesn't settle the question either.
That's why assumptions can sometimes creep in over time. A working arrangement may feel clear simply because it's been in place for years, but its status still depends on how it operates in practice.
GOV.UK provides a detailed employment status checklist for employers and businesses engaging contractors.
Does being registered under CIS prove someone is self-employed?
No. Construction Industry Scheme (CIS) registration alone doesn't prove someone is self-employed.
CIS governs how contractors handle certain payments to subcontractors for construction work. It applies to qualifying arrangements that aren't contracts of employment.
HMRC makes clear that a subcontractor's registration under the scheme doesn't automatically mean every job they undertake is self-employed work.
For example, someone could operate independently for one contractor but work under a different arrangement for another.
Their status for tax purposes depends on the terms and circumstances of the particular engagement.
Where someone is employed for tax purposes, PAYE generally applies instead of CIS deductions.
More information is available in HMRC's Construction Industry Scheme guidance.
What happens if someone's employment status is incorrect?
An employment status question can surface long after you've started working together. And getting someone's status wrong can have consequences.
If someone has been treated as self-employed but is legally an employee or worker, they may have employment rights that haven't been recognised.
Depending on their status and circumstances, this could involve unpaid holiday pay, minimum wage entitlements or other statutory protections.
Disagreements about employment status can lead to employment tribunal proceedings.
There may also be tax consequences if HMRC determines that someone has been treated incorrectly for tax purposes. These can include unpaid tax, National Insurance contributions, interest and potential penalties.
The distinction can become particularly relevant when a working relationship has developed over time.
An arrangement that began with someone carrying out a specific job may look different if their responsibilities and the way they work subsequently change.
That doesn't automatically mean their legal status has changed. But the original description of the arrangement may no longer reflect how it operates.
Changes to someone's role or working pattern can be relevant when their status is assessed, even if you've worked together for years.
What does this mean for employers’ liability insurance?
Employment status can also affect insurance responsibilities, although the rules aren't identical to those used for tax or employment rights.
Employers’ liability insurance is generally a legal requirement for businesses employing staff, subject to certain exemptions.
It can provide protection against unforeseen costs if an insured work-related injury or illness results in a successful claim against the business.
Depending on the policy, this may include compensation and Legal Defence Costs, subject to the relevant terms and conditions.
The legal requirement can also apply where people described as subcontractors are working in circumstances that bring them within the relevant definition of an employee.
For insurance purposes, insurers may distinguish between labour-only subcontractors and bona-fide subcontractors.
Broadly, labour-only arrangements involve people working under the main contractor's direction, while bona-fide subcontractors operate more independently.
However, these insurance classifications don't automatically determine someone's employment status under employment law or for tax purposes.
The relevant working arrangements and policy terms still matter.
At Trade Direct Insurance, employers’ liability insurance is available as an additional policy alongside public liability insurance. It isn't included automatically within public liability cover.
Not sure how a subcontracting arrangement could affect your cover?
Check out our video explainer on Labour Only and Bonafide Subcontractors here for more information.
The Health and Safety Executive's employers’ liability guidance explains the legal requirements and exemptions.
You can also read more about read more about employers’ liability insurance from Trade Direct Insurance.
Where can you check someone's employment status?
There isn't one check that covers employment rights, tax and insurance. Here's where you can find information about each.
For employment rights
Acas explains the differences between employees, workers and genuinely self-employed people.
Its guidance covers how contracts and actual working arrangements affect employment status.
For tax and National Insurance
HMRC provides a free Check Employment Status for Tax (CEST) tool.
The tool asks questions about the contract and working arrangements before giving HMRC's view of someone's status for tax purposes.
HMRC generally stands by the result where the information provided is accurate and the tool has been used in accordance with its guidance.
CEST doesn't determine employment rights or insurance requirements.
For employers’ liability insurance
The Health and Safety Executive provides guidance on which businesses are legally required to have employers’ liability insurance.
An insurance provider can explain how different working arrangements are treated under its policies.
Employment law differs in some respects in Northern Ireland, where separate employment status guidance is available.
Where an arrangement is unclear, an appropriately qualified legal or tax professional can provide guidance on the specific circumstances.
The name on the paperwork isn't the whole picture
There's nothing unusual about working with subcontractors over several jobs or maintaining a long-standing relationship with another tradesperson.
And working regularly with someone doesn't, by itself, make them an employee.
Equally, an invoice, a CIS registration or an agreement describing someone as self-employed doesn't automatically settle the question.
What matters most is how the relationship works in practice.
Two arrangements that look very similar on paper can carry different rights, responsibilities and insurance considerations.
If you're taking on bigger jobs or bringing in extra help, it's a useful distinction to have in your back pocket.
Please note: This article provides general information based on guidance available in October 2026. Employment status depends on individual circumstances and may be assessed differently for employment rights, tax and insurance. It isn't intended as legal, tax or insurance advice. Rules and guidance can change, so official sources remain the reference for current requirements.
About the Author
Viveka Alvestrand
Content Marketing Manager, Trade Direct Insurance
Viveka Alvestrand is an experienced content and digital marketing professional with a background in editorial strategy, brand storytelling and multi-channel communications.
Trade Direct is authorised and regulated by the Financial Conduct Authority. The company is a leading UK independent broker providing a wide range of policies to tradesmen and construction workers.
This note is not intended to give legal or financial advice, and, accordingly, it should not be relied upon for such or regarded as a comprehensive statement of the law and/or market practice in this area. In preparing this note we have relied on information sourced from third parties and we make no claims as to the completeness or accuracy of the information contained herein. You should not act upon information in this bulletin nor determine not to act, without first seeking specific legal and/or specialist advice. We and our officers, employees or agents shall not be responsible for any loss whatsoever arising from the recipient’s reliance upon any information we provide herein and exclude liability for the content to fullest extent permitted by law.