Small business hiring guide
Using a freelancer or contractor can be flexible, but calling someone self-employed does not make it true. The right document depends on the real working relationship, not just the label.
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Quick answer
These are indicators only. The full working relationship matters, including control, personal service, mutuality, integration, financial risk and how the relationship operates in practice.
An employee is usually brought into the business to perform an ongoing role under the employer's direction.
A contractor or freelancer usually runs an independent business and supplies services to the client.
The label is not enough
A contract calling someone a contractor is not conclusive. Tribunals, HMRC and advisers look at the practical reality as well as the written terms.
If the arrangement looks like employment, the business may face employment rights, tax, holiday pay or dismissal-related risk. A good contract helps, but it must reflect the real arrangement.
This guide is general information for UK small businesses, not legal or tax advice. Seek legal/accounting advice for uncertain or high-risk arrangements.
The safest approach is to decide how the person will actually work, then choose the document that fits that reality.
Status indicators
No single factor usually decides the answer. These common indicators should be considered together against the full factual relationship.
Who decides how, when and where the work is done? Close supervision, fixed methods and detailed management can point away from genuine independence.
Does the individual have to do the work personally, or can they send a suitable substitute in practice? A paper right that is never realistic may carry less weight.
Is the business obliged to offer work, and is the person obliged to accept it? Ongoing mutual commitments can make the arrangement look less project-based.
Are they part of the business team or operating independently? Email accounts, internal management lines, staff meetings and team duties can all be relevant.
Do they quote for work, correct defects at their own cost, use their own equipment, or risk making a loss? Genuine business risk may support contractor status.
Does the business provide everything, or does the contractor use their own resources, software, insurance and working systems?
Can they work for other clients? Exclusivity is not decisive, but broad restrictions can make the arrangement look more like employment.
Is it a defined project, or an ongoing role that resembles employment? Long, near full-time engagements should be reviewed as the facts develop.
Employee route
Employment may be the cleaner route where the business needs control, continuity and someone embedded in the team.
Contractor route
A contractor may suit defined, specialist or temporary work where genuine independence can be reflected in practice.
Misclassification risk
Status mistakes do not always become disputes, but they can create avoidable risk. Keep the analysis practical, document the arrangement and review long engagements as they evolve.
A person treated as self-employed may later argue they had employee or worker rights.
Worker or employee status can create paid holiday and other statutory payment issues.
HMRC may scrutinise whether PAYE, employer National Insurance or other tax treatment should have applied.
Records, contracts, invoices and actual working practices may be reviewed together.
A loose arrangement can make it harder to manage exit, notice, handover and final payment.
Employment and freelance defaults can differ, so deliverables should be dealt with clearly in writing.
A contractor may need access to sensitive information before the relationship is fully documented.
IR35 can be relevant where contractors provide services through an intermediary, such as a personal service company.
Status disputes can distract management, damage relationships and interrupt important projects.
Document selection
Start with the real working relationship, then choose the document that fits. Use only documents that match how the arrangement will operate in practice.
Use where the person is genuinely joining as an employee and you need written terms for role, pay, hours, holiday, notice, confidentiality and workplace obligations.
Create an employment contract →Use where the person is genuinely self-employed or providing services as an independent contractor/freelancer, and the contract matches how the work operates in practice.
Create a freelance agreement →Use before employment starts to confirm headline terms, conditions and next steps for a proposed employee hire.
Create an offer letter →Use where confidential information will be shared before or during the engagement, especially when discussing commercial plans, client data, software, pricing or IP.
View NDA →Practical examples
Examples are simplified. Real status depends on the full facts.
A marketing assistant working 9am–5pm, using company systems, reporting to a manager, with ongoing duties and no right to send a substitute.
A freelance designer engaged to produce a defined brand pack for a fixed fee, using their own tools, working for other clients, and deciding how to deliver the work.
A developer working almost full-time for one business for several months, using company systems, attending team meetings and taking direction from an internal manager.
Related guidance
Use this when the relationship is moving towards employment and you need a first-hire checklist.
Open guide →Budget the wider cost of taking someone on as an employee, including payroll, pension and equipment.
Open guide →Explore freelance contracts, status, IR35, payment, IP and scope control in more detail.
Open guide →A broader legal checklist for employment, freelancers, confidentiality, IP, debt recovery and company basics.
Open guide →Track employer-side reforms and update employment documents as the new framework is implemented.
Open guide →If the person is genuinely an employee, check the contract terms you should cover before work starts.
Open guide →Browse employment contracts, offer letters, policies and related employer documents.
Open guide →FAQ
Short answers to common small-business questions about employment status, freelance agreements and contractor risk.
No. Calling someone self-employed is not enough if the real working relationship looks like employment or worker status. Status depends on the full factual relationship, and businesses should not use a freelance agreement to disguise an employment relationship.
Ready when you are
Whether you are hiring an employee or engaging a freelancer, the contract should match the real working relationship. Bracton helps small businesses create clear employment and freelance documents.