The phone is ringing more than you can handle. You’re turning work away. Someone you trust has offered to come and work with you, and the easiest thing in the world would be to pay them as self-employed and get on with it.
Most field service businesses reach this point somewhere between their third and fifth year. And most of them make the same two mistakes: they treat the decision as primarily a cost calculation, and they assume that because both parties want a self-employed arrangement, that’s what they’ll have.
Neither assumption holds up. This guide covers what the decision actually involves: the compliance risk, the genuine cost difference, the legal tests that determine what you have regardless of what your paperwork says, and how to build a workforce model that fits the business you’re actually running.
Table of Contents:
- Why this decision is harder than it looks
- What the difference actually means in law
- The true cost of employment: beyond the salary
- What makes someone genuinely self-employed
- The disguised employment trap
- CIS: what field service businesses need to know
- If you operate in Ireland: RCT and the Karshan case
- When subcontractors make sense and when they don’t
- The hybrid model most growing businesses end up with
- How Fieldmotion supports both arrangements
- FAQs
Why this decision is harder than it looks
Ask most field service business owners why they prefer subcontractors and you’ll hear one of two answers: flexibility, or cost. Both are legitimate considerations. But neither is the whole picture, and treating them as the whole picture is where businesses get into trouble.
The flexibility argument is real. A subcontractor gives you capacity when you need it and costs you nothing when you don’t. You’re not paying someone’s wage through two quiet weeks in August or when a commercial client delays a planned programme of works. That matters when you’re running a business where demand fluctuates by season, by contract, and by how much work you’ve managed to win in any given month.
The cost argument is where things start to unravel. The assumption is that subcontractors are cheaper than employees. Often they’re not: not when you’re paying day rates that compensate for the lack of employment benefits, not when you lose days to unavailability at short notice, and not when you factor in what happens if the arrangement attracts scrutiny from HMRC. And it completely falls apart when the arrangement you’re calling a subcontractor relationship is, in HMRC’s view, an employment relationship. At that point you’re not saving money. You’re accumulating a liability.
This is the decision most field service businesses need to make with their eyes fully open.
What the difference actually means in law
The legal distinction between an employee and a self-employed subcontractor sounds simple until you try to apply it to a real working arrangement.
An employee works under a contract of service. A subcontractor works under a contract for services. The words look almost identical. The consequences are not. An employee is entitled to a written employment contract, minimum wage, paid holiday (5.6 weeks statutory minimum), statutory sick pay, pension auto-enrolment, protection against unfair dismissal, and redundancy pay. You as the employer are responsible for PAYE, employer National Insurance contributions, and compliance with the Employment Rights Act 2025 as it comes into force through 2026 and 2027.
A genuine subcontractor has none of those entitlements as far as your business is concerned. They invoice you, pay their own tax and National Insurance, provide their own tools, carry their own insurance, and are in business on their own account. You pay their invoice and your obligations end there, provided the arrangement is genuinely what it claims to be.
The critical phrase is “genuinely what it claims to be.” UK employment law and HMRC do not look at your paperwork and accept it at face value. They look at the reality of the working relationship. And there is a growing body of case law, including the Supreme Court’s decision in Uber v Aslam, confirming that courts will look past contractual wording if the substance of the arrangement tells a different story.
Tax status and employment law status are also assessed separately and can produce different answers. Someone can be self-employed for HMRC purposes but still be a “worker” for employment law purposes, with rights to holiday pay and National Minimum Wage. Most field service businesses do not have a problem at this intermediate level, but it is worth being aware of.
The true cost of employment: beyond the salary
Comparing a subcontractor’s day rate against a salary and treating that as the cost difference is how most field service businesses make poor hiring decisions. It rarely reflects reality.
The statutory employment costs on a £35,000 salary in 2025/26 are as follows. Employer National Insurance runs at 15% on all earnings above £5,000, a rate that increased from 13.8% in April 2025, with the threshold simultaneously cut from £9,100 to £5,000 in what was effectively a double hit on employment costs. On a £35,000 salary, that adds approximately £4,500 in employer NI per year. Pension auto-enrolment requires a minimum employer contribution of 3% on qualifying earnings between £6,240 and £50,270, adding roughly £863 per year. Statutory sick pay is now £118.75 per week from day one, with the three-day waiting period removed from April 2025.
Before you panic: if your business employs more than one person, you are very likely eligible for the Employment Allowance, which from April 2025 allows eligible employers to reduce their employer NI bill by up to £10,500 per year. The previous £100,000 eligibility cap has been removed, so most small field service businesses now qualify. For a business with three or four employees, the allowance can offset the NI bill almost entirely. Factor it in before running any numbers.
The statutory costs are only the beginning. A field service engineer also needs a van (budget £4,000–£6,000 a year including maintenance, on top of £1,200–£2,000 for commercial vehicle insurance), fuel (£2,400–£3,600 for a typical patch), tools and PPE (£1,000–£2,000 a year ongoing after initial setup), Gas Safe registration if they’re doing gas work (£400+ annually), and training to keep qualifications current (£500–£1,500 per year depending on what they cover). Add employer’s liability insurance (a legal requirement from the first day you employ anyone, with a minimum cover of £5 million) and software licence costs, and the total for a £35,000 salary can reach £50,000 to £58,000 a year in genuine all-in cost.
That is not an argument against hiring. It is an argument for doing the maths properly before you decide, and for understanding what you need to charge and win to make the hire work financially. The job costing article covers the margin calculation in detail. Start there before you commit.
There is one number worth holding onto: a subcontractor charging a day rate that looks expensive on paper may still cost less than a fully loaded employee on an equivalent salary. Or they may cost more, once you factor in the premium self-employed tradespeople charge for the benefits they’re forgoing. The honest answer is that neither model is categorically cheaper. It depends on your job mix, your utilisation, and how consistently you can keep people busy.
What makes someone genuinely self-employed
HMRC uses three core tests to determine employment status for tax purposes. Understanding them is not optional if you’re using self-employed subcontractors, because the tests apply regardless of what your agreement says.
Control asks whether you direct how, when, and where the work is done. If you’re telling someone to be at a customer’s site at 8am, wear your uniform, use your processes, and report back at the end of each day, that looks like employment. If they’re arriving at a site under their own schedule, working to an agreed outcome, and deciding how to achieve it, that looks like self-employment. In field service, the line can be blurry: customers often expect a specific time window, which is a practical constraint rather than an employment indicator. The question is who sets the constraint.
Personal service asks whether the individual must do the work personally, or whether they have a genuine right to send a substitute. An employee cannot send someone in their place. A genuine subcontractor can, even if they rarely exercise the right. If your agreement with a subcontractor says they must personally perform the work, that is an indicator of employment, and if they’re exclusively working for you without any other clients, that compounds the issue.
Mutuality of obligation asks whether there’s an ongoing expectation that you will offer work and they will accept it. A genuine subcontractor can turn down jobs. They take work from multiple clients. They’re not waiting for your call every Monday morning. If the reality of your arrangement is that they show up when you tell them to and have no other work to go to, the mutuality of obligation test may not be satisfied for self-employment.
HMRC provides an online tool, the Check Employment Status for Tax (CEST) tool, that works through these questions for any specific arrangement. It is not infallible, and it does not provide a guarantee, but it is a useful starting point and HMRC has committed to stand behind its results where the information entered accurately reflects the reality of the arrangement.
Additional indicators of genuine self-employment include: providing their own significant equipment, bearing financial risk (quoting a fixed price and absorbing overruns), having multiple clients, operating under their own business name, and being capable of profit or loss depending on how efficiently they work. Additional indicators of employment include: the business providing tools and a vehicle, set hours, a regular guaranteed wage, and the individual being moved between tasks at the employer’s direction.
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The disguised employment trap
Most businesses that fall foul of HMRC’s employment status rules do not set out to deceive anyone. They slip into the arrangement gradually, and by the time anyone looks closely, the reality of what they’ve built looks nothing like what the paperwork describes.
Here is what disguised employment typically looks like in field service. You bring in a self-employed engineer when you’re busy. It works well, so you keep calling them. Over time they become your busiest arrangement: they work for you most weeks, they’re driving your branded van, wearing your uniform, using tools you’ve supplied, and responding to your job management system. They are, for all practical purposes, integrated into your team. They have no other clients, because they’ve never needed any.
In HMRC’s eyes, that person is an employee. Not because of anything malicious, but because the working relationship (the control, the personal service, the mutual obligation, the integration) is indistinguishable from employment. The fact that both parties preferred a self-employed arrangement is not relevant. The fact that your contract calls them a subcontractor is not relevant. What matters is the reality of how the work is organised and carried out.
The consequences of getting this wrong are serious. HMRC can demand backdated PAYE, employer National Insurance contributions, and interest from the start of the arrangement. Penalties on top of that. Employment tribunal claims for unpaid holiday pay, minimum wage, and from January 2027, when the qualifying period reduces to six months, unfair dismissal protection that now kicks in much earlier than the current two-year threshold. A midsized field service business with one or two misclassified workers for three or four years could be looking at a six-figure liability.
The legal route of protection is not complicated: make sure your subcontractor arrangements actually reflect genuine self-employment, check them against the CEST tool, have a written contract that accurately describes the relationship (not one that simply asserts self-employment), and make sure the subcontractor genuinely works for other clients. If the arrangement has grown to the point where it looks like employment, address it proactively rather than waiting for a Status Review. The HR compliance guide covers the employment law obligations that come with genuine employment if you decide that’s the direction you need to go.
CIS: what field service businesses need to know
If your business does any construction, installation, or repair work on buildings (which covers a wide range of field service trades including HVAC installation, electrical work, plumbing, and fire and security systems) your work is very likely within the scope of the Construction Industry Scheme (CIS).
CIS is a separate layer of compliance on top of the employment status question. It requires contractors paying subcontractors for construction work to register with HMRC, verify each subcontractor’s status, and make deductions from their payments before passing those deductions to HMRC as advance payments towards the subcontractor’s tax.
The deduction rates are: 20% for subcontractors registered with HMRC under CIS; 30% for unregistered subcontractors; and 0% for those who have achieved gross payment status by meeting HMRC’s turnover and compliance criteria. Most subcontractors operating legitimately in the trades should be registered and attracting the 20% rate. If someone you’re paying insists they’re not registered and you make no deduction, you may be personally liable for the 30% that should have been withheld.
CIS is administered through HMRC’s online service. You register as a contractor before paying your first subcontractor, verify their status each time, make the appropriate deduction, provide a payment and deduction statement, and file monthly returns. Getting this wrong attracts fixed penalties starting at £100 for late filing and escalating from there.
The HMRC CIS guide (CIS340) covers the full scope of what counts as construction work, what’s excluded, and the detailed mechanics of the scheme. If you’re unsure whether your work falls within CIS, that is the authoritative starting point.
If you operate in Ireland: RCT and the Karshan case
For businesses operating in Ireland, the equivalent of CIS is Relevant Contracts Tax (RCT). If you are a principal contractor paying subcontractors for construction, forestry, or meat processing, you are required to register with Revenue, notify them of contracts, and make deductions from payments under RCT. The scheme is administered through Revenue’s online service (ROS).
The employment status picture in Ireland has also changed significantly following a landmark Supreme Court ruling in October 2023: Revenue Commissioners v Karshan (Midlands) Ltd t/a Domino’s Pizza. The Court ruled that Domino’s delivery drivers were employees, not independent contractors, and reformulated the employment status test into a five-step framework that Revenue now applies across all sectors including construction and trades.
Revenue issued updated guidance in May 2024 setting out how the Karshan tests apply in practice. In September 2025, Revenue gave businesses until January 2026 to self-correct misclassifications from 2024 and 2025 without penalty. That deadline has now passed, meaning any unaddressed misclassification from those years is now subject to the full penalty regime. If you operate in Ireland and have been treating workers as self-employed contractors, it is worth reviewing those arrangements against the Karshan framework with your accountant or solicitor.
When subcontractors make sense and when they don’t
The right workforce model is not the same for every business, and it is not fixed over time. What makes sense at eight engineers may be wrong at fifteen.
Subcontractors work well when the work is genuinely variable. If you win a large commercial installation contract that requires four extra pairs of hands for six weeks, bringing in subcontractors is the right answer. You cover the work, you don’t carry the cost once the contract ends, and the arrangement is clearly time-limited and project-specific, which also helps from an employment status perspective, because the lack of ongoing mutual obligation is harder to challenge.
Subcontractors also work well for specialist skills you need occasionally. If you run an HVAC business and take on a job requiring specialist refrigeration work you don’t carry in-house, a qualified subcontractor for that specific job is exactly the right tool.
Where subcontracting tends to break down is in the core, ongoing operational work: the jobs that come in every day and need to be covered reliably. This is where the tension between the flexibility you want and the control the work requires starts to emerge. A subcontractor who is unavailable when you need them, whose work you have no visibility of until a customer complains, or who starts taking your customers directly once they’ve built a relationship through you: those are the signals that the arrangement has outgrown what subcontracting is good for.
A useful practical test: if a subcontractor is consistently busy on your work for more than three to four months, you have enough demand to support a permanent hire. At that point, continuing the subcontractor arrangement is no longer a flexibility decision. Depending on their day rate, it’s either a compliance risk or a false economy. The skills shortage article covers why finding good people is harder than it has ever been, which makes the argument for converting reliable subcontractors to employees even stronger when the demand is there.
The hybrid model most growing businesses end up with
Very few field service businesses operate on a pure model. The most common picture at 8–15 engineers is a core team of employees covering the steady predictable work, with one or two trusted subcontractors available for peaks, specialist jobs, and cover during holiday periods.
This works well provided the subcontractor relationships are managed carefully. Your subcontractors should have other clients and should not be permanently integrated into your day-to-day scheduling. The work you send their way should be clearly project-based or overflow rather than a de facto continuation of what your employees do. Where the work falls within CIS scope, deductions should be made correctly from the outset.
The administrative complexity of managing both employee payroll and CIS payments simultaneously is real, but manageable with the right systems in place. What causes problems is managing it through spreadsheets and memory, which is how misclassification goes unnoticed and CIS returns get missed.
The Employment Rights Act 2025 is also making employment a more significant commitment than it was two years ago. SSP from day one is already in effect. The reduction of the unfair dismissal qualifying period from two years to six months in January 2027 means new employees will have dismissal protection much earlier in their tenure. Getting employment practices right from day one matters more under the new Act than it did before, which is what the onboarding article covers.
The businesses that get this right tend to share one characteristic: they think of employees and subcontractors as two different tools, each suited to a specific kind of work, rather than two versions of the same thing where one is cheaper. That framing leads to better decisions about which model to use when, and better processes for managing each.
How Fieldmotion supports both arrangements
Managing employees and subcontractors through the same system, rather than separate spreadsheets and phone calls, is where field service businesses start to get genuine operational visibility.
Fieldmotion’s job management module handles scheduling, dispatch, and job allocation across both employee engineers and subcontractors, so the office always has a current picture of who is doing what and where. Jobs assigned to subcontractors generate the same digital job sheets, forms, and completion records as those assigned to employees, which matters for compliance, for client reporting, and for demonstrating the standard of work delivered.
For businesses managing CIS, having parts and labour recorded against each job from the mobile app supports accurate payment and deduction statements. For businesses managing employment costs, job-level time and materials data feeds directly into job costing, so you can see whether the labour model you’re running is actually producing the margins you expect, or whether your subcontractor day rates are quietly eating into profitability in ways that don’t show up until the end of the year.
The £500k to £2m article explores the operational and structural shifts that separate growing businesses from stuck ones. Workforce model is one of them.
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FAQs
What is the simplest way to check whether my subcontractor arrangement is genuinely self-employed?
Use HMRC’s Check Employment Status for Tax (CEST) tool and answer the questions based on how the relationship actually operates, not how your contract describes it. The key questions are about control (do you direct how, when, and where they work?), personal service (can they send a substitute?), and mutuality of obligation (are they working exclusively for you with no other clients?). If the tool indicates employment, take professional advice before continuing the arrangement as self-employed.
If I bring someone in regularly, do I have to put them on payroll?
Not automatically. Regularity alone doesn’t determine status. What matters is the reality of the working relationship: control, substitution rights, financial risk, and whether they work for other clients. A subcontractor who comes in regularly but genuinely operates their own business, works for other contractors, provides their own tools, and has a right of substitution can remain genuinely self-employed. The issue arises when regular work becomes the only work, and the practical control and integration of the arrangement starts to mirror employment.
What is the Construction Industry Scheme and does it apply to my business?
CIS applies to businesses making payments to subcontractors for construction operations, which covers most installation, repair, and maintenance work on buildings (including heating, electrical, plumbing, fire and security, and similar trades). If this describes your work, you need to register as a contractor with HMRC before making your first subcontractor payment. The GOV.UK CIS guide sets out exactly what’s covered and what isn’t.
What changed about employer National Insurance in April 2025?
The rate increased from 13.8% to 15%, and the secondary threshold at which you start paying was cut from £9,100 to £5,000 per employee per year. Both changes take effect simultaneously, which means for most employees the employer NI bill went up by around £500–£600 per person. The Employment Allowance also increased from £5,000 to £10,500, with the previous eligibility cap removed, so many small field service businesses can offset much or all of their employer NI bill if they have more than one employee. The net impact depends on your payroll size and whether you’re eligible to claim.
What does the Employment Rights Act 2025 change for small field service businesses?
Several things are already in effect: SSP is now payable from day one with no waiting period, and paternity leave qualifying periods have been removed. The bigger changes come in from January 2027: the unfair dismissal qualifying period reduces from two years to six months, zero-hours workers gain a right to guaranteed hours, and the cap on unfair dismissal compensation is removed. None of this makes hiring impossible. It makes getting your employment practices right from day one more important. Start with a proper written contract, follow a fair process for any performance issues, and keep records.
