Hiring a UK contractor versus a UK employee
An overseas company with work to do in the UK usually ends up with two offers on the table. One is a day rate from someone who will send an invoice. The other is a salary, with a payroll to set up behind it. The day rate looks simpler, and sometimes it is the right answer. But the choice is only partly yours, because the way the work is done decides the person's status, whatever the contract calls it. This page is the commercial side of the decision. The legal test itself is in our guide to the employed or self-employed test.
The short version. Engage a contractor when you are buying a result and can live without directing how it is delivered. Employ someone when you need their time and judgement under your direction. On cost the two are often closer than people expect, particularly where no UK employer's National Insurance is due. The real risk is choosing a contract for a role that works like a job.
What you are actually buying
| Question | A contractor | An employee |
|---|---|---|
| Who decides how the work is done? | They do, within the brief | You do |
| What are you paying for? | Days or deliverables, on invoice | Their time, including paid holiday |
| Who deals with their UK tax? | They do, or their own company does | A payroll, every payday |
| Holiday and sickness | Priced into their rate, if at all | 5.6 weeks' paid holiday a year, and Statutory Sick Pay from the first day of sickness |
| Other clients | Expected, and a sign the arrangement is genuine | They work for you |
| Ending it | On the contract's own terms | With notice, and the protections employees have |
What each one costs: a worked example
Take a fictional bicycle components maker in Taichung, with no office, branch or staff in the UK. It wants someone in Coventry to look after its UK dealers full time, and it has two offers: a self-employed rep at £190 a day, or an employee on £38,000 a year. Assume the rep would work 220 days in the year.
| Per year, at 2026/27 rates | Contractor | Employee |
|---|---|---|
| Day rate or salary | £41,800.00 | £38,000.00 |
| Employer's National Insurance | None | None expected on these facts |
| Employer pension, 3% of £31,760 qualifying earnings | None | £952.80 |
| Payroll, a DPNI scheme at £157 a month | None | £1,884.00 |
| Total | £41,800.00 | £40,836.80 |
On these assumed figures the employee is slightly cheaper, which surprises people. A day rate has to cover the contractor's own holidays, the gaps between clients and their own pension, so it usually comes out higher per day than a salary for the same work. Add the one-off scheme setup fee from our pricing page and the two are close enough that cost should not be what decides it. Details are illustrative and invented.
The line that moves the sum is employer's National Insurance. Under HMRC's rules an employer owes UK employer's National Insurance if it is resident, present or has a place of business in Great Britain. An employer based in the EU, Gibraltar, Switzerland, Norway, Iceland or Liechtenstein can owe it too, where the employee works in the UK and UK National Insurance is due. For most employees, UK employer's National Insurance is 15% of pay above £5,000 a year. On this salary that would add £4,950.00 and make the employee the dearer option. On a Taiwanese employer like this one we would expect none to apply, and we check that against the facts before we ask HMRC for a scheme rather than assuming it. The full cost of a UK employee runs the same sum for any salary.
Four signs the role needs an employee
You will set the hours and the priorities
If you decide when they work, what they work on this week and how it gets done, you are directing them. Contractors are engaged to deliver something, not to be managed day to day.
They will be the face of your company
A company email address, your name on their business card, and an introduction to dealers as your UK manager. That is somebody inside the business, not a supplier to it.
The work has no end
A rolling arrangement with no finish date, where you expect them to keep taking the work and they expect you to keep offering it, looks like a job however each month is invoiced.
Nobody else could do it in their place
If they could not send a capable colleague instead, and you would not accept one, the arrangement depends on them personally. That points away from self-employment.
Each of these points towards employment, and the more of them are true, the harder a contract becomes to defend. How the factors are weighed against each other is in the employed or self-employed test.
When a contractor is the right call
There are good reasons to engage a contractor, and they are commercial ones. A defined project with an end date, such as a review of the dealer network or a six month product launch. A specialist you need for twenty days a year rather than two hundred. Someone who already runs their own business, has other clients and has no wish to be anybody's employee. In each of those you are buying a result and the person decides how to deliver it.
The contractor route does not remove everything. If they work through their own limited company, the off-payroll rules come into it, and where those land depends first on whether your company has a UK connection, which our IR35 guide for overseas engagers sets out. And for arrangements entered into on or after 1 October 2026, the Home Office employer's guide extends right to work checks beyond employees, to people engaged under a worker's contract and to individual sub-contractors, a term it defines narrowly. Read our note on right to work checks for overseas employers before assuming a contractor is outside them.
The status question underneath
GOV.UK lists more than two kinds of employment status. Between employee and self-employed sits the worker, who is not an employee but is still entitled to the National Minimum Wage and the statutory minimum level of paid holiday. A person may have a different employment status in tax law. Courts and tribunals can make final decisions on employment status. So the contract is evidence, not the answer.
If an arrangement you treated as a contract turns out to be employment, the months already worked have to be put right, and that is a much harder conversation than choosing the right structure on the first day. Acas give advice on employment status, and their helpline is 0300 123 1100.
If the answer is an employee
With no UK entity, the scheme depends on where your company is and whether it has a UK presence. We will ask HMRC for the scheme that fits your facts, and they may suggest a different one once they have the full facts. HMRC's DPNI guidance lists employees of a foreign employer with no UK address from which pay is sent. Employers in the EU, the EEA or Switzerland usually get an NI-only scheme, and a UK branch or place of business means normal PAYE. A DPNI, DCNI or tax-only scheme is £157 a month per scheme, however often you are paid. We estimate four to eight weeks for HMRC to set the scheme up, and that is our estimate, not an HMRC figure. It is worth deciding before the start date rather than after it. If you would rather somebody else held the employment altogether, an Employer of Record is the third option.
Weighing up a UK hire?
Tell us where your company is registered, where the person will work and how the work will be done. If it is an employment, we will tell you which scheme we expect to ask HMRC for and send a fixed monthly fee.
Get startedCommon questions
Is a UK contractor cheaper than a UK employee?
Not always. A day rate has to cover the contractor's own holidays, gaps between clients and pension, so it is often higher per day than a salary for the same work. Where the employer owes no UK employer's National Insurance, the gap narrows further. Compare the full annual cost of both, at 2026/27 rates, before deciding.
Can I call someone a contractor to avoid running a UK payroll?
No. Status follows how the work is actually done, not the label on the contract. If you set the hours, direct the work and expect the person to do it themselves, the arrangement looks like employment however it is invoiced.
What is a worker, as opposed to an employee?
GOV.UK lists the worker as an employment status of its own. A worker is not an employee but is still entitled to the National Minimum Wage and the statutory minimum level of paid holiday. Acas give advice on employment status, and their helpline is 0300 123 1100.
Read next
- Employed or self-employed? The test HMRC actually applies, for how status is weighed.
- Off-payroll working (IR35) for overseas engagers, if the contractor has their own company.
- The full cost of a UK employee, for the employee side of the sum at any salary.
- What a DPNI scheme is, the usual route for an employer with no UK presence.
- Right to work checks for overseas employers, which apply either way.
General information about choosing between a contractor and an employee in the UK, not tax, legal or employment advice. Figures are those published for the 2026/27 tax year as at October 2026 and can change, and employment status turns on the facts of each arrangement. Please check your own position or get advice before acting.