Employers are required by law to deduct, through the payroll, income tax under PAYE and Class 1 National Insurance contributions (NICs) from the earnings of "employees", and to calculate and pay employer's NICs as a percentage of each employee's earnings. It is, therefore, essential that employers correctly identify all of their "employees". (See I am self-employed. Why does my client insist on putting me on the payroll?)

According to the tax legislation, an employee is:

• a person who works under a contract of service,
• a person who works under a contract of apprenticeship, or
• a civil servant.

In addition, the tax legislation requires some other persons to be treated as employees for PAYE purposes, i.e.

• office holders, such as directors and company secretaries (See I am a company director. Am I an "employee" or a "worker"?)
  
  
• agency workers, i.e. persons supplied to clients by recruitment agencies (See I find work through a recruitment agency. Am I an "employee" or a "worker"?)
  
  
• workers supplied, in certain circumstances, to work for a client by an intermediary (i.e. "IR35 workers". (See I am subject to IR35 rules. Am I an "employee" or a "worker"?)

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