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The end of self employment
How big do you need to be before you are no longer self employed?
vincevincevince




msg:3385705
 2:34 am on Jul 4, 2007 (gmt 0)

Not necessarily looking for a legal or taxation definition here, any suggestions welcome. Many of us started firmly self employed (self + computer + internet at home) and gradually things build up from there. At some point we might start outsourcing, or taking on staff, or getting an office, etc.

At what point do we no longer say we are self employed? And what do we say we are? Boss? Manager? ....

 

rocker




msg:3385707
 2:41 am on Jul 4, 2007 (gmt 0)

At what point do we no longer say we are self employed?

When you start issuing w-2 forms instead of 1099 :)

vincevincevince




msg:3385855
 7:14 am on Jul 4, 2007 (gmt 0)

rocker.... do you have a British translation of that? And what do you call yourself then?

nuevojefe




msg:3385866
 7:38 am on Jul 4, 2007 (gmt 0)

You are no longer self-employed when you hire someone. A business owner has other people (non-1099) working for them. Self employed simply means you work for yourself and may contract others but don't have employees per se.

vincevincevince




msg:3385867
 7:52 am on Jul 4, 2007 (gmt 0)

So, any staff means you are no longer self employed? Does it matter if the staff are not directly income producing? (British translation of 1099 anyone?) e.g. if I employ someone to do filing, accounts, cleaning, does that make me no longer self employed?

Does having someone on a salary instead of a contract really make such a difference to my status? I could employ hundreds of people on a contract basis and still be self employed?

ronin




msg:3385894
 8:55 am on Jul 4, 2007 (gmt 0)

As with a lot of things the definitions seems self-evident until you start to examine them closely - at which point they start to get very hard to pin-down.

I would think once you are no longer a sole trader and you have at least one full time employee who contributes to the bottom line of the company then you are definitely not self-employed.

But there is a lot of haze between being registered as a sole trader, working on your own with no assistance and that point.

Lexur




msg:3385898
 8:57 am on Jul 4, 2007 (gmt 0)

You are self employed until you own a company.
While your business will disappear once you left it alone, you are self employed.

If you can left the business running alone and back six months away just to keep the benefits or you can transfer it to another company, you just did it: you're the boss.

Shadi




msg:3385920
 9:41 am on Jul 4, 2007 (gmt 0)

You are no longer self employed when you have enough full time staff and capacity in your company that it is not dependant on you to maintain existence (you personally might still be better than anyone else at what you do) but as long as it is self sustaining with staff on board then you are officially a boss of a company and no longer self employed.

Anyone can own a company, but the real kicker is if this company is generating enough income to afford full time staff and be self sustaining.

You are self employed if:
> your staff are mainly contractors working for you
> if your majority of work is "freelance"
> if you or your partners are the only one in the "company"

rocker




msg:3385936
 10:06 am on Jul 4, 2007 (gmt 0)

rocker.... do you have a British translation of that?

vincevincevince, I do not know what British tax forms have to be filed.

And what do you call yourself then?

I consider myself self employed. I have no employees and anyone I pay money to,for work, I consider to be a contractor and I send them a 1099.

oneguy




msg:3385952
 10:15 am on Jul 4, 2007 (gmt 0)

I call myself "self employed" for as long as I run the show.

At some point, I'm part of an organization I created or part owner of an organization I created. At some later point, I cash out and retire.

Some of you are saying that having employees makes the difference. I say it's about ownership. I can own a business 100% and have plenty of employees, and I'd still call myself self-employed. If someone else owns a portion of the business, I'd say I'm not. At that point, I'm working partly for me and partly for them.

Dabrowski




msg:3386283
 6:29 pm on Jul 4, 2007 (gmt 0)

You are self employed until you own a company

Nail on the head.

The biggest difference (in the UK) is that when you're self-employed, you declare your own earnings and pay tax afterwards.

Also, self-employed people do not have to register with companies house, and submit their accounts.

I own a limited company. I am not self employed, I am employed on a full time salary, by a company which I happen to own.

I can employ people. I pay their wages, and PAYE tax and NI. A self-employed person can pay a sub-contractor.

[edited by: Dabrowski at 6:37 pm (utc) on July 4, 2007]

vincevincevince




msg:3386536
 2:16 am on Jul 5, 2007 (gmt 0)

Dabrowski...

A company is just a structure, at the end of the day, does it make a difference to my practical whether I pay someone PAYE and NI as an employee, or pay them a premium as a sub-contractor which ends up going to the same place anyway?

Also, a sole trader can hire full-time staff, run an PAYE scheme and contribute NI, so it's not necessary to have a company to be doing that.

The submission of accounts to companies house is part of the 'terms and conditions' behind setting up a company - you get to create a corporate body and in return you have to be a bit open about what it's doing and pay the right taxes. In a way, the company formation requirements are like being born and getting a birth certificate.

If you own a company, and that company pays your salary, if you stopped paying yourself then your company would have additional profit equal to your fomer salary, which you could take as a dividend. In just the same way, if you were a sole trader, you could pay yourself monthly, or keep your money in the business account and pay as a lump at the end of the year. I don't see what about one behaviour stops you being self-employed, other than in a legal sense.

I am aware that if you register as self-employed, there are certain criteria from the tax office which define you as such; and likewise, if you are paid by a company you are formally defined as employed. But that's the tax and legal position... what makes the change, from a practical position?

A 'company' with only one employee who is also the only shareholder is a vehicle for limiting liability, polishing up the business card and helping with tax... to my mind you the owner/employee/employer (same guy) is clearly self employed.

And then, you get back to the original question... when does this guy cease to be self-employed? When he hires a cleaner? An accountant? His first technical staff?

In many ways I like oneguy's approach, although it would seem to imply that someone who builds up a company through good internal reinvestment and does not need to seek external investment to raise capital remains self-employed, whilst someone who has raised external capital is not.

Important question... if you are not employed by anyone but a company you own entirely, what are you? Are you always self employed, or can you be employed by your own asset? Are you then an 'investor' - in the same way that someone who buys shares in another company derives income as an 'investor' - after all, your income is based upon the shares you hold?

Marshall




msg:3386547
 2:38 am on Jul 5, 2007 (gmt 0)

In Pennsylvania, as I would imagine in other states, there are various ways to register a business: None, Sole Proprietorship, Partnership, Limited Liability Corporation, Corporation.

None – You operate under your own name and files taxes using your social security number, issuance of credit is based on personal credit rating;
Sole Proprietorship – Company operates under a fictitious name and can file taxes either under SS# or federal tax id, issuance of credit is based on personal credit rating;
The last three are basically incorporated entities filing taxes under a federal id number, owners/principles draw pay regardless, issuance of credit is based on corporate credit rating.

Based on this, I would interpret “self-employed” as being None and Sole proprietorship for legal purposes since your are personally liable for everything the business does and have no (or little) legal protection. This is especially important when your personal assets such as a house, could be at stake in a lawsuit.

Bottom line: I say self-employment hinges on your personal liability to the company/business.

Marshall

Dabrowski




msg:3387011
 3:41 pm on Jul 5, 2007 (gmt 0)

Also, a sole trader can hire full-time staff, run an PAYE scheme and contribute NI, so it's not necessary to have a company to be doing that

Didn't realise that.

ok, setting the tax/legal definitions aside......

to my mind you the owner/employee/employer (same guy) is clearly self employed

ok, that's me, I don't employ anybody else as I don't have consistent enough work yet, but I have a number of sub-contractors who I use regularly.

and does not need to seek external investment to raise capital remains self-employed, whilst someone who has raised external capital is not.

Couldn't you equate that to getting a personal loan? Hence he's still self-employed? I am Limited, but have no external investment, am I self-employed? I don't think you can relate whether you're financed or note as being self-employed, unless you have a sponsor, then you're technically working for them I guess.

Important question... if you are not employed by anyone but a company you own entirely, what are you? Are you always self employed, or can you be employed by your own asset?

Technically, I'm employed 'by my own asset'.

Are you then an 'investor'

No, I never put any money into my business - not even to start up.

And then, you get back to the original question... when does this guy cease to be self-employed? When he hires a cleaner? An accountant? His first technical staff

How does him employing people affect his own employment status? Practically you could define self-employed as finding your own work, so no matter how many people you employ yourself, if you're seeking your own work, and that's paying your wages, you're self employed.

Given this context, Bill Gates is technically self-employed, he owns a big company, and technically generates his own income.

So where do you draw the line?

mcavic




msg:3387347
 11:25 pm on Jul 5, 2007 (gmt 0)

British translation of 1099 anyone?

1099 = Contractor/consultant
W2 = Employee with benefits

So where do you draw the line?

To me, it's about providing an office for employee(s) to work at. And by work, I mean contributing to the business. Accounting, filing, talking to customers, but not cleaning.

If that office is your house, maybe ask yourself if employees show up and knock, or let themselves in. If they have a key that they use just so that they don't have to wait for you to answer the door, then it's an office.

It's about being able to say "I own XYZ company" and having that mean something in terms of brick-and-mortar.

King_Fisher




msg:3387510
 5:45 am on Jul 6, 2007 (gmt 0)

Don't know about the UK, but in the US you are self employed if you
are the sole owner and founder of the company.IE; I employ myself,
therefore I am self employed! Might change if you are Incorporated
then you are an employee of the corporation. KF

vincevincevince




msg:3387528
 6:30 am on Jul 6, 2007 (gmt 0)

Dabrowski, I'm not entirely sure whether your suggestion that Bill Gates is self employed is the opinion you hold, or showing a weakness in the definition. If Bill Gates ceased any involvement in Microsoft other than getting money from them, would that change things?

If I were to buy the shares of existing company entirely and then, as sole shareholder at the AGM, appoint myself a director - would I be self employed? If I did not make myself a director and appointed others as directors - does that change my status?

mcavic:
I understand your point about providing an office. On the other hand many industries don't have an office for employees. If my business is contract cleaning, then I have an office for myself, but my employees (the ones who make the money) spend their time entirely at my client's premesis undertaking cleaning. Even in the IT industry, it is becoming very common to be both employed on a full-time salaried basis and to work from home or even from abroad.

It's about being able to say "I own XYZ company" and having that mean something in terms of brick-and-mortar.

If you say that, then it implies that a company without serious physical bricks and mortar isn't a company, and surely that's not true?

Dabrowski




msg:3387918
 5:21 pm on Jul 6, 2007 (gmt 0)

Dabrowski, I'm not entirely sure whether your suggestion that Bill Gates is self employed is the opinion you hold, or showing a weakness in the definition. If Bill Gates ceased any involvement in Microsoft other than getting money from them, would that change things?

LOL!

No, in my oppinion he's not self-employed, but like me, he is employed by a company which he owns.

I was just extending the definintion I suggested, where employing other people does not effect your own employment status.

If I were to buy the shares of existing company entirely and then, as sole shareholder at the AGM, appoint myself a director - would I be self employed? If I did not make myself a director and appointed others as directors - does that change my status?

Being a shareholder doesn't make you an employee. If you take a wage, that makes you an employee. Whether you owned the company to start, or bought into it that definition is the same.

To me, it's about providing an office for employee(s) to work at

I like that definition, a company is only on paper, until it has premises, then it becomes a physically entity.

I suppose you could argue that once you have at least 1 employee, doing anything, you're not only employing yourself anymore, hence the term self-employed falls short.

vvv are you looking for an actual definition, or an 'observed by others' definition?

dmorison




msg:3387922
 5:25 pm on Jul 6, 2007 (gmt 0)

Here you are Vince3 - from the mouth of the horse...

[hmrc.gov.uk...]

LifeinAsia




msg:3387925
 5:38 pm on Jul 6, 2007 (gmt 0)

Literally, you are self-employed until you are no longer employing yourself. There are several ways this can happen:
1) You quit/sell your business. Now, you are UN-employed.
2) You stop paying yourself. Now you're slave labor.
3) You change the business structure into a company/partnership/whatever. Now you're a business owner.

Also, 4) You continue working 18-hour days, 7 days/week, and don't take a vacation for 5 years. Now you're a mess. :)

Dabrowski




msg:3388396
 2:33 pm on Jul 7, 2007 (gmt 0)

Also, 4) You continue working 18-hour days

Only 18? I worked 38 hours on Monday. Work that one out?

I thought this was supposed to be better than a 9-5! ;)

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