A director of a company is classed as an ‘office holder’ for the purposes of tax and national insurance as they have different responsibilities to that of an employee. Even if you are the only director of the company you are not automatically an employee. The main reason for this is that directors don’t usually have a contract of employment. However, they do sometimes have ‘service contracts’.
In certain circumstances a director can also be an employee but in order to be classed as an employee they must meet certain criteria, the majority of the below statements must be true in order to be classed as employed:
They work regular hours unless they are on leave such as holiday, sick or maternity leave.
They are required to work a certain amount of hours within the business each month and if the hours are exceeded they expect to be paid over time
They have someone they report to such as a supervisor, manager or director
They are given deadlines that they need to work to
They cannot use a substitute to step in and do their work
They have holiday entitlement
They are entitled to SSP, maternity or Paternity pay
They are entitled to join the company pension scheme
Disciplinary and grievance procedures apply to them
They work at a particular location specified by the business
They could be made redundant
The business supplies equipment required for them to work
They only work for one business, or if they do have another job it’s different to the role they do within the business
They have an employment contract and received an offer letter when they first started working
If all of the above don’t apply then the person is classed as self employed or an office holder.
How about if a director is paid a salary?
Rather than just take dividends from the business some directors may also take a salary. Being on the payroll does not mean that they are classed as an employee. As a director you are unlikely to enforce employment rights against your own business and therefore there is no reason for you to have an employee status.
An office holder is someone who has an official position within a business but does not have a contract of employment or receive regular consistent payments.
This may be;
Company directors, secretaries, board members or statutory bodies
Club treasures or trade union secretaries
Member of the clergy
In order to be classed as an office holder the following must apply;
There is no contract or agreement in place relating to their role
Duties are minimal
They do not get a salary or regular payment
The only receive voluntary payments regardless of their workload
They are not under close supervision from someone else
If you’re still not sure on what the correct employment status is for anyone who works within your organisation, please refer to the government website or give us a call to discuss your situation.