An employee is a person who works under a contract (written, verbal or implied)
of service or apprenticeship with an employer. Generally, a person is also defined
as your employee if:
- you deduct National Insurance contributions and income tax from the salary you pay
them
- you control when, where and how they work
- they are not authorised to employ a substitute when unable to work
The director of a Private Limited Company is still considered an employee if the
company deducts income tax and NI contributions and they own less than 50% of the
business.
A family member who works for you may not be classified as an employee if the business
itself is not incorporated as a limited company.
One of the major defining factors between an employee and someone who is self employed
is the amount of control that an employer has. A person can be considered an employee
when his employer has a certain level of control and direction over how he works.
Someone who is self employed may provide services for an employer, but the employer
has less control over the means and methods of the work achieved.
More details about the definition of an employee can be found here. You should check
with a professional advisor if you are not certain about your employment status
or that of someone working for you.