Contract of service or contract for service

Hi i had a test today and i was just wondering if you could please help me.

Basically this guy is made redundant from his job as a translator for a firm. he then sets up a translation company and his old boss rings him saying, they need him back. So he works there full time and the manager says he can use a spare office and if he wants holidays it'll be no problem paying him for the time off. And the fiancial department help him with his taxes. Then the company who hired him is closing down.

Is he an employee or a contractor. If an employee he'd be entitled to severance pay. Thanks a million