Employed or Self Employed?
The legal distinctions between ‘Employed’ and ‘Self-Employed’ are not straight forward; even HMRC and the Employment Tribunal can come to different conclusions. Employers need to be conscious not only that their contracts are carefully drafted but equally that the working practices reflect the actual legal relationship; as courts have been willing to overturn them.
The evolution of the ‘worker’ status has blurred the lines in recent years; workers have less extensive protections than employees. Employers need to be able to identify the differences between the people who work for their businesses and the protections that are afforded to them.
Being an employee is in effect the ‘gold standard’ in terms of protection, though it could be possible for a self-employed contractor to be considered a ‘worker’, and therefore although not given the extensive protection of an employee, the employer still needs to be aware of the implications of this legal status. In order to be considered a worker, the person in question could be serving under either a contract of employment or any other contract where they agree to perform work or services personally.
The definition of worker has been tested by the courts and the following are helpful in order to identify a worker:
- Personal Service: The individual should undertake to personally perform work or services, though a limited ability to appoint a substitute is not fatal.
- Business Undertaking: If the ‘employer’ is described as a customer or client. This is indicative but the courts will look at other relevant factors such as the degree of control exercised by the ‘employer’, the exclusivity of the arrangement, method of payment and level of risk undertaken by the worker.
- Mutuality of Obligation: Should the individual have the choice to refuse work, or if the employer does not have to provide work this will be significant for determining whether an individual is a worker or self-employed.
In addition, in order to be considered self-employed the element of ‘control’ is added to the mix, if no contractual right of control over the individual is retained by the ‘employer’, e.g. the individual can choose how work is completed, the way it is completed and timescale, this is indicative of a self-employed individual.
Should an individual have no obligation to accept work, have the ability to substitute a replacement to undertake any work, deals with customers and works with more than one, it is likely they would be considered to be self-employed. Other factors which assist the courts in making a decision on the status of an individual include:
– Ability to profit from own good performance
– Whether a person is paid when absent due to holiday or sickness
– Degree of financial risk
– Who maintains or provides tools or equipment
The distinction is important as it has vast implications for employers. Employees require much more administration and legal compliance such as health and safety, liability insurance, tax and payroll treatment and the need to follow ACAS for disciplinary and grievance.
For those of us who employ the services of sub contractors it really pays to take legal advice early on so the lines are not blurred and both parties know exactly where they stand.