There are many businesses that use self-employed contractors instead of employing staff. And who can blame them when they can avoid the minefield otherwise known as Employment Law! Also, side-stepping having to commit to the regular provision of work, pensions, holiday pay and sick pay.
If only it were that easy…..
Unless you set clear boundaries and manage the contractors effectively they can cause problems for your business or even make allegations that they were in fact employed and make a claim via employment tribunals.
Employed
Works part-time or full-time under a contract of employment and the company pays their salary. They are expected to comply with company rules and can be managed through a disciplinary process. Employees have recognized rights and duties. Employers have many commitments including, provision and contribution to an auto-enrolment pension, paid holiday and notice periods.
Self-employed
A self-employed person will run their own business and take responsibility for the success of their business. Self-employed people are more likely to be contracted to provide a service for a client. They will not be paid through PAYE and don’t have the same employment rights and responsibilities as employees or workers. They are not entitled to holiday pay, paternity or maternity leave, pension provision etc.
A self-employed person still has protection for their health and safety on a client’s premises, in some cases, will be protected against discrimination and will have their rights and responsibilities set out in the terms of the contract with their client.
The key is sticking to the agreement and following the guidance set out by HMRC.
Below are indicators of what is self-employment to check the status of self-employed individuals.
Self-Employed:
- should exercise independent control and judgement over how the work is carried out
- would normally work for a number of people
- have professional indemnity insurance
- It should be possible to make a loss
- have the right to appoint a substitute and are not necessarily required to carry out work personally
- can decide whether to accept offers of work or not, this, of course, leads to them having the option to determine their own working hours
- normally have to correct faulty work at own cost and time
- provide their own materials and equipment
Ideally, a business should be able to tick yes to the majority of the points, if not maybe it is time to think about how to clearly define the self-employed status.
If you are asking self-employed workers to attend staff meetings, be at work at a certain time, wear a particular uniform, sell a specific brand of product, charge a certain price, have performance reviews or disciplinary meetings – you should have a rethink.
Research by Citizens Advice has suggested that as many as 460,000 people in the UK could be falsely classified as self-employed, costing up to £314m a year in lost tax and employer national insurance contributions.
Following the recent landmark case where a tribunal ruled that Uber drivers were not self-employed, this has become a hot topic and the government launched a recent inquiry which will look at the status and rights of agency and casual workers and the self-employed for the purposes of tax, benefits and employment law, and how to protect them.
The reasons why Uber drivers are not self-employed:
- The company claimed the drivers’ made a contract with the passenger and the company was merely their agent, but this didn’t reflect the reality of the situation—the passenger booked through the company and the driver accepted the booking
- Uber interviewed drivers to assess their suitability which looks like recruitment
- Uber retains the passengers’ names, addresses, and contact details and takes their money
- Effectively drivers had to accept trips
- Uber set the route for the driver to follow
- Uber fixed the fare
- Uber rated the performance of their drivers
- Uber handled complaints against drivers and rebate
Penalties
If the contractor works purely for the same company over a period of time they may gain ‘worker’ or even ’employee’ status in the eyes of an employment tribunal. Claims are often made by contractors who have missed out on a redundancy payment or who feel they are entitled to holiday pay. If a claim is submitted for a redundancy payment it is likely to be accompanied by a claim for unfair dismissal. There is, surprisingly, little financial risk to the contractor in making a claim in the employment tribunals.
Summary
Ascertaining whether a worker is an employee or self-employed is not as simple as looking at the label the parties have attached to the relationship.
Employment tribunals will look at the realities of the relationship as a whole, considering a range of factors and making a balanced decision.
The importance of ascertaining employment status cannot be under-estimated, because there is so much at stake for the employer who tries to deny his worker’s statutory employment law rights.
It is unlawful for the employer to privately agree with his employee that the statutory rights will not apply. The only exceptions are where there is an ACAS-approved COT 3 form signed or where the employee has signed a properly drafted Settlement Agreement after having received independent legal advice.
Having self-employed workers is a perfect solution in many industries and we have experience with various employers who have self-employed contractors, for example, hairdressers, beauticians, mortgage advisers and airlines hiring self-employed pilots. And when managed correctly the arrangement works well for both parties, and everyone can benefit.
Please get in touch if you have any queries regarding self-employed people in your workplace, or if you have any other queries relating to expert HR advice for small businesses.
