People who work for an employer may be classed as employees, workers or self-employed. The difference is important because each category is entitled to a different level of employment protection, with employees receiving the greatest protection and the self employed the least.
Employees receive protection from unfair dismissal, are entitled to a statutory redundancy payment if they are made redundant and benefit from family friendly rights such as maternity and paternity leave. They also receive paid holiday, must be paid at least the national minimum wage and are protected from unlawful discrimination.
“Workers” are a “half-way house” between employees and the self employed, being individuals who have entered into a contract to perform work or services personally but where other key characteristics of an employment relationship are not present. In particular, there is often a lack of “mutuality of obligation”. This means that the employer is not required to offer a guaranteed number of hours work and the Worker is not required to accept the work offered. Mutuality of obligation is a key requirement of an employer/employee relationship. Although workers cannot claim unfair dismissal they are entitled to holiday pay and must be paid at least the national minimum wage. They are also entitled to protection from unlawful discrimination. The protection for the self employed, is limited to protection under health and safety laws and from unlawful discrimination.
It is important that proper contractual arrangements are in place between employers and those working for them which clearly define the nature of the relationship. It is also important that the contract accurately reflects the reality of the situation – just because a contract claims to be a contract for services (a self employed contract), does not necessarily mean that a court would agree – the court would look at the reality of the relationship and apply certain tests (including the “mutuality of obligation” test) in order to determine the employment status of the individual.
There have been lots of cases in recent years where self-employed status has been challenged and where supposedly “self employed” individuals have been ruled to be workers. This has led to employers facing substantial claims for holiday back pay and tax bills. To top it all should a self employed person be deemed to be an ’employee’ they will also have the right to pursue an unfair dismissal claim if their employer decides to terminate their contract.
Another factor to consider when considering employment status, are the changes to the ‘IR35’ regulations, effective 01 April 2020. The regulations introduce a new category of ‘off payroll workers.’ These are individuals who work through an intermediary (often their own personal services company) and who, in HMRC’s opinion, would be regarded as workers (or employees) but for the contractual arrangements in place. Under the IR35 regulations, an ‘off payroll worker’ may continue to be paid outside of the employer’s normal payroll but the end user of their services (generally the employer) will have the responsibility for deducting tax and national insurance contributions from any payments made to the worker.
HMRC provides an employment status check tool on their website and they advise employers to use the tool each time they seek to engage a self-employed person under a contract for services and to keep a record of the case number the tool generates. This record can help provide a defence in the event of a later challenge by HMRC. The tool can be found on: http://www.hmrc.gov.uk/calcs/esi.htm.
The tool is not 100% accurate, and is, of course, dependent on the accuracy of the information inputted. Some employers have argued that the tool’s default determination appears to be ‘off payroll worker.’
myHRdept can help determine the level of risk of a self-employed contract being regarded as something else (and advise on what to do about it if it is unsafe.)
Typical employment law pitfalls
Poor quality, inaccurate, or absent contracts between the employer and those who work for them.
Self-employed people who could be found to really be off payroll workers, workers or employees, leading to a range of claims against the employer covering tax, fines, holiday back pay and even potential unfair dismissal and minimum wage claims. Some claims could stretch back for years.
Increasing numbers of high profile cases means that this is an area which is now much better understood and many ‘self-employed’ people, with contracts for services, are aware of the possibility of successfully claiming the status of a worker or employee, with the associated employment rights. Further escalation of such claims is likely.
Help and support
We can help prepare appropriate contracts for employees, workers and self-employed people. We can also advise on the assessment of employment status where there are any concerns. Employment status is a notoriously difficult area of employment law, but by applying the range of tests generally adopted by the courts, we are normally able to provide an assessment of the risk of a worker being found to be an employee or a self-employed person being regarded as an employee or worker.
If you’re thinking of outsourcing your HR, payroll or employment law needs, why not contact myHRdept? Call us on 01628 820515, email us at email@example.com to discuss your requirements, or contact us via our website and we’ll call you back.