People who work for an employer may be classed as employees, workers or self employed. The difference is important since employees and workers will benefit from certain statutory rights (both are entitled to pension and paid holidays for example), whereas the self employed will not.
It is very important then that proper contractual arrangements are in place between the employer and the people working for them which clearly and correctly define the nature of the relationship. Where such paperwork is in place the courts are generally reluctant to argue with what it says, but they will they suspect the contract was established in order to deceive, for example if the employer was trying to unlawfully avoid paying employer’s national insurance contributions. There have been a huge volume of cases in recent years where self employed status has been challenged and these have led to employers (whose ‘self employed’ people have been ruled to be workers) facing substantial 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.
HMRC may also seek to challenge self employment status under ‘IR35’ regulations, effective 01 April 2020. These regulations, which first appeared in the public sector, will challenge tens of thousands of private sector ‘self employed contractors’ and builds on recent case law which saw companies like Uber, Deliveroo, Pimlico Plumbers etc. being successfully challenged that their ‘self employed’ contractors were really workers. IR35 introduces a new category of ‘off payroll workers.’ These are people who, in HMRC’s opinion would be regarded as workers but for the contractual arrangements in place. An ‘off payroll worker’ may continue to be paid outside of the employer’s normal payroll but the end user of their services will have the responsibility of deducting tax and national insurance contributions from any payments made to the worker.
A genuinely self employed person (i.e. who would not meet the criteria of being am off payroll worker, a worker, or an employee) would be expected to demonstrate all or the majority of the following:
Provides own tools/equipment
Free to accept work or not
Free to work elsewhere
Works for a number of different businesses
Free to send in a substitute person to do the work
Invoices the employer for work done
Pays own taxes and NICs
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 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. In some cases however the tool is not 100% accurate, and 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 their contractors.
Self employed people 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 this is an area that is much better understood than a few years ago, and many ‘self employed’ people are getting wind of their rights. An escalation of cases is not simply likely, it is inevitable.
Help and support
We can help prepare appropriate contracts for self employed people and we can help to determine the employment status of others if there are any concerns. Employment status is a notoriously difficult area of employment law, but by applying a range of tests we are normally able to provide an assessment of the risk of a self employed person being regarded as an employee or worker.