Employment Law Update - November 2016
Just because an individual pays tax and national insurance as a ‘self-employed’ person, does not automatically mean they are actually self-employed rather than an employee. What matters is what happens in practice about how they work, who decides what work they do and what they are expected to do by the employer.
The right employment status?
You may be aware of the recent court ruling that drivers working for the taxi-hailing app company Uber, who have been treated as self-employed are in fact employees which attracts a number of additional benefits including the national minimum wage.
The outcome has highlighted that just because an individual pays tax and national insurance as a ‘self-employed’ person, then it does not automatically follow that they are actually self-employed rather than an employee. What matters is what happens in practice about how they work, who decides what work they do and what they are expected to do by the employer.
The main legal distinction therefore is between workers who have contracts of services (ie employees) and those who have contracts for services (ie independent contractors).
The intention of the parties is not the sole determinant of employment status. The relationship between the two parties can be important and the courts as well as HRMC may be wary of ‘sham’ arrangements.
The fact that people have accepted self-employed status for some years does not prevent them (or others) arguing that they are, in reality, employees.
The most important factors to consider are whether a contract of employment/service exists or not, mutuality of obligation and personal performance.
What are the tests?
What was the intention of the parties re status? What are their views of the relationship?
This cannot be the sole determinant of employment status.
An element of control – is there a contractual right to control or does the worker have day to day control of his/her own activities? Does the employer control how the worker does the work, and do the employer’s disciplinary procedures apply to the worker? The more control, the more likely it is an employee/employer relationship.
Mutuality of Obligation
Does any form of contract exist that shows a ‘Mutuality of Obligation’ between the employer and the individual/s. i.e. Does the employer have to provide work, and does the worker have to take work that is offered? If so, this is indicative of employee/employer relationship. Is there a right to refuse work? If so, is this a genuine right? If there is a right to refuse this could suggest that it is not an employee relationship but if in practice it has to be accepted and so it is only a right on paper, this may still be part of employee contract. If someone is not bound by mutuality of obligation, they are more likely to be a worker or self-employed in status.
Personal Service (Performance)
This is crucial – is the individual required to perform his/her service in person (i.e. himself) or can he provide a substitute? Can the worker send another person to do work for the employer on their behalf? If he can substitute then this is strong indicator of no employment. A genuinely self - employed person supplies work but it need not necessarily be done by himself. The reality may be that they do so (if small or sole trader) but if they are not bound to, this is important. A worker for the purposes of the Working Time Regulations (right to holidays etc.) and minimum wage will also be required to provide personal service.
What recommendations do cHRysos HR make?
If your organisation uses self-employed individuals, check their employment status in light of the above.
cHRysos HR can provide help and advice with doing this. Call us on Tel. 01302 802128 or Email firstname.lastname@example.org
NB. It is important to note that the above is provided as general guidance only and is not intended as a substitute for specific legal advice. Individual examples would need to be considered taking the appropriate legal advice and on a case by case basis.
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