Concerns around ‘bogus’ self-employment have been bubbling under the surface for the last couple of years.

With cases coming thick and fast to courts and tribunals and recent proposals for reform, we look at the importance of employment status, what factors to consider when ascertaining the status of individuals in your organisation and some of our top tips.

Why does employment status matter?

Employees are entitled to an extensive array of rights, workers have certain rights and the self-employed have no significant employment law protections.

If you get employment status wrong, for example, you think someone is self-employed but they are actually a worker, you may end up with a whole host of obligations that you weren’t anticipating!

How do you determine someone’s employment status?  

For all employers, it can be notoriously difficult to work out whether someone is an employee or a worker. Ultimately both Employment Tribunals and the HMRC can make decisions about employment status, but they can reach different conclusions. A person may be classified as one thing for tax purposes and another for the purpose of key employment law rights. It is therefore important to consider both aspects.

Some key factors when determining employment status include:

  • Level of control – How much say does the employer have over the individual? Do they dictate when and how work must be done?
  • Mutuality of obligations – Is there a duty to offer work and for the individual to carry it out?
  • Personal service – Can someone else step in if they can’t do the work?
  • Integration – Are they part of the organisation?
  • Financial risks – Is there a risk for the individual to lose money if things go wrong?
  • Equipment – Does the employer provide them with equipment?
  • Remuneration – How are they remunerated? Do they receive a weekly or monthly wage?
  • Taxation – Are they responsible for own income tax and National Insurance Contributions on earnings or is the employer’s responsibility?

This is not an exhaustive list and each factor should not be considered in isolation but as part of the whole picture.

Three Tips For Employers

1.Look at the contract to see what it says

The law and HMRC are not concerned about labels. Simply stating that the individual is self-employed, for example, is not enough – you will need to look at the terms of the contract.

2.Think about how the relationship works in practice

They will also look to see the true nature of your working relationship, so it’s essential to monitor and review your current working arrangements and practices. Consider do they have a regular pattern of work? Are you obliged to provide them with work? Can they refuse work? Are they paying their own national insurance and tax? Are they under your control and direction? Are they treated like other employees?

3.Consider whether the relationships has changed over time

An individual may do the odd few hours here and there to deal with the organisation’s needs. However, as time progresses, they may start doing regular hours each week, therefore the nature of the relationship has changed and this may affect their employment status.

When dealing with employment status, it is best to seek legal advice. Our Employment Law Advisers can provide you with in-depth guidance and support.

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We combine the service quality of a law firm with the certainty of fixed-fee services to provide expert, solutions-focused Employment LawHR and Health & Safety support tailored to employers.

Call us on 0345 226 8393.

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