Employment status has been placed under intense scrutiny in recent months, leaving some employers wondering if they will end up with more obligations than they bargained for when hiring a contractor or freelancer.

Pros

Taking on a freelancer, contractor or consultant can be a good option for an employer who needs someone to work on a specific project.

Typically, they will be self-employed or employed by another company; therefore you do not need to worry about their tax and national insurance contributions. However, it is always worth checking their individual situation rather than making assumptions and facing costly claims.

As they are self-employed, they are not entitled to employment rights and protections, such as the right to the National Minimum Wage, unfair dismissal or maternity leave. However, you still need to think about their health and safety at work.

Cons

You can’t dictate to them what hours they must work, how they should charge their services, what uniform they should wear, etc.  If you start imposing certain requirements on them, the individual may be considered a worker or employee.

Worker vs self-employed

Ultimately both Employment Tribunals and the HMRC can make decisions about employment status, but they can reach different conclusions. Therefore, a person may be classified as self-employed for tax purposes and employed for the purpose of key employment law rights.

The law and HMRC are not concerned about labels, therefore simply stating that the individual is self-employed is not enough. They will analyse the nature of the working relationship in practice, not just the terms written in a contract.

In recent years, we have seen companies adopt a new business model, which uses apps to connect workers to customers. Rather than recruit workers or employees which involves high costs, the main characteristic of this new model is their use of self-employed contractors. However, those who work for these types of companies have been taking legal action, arguing that they are being falsely classified as self-employed so that companies do not have to provide them with employment rights.

In October 2016, an Employment Tribunal found against the company Uber, which allows people to book and pay for a taxi via an app. It held that the people who work for Uber are workers, not self-employed as the company claimed, and as such they are entitled to workers’ rights.

This year, a courier with the logistics company City Sprint also won her case regarding her employment status.

Most recently, the Court of Appeal ruled against Pimlico Plumbers, stating that their self-employed contractor was actually a worker and had the right to holiday pay, minimum wage and all the other rights that workers are entitled to.

The government has also placed the issue under their radar. Late last year, Matthew Taylor, the Chief Executive of the Royal Society of Arts, was asked to assess modern employment practices, taking into account the implications of new forms of work on workers’ rights and employers’ obligations. We are awaiting the results of this review later this year.

Employment status is an extremely complex area of law, therefore we would urge you to seek legal advice at the earliest opportunity. Our Employment Law Advisers can provide you with bespoke and comprehensive advice to help you understand all the legal implications.