According to a recent BBC report there has been a 15% rise in the number of self-employed people since 2001. It could be argued that a large proportion of this increase has occurred due to the gig economy, utilising short term contracts carried out by self-employed contractors, most notably used by firms such as Uber and City Sprint.
Although there are undeniably many benefits to being self-employed, for businesses it is important to properly define their staff. There are three types of employment relationship: employee, worker and self-employed.
It is important to properly define your staff because workers have additional rights to genuinely self-employed agents: to NMW, Working Time, Pensions etc.
Defining the status of self-employed agents, workers and employees is difficult. It is almost impossible to provide a definition and one of the most famous judges (Lord Denning) famously said in 1952 “it is almost impossible to give a precise definition … it is easy to recognise a contract of employment when you see it, but difficult to say wherein the difference lies.” GREAT!
The Starting Point
An employee works under a contract of employment.
A worker is an individual who undertakes personally to do or perform personally any work or services for another party to the contract whose status is not that of a client or customer of any profession or business undertaking carried on by that individual.
The main difference between a worker and a self-employed agent is:
Workers are people who carry on a profession or a business undertaking on their own account and enter into contracts with clients or customers to provide work or services for them. Self-employed agents are people who provide their services as part of a business undertaking carried on either by themselves or someone else.
So, if you want to contract with self-employed agents, you need to ensure that they are not obliged to perform the work personally and that they are not obliged to received work. Further, you should ensure that they are responsible for their own tax and NI and that you have a business undertaking between them (limited company) and yourself.
If you want to engage with workers rather than employees, they are obliged to perform work personally but they are not under a contract of employment, nor the same level of control.
There is no set test in law as to when each category becomes either a worker or an employee but all of the elements I have set out herein link to the three stages:
– The work/wage bargain
– The degree of control by you
– That other provisions of the contract should be consistent with it being a contract of service
The various factors you need to look at are:
– Has the person agree to provide a personal service to you?
– Is there an expectation of work from either party?
– Is the person integrated into your business?
– Is your work their dominant purpose?
– How is the person remunerated? Directly, or through a company? Who is responsible for their tax?
– Do they carry their own financial risk?
– Do they provide their own clothing, equipment etc?
– Are they able to work for other rival businesses?
– Are they paid for annual leave, sick leave etc?
– What do the parties understand the relationship to be?
– Is the relationship long-term?
– Have you ever disciplined them?
– What is the written agreement between the parties?
Do you use or know anyone who relies upon sub-contractors? What can be done to protect yourself against potential Tribunal Cases? Please do not hesitate to get in touch for more information.