How do I know if my “Self Employed” staff are actually “Employees” (having employment rights)?
Not knowing the correct answer to this for your staff could be costly. This situation has been challenged in court several times recently with the outcome that those staff considered by the employer to be self employed staff were deemed by the court to be employees with major financial repercussions for the employer.
How can I check this out? - See also our checklist in this article
The recent cases involved a company with several Independent Financial Advisers(IFA’s) acting for them purportedly as self employed. The services of one of these IFA’s were terminated and the individual claimed he was unfairly dismissed. The employer claimed they the IFA was self employed and therefore had no employment rights but the court decided he was an employee as were the other IFA’s. The individual therefore can claim unfair dismissal and the company are unlikely to be able to defend the claim if no dismissal procedures were followed as would have been the case had the individual been known as an employee.
A further case heard by the Supreme Court decided that the contract between self employed contractors who were valeters was a sham as there was a reasonable degree of control of the contractors by the company and they never provided substitutes. Even though the contractors paid their own tax and national insurance the court decided they were employees and entitled to all employment rights.
Many employers use so called “self employed” staff mainly to avoid the ongoing overhead costs and perhaps because they use them on a casual or ad hoc basis. Self employed staff are also responsible for their own PAYE and NI contributions.
However if the taxman becomes suspicious about the employment status and challenges it then the employer may find they are picking up the bill for backdated NI contributions and PAYE. This can then be expensive.
More worrying is where a “self employed” person at your company decides they have been underpaid and makes a claim through an employment tribunal for the underpayment or they decide they should be entitled to holiday pay, or their work has been terminated and they decide to make a claim for unfair dismissal
Normally the above employment rights would not be available to a genuine self employed person but In these cases an employment tribunal will look very closely at the employment relationship and may decide these staff are actually employees. This immediately then becomes an expensive issue and cost to resolve as you have not handled the matter from an employee status prospective and therefore not followed the right procedures. Any unfair dismissal claim is likely to result in you losing.
The position is further complicated by yet a third and further category of “Worker” who would fall probably midway between an employee and a self employed individual.
A worker is any individual who works for an employer, whether under a contract of employment, or any other contract where an individual undertakes to do or perform personally any work or service. Workers are entitled to core employment rights and protections. The following groups of people are likely to be workers but not employees:
- most agency workers
- short-term casual workers
- some freelancers
“Workers” have some employment rights such as entitlement to holiday, protection against unlawful deductions, NM Wage etc but do not have unfair dismissal rights.
Checklist to determine if an “Employee” or genuinely “Self Employed”
- Control – the extent to which the employer decides what tasks you do and how you do them
- Integration – the extent to which you are part of the organisation
- Mutuality of obligation – the extent to which your employer is required to offer you work and whether you are expected to do it
- Economic reality – the extent to which you bear financial risk
Other factors to consider include:
- the length of the relationship
- the method of payment agreed by the parties
- whether they provide their own equipment
- the labels or intentions of the parties
- whether the person performing the services has set up in business on their own account
- the degree of continuity in the relationship
- whether the worker works mainly for one person or for a number of different people
- tax treatment may also be an indication, but not a conclusive one
- power to substitute another worker.
The above is not an exclusive list and other factors may be taken into account by the courts.
In summary if you are not sure discuss your options with CoLaw to ensure the correct contract is put in place and the correct employment status applied.