The recent decision by the Supreme Court in the case of Uber v Aslam has been in the press over the weekend. For most of my clients and readers it was not exactly exciting reading but it is important. Getting employment status wrong could be expensive both in terms of employment rights and HMRC rules. Indeed, treating someone as self employed when they are not could be considered to be tax evasion.
If you pay individuals to do work for your organisation and they are not on your PAYE system then it is imperative that you consider their true employment status if you are not to fall foul of the Employment Tribunals or HMRC.
There are three levels of employment status. Employee, Worker and Self Employed. The Courts and HMRC will look at the following three things in order to determine the real relationship between the employer and the individual – subordination, control and dependency.
Invoicing you, invoicing you through a limited company, and/or stating they are responsible for paying their own tax and national insurance contributions are not determinative of employment status. The Supreme Court was clear in the Uber case that legal decisions will turn on the facts and expressly not on what is written in any contract you may have with the individual.
Someone who is truly Self Employed will meet these criteria:-
- They must be able to send a suitable substitute to do the work, specifically they are not contracted to deliver the outcome personally although they may choose to do so.
- You should anticipate them using their own equipment.
- They will not be bound by your policies and procedures, except for health & safety and discrimination.
- They will work to their own timetable, although you may contract with them to deliver an outcome by a specific date. You should not anticipate them working set times.
- They will be available to other clients even if they are your competitors.
- You will have no control as to how they deliver the prescribed outcome except for compliance with health & safety and any other specific regulations such as those that apply to electrical work for example.
Self Employed contractors have no employment rights other than to be kept safe whilst on your premises. They will invoice you for the work done, probably at the end of the project although they may anticipate part payments during the course of the project. They are responsibe for their own tax and national insurance.
Workers could be considered to be halfway between the self employed and employees.
- Workers contract to provide a personal service, they cannot send a substitute to do the work.
- There is no mutuality of obligation – you are not obliged to provide work and they are not obliged to take any work you may offer to them.
- Workers may have other clients, perhaps even your competitors.
- You have control over how a worker undertakes the work and when they do the work. Effectively when they are working for you they are subordinate. You could decide, for example, that you want them to work 9-5 three days a week and they may agree to do so.
- Workers will usually use your equipment to undertake the work, although they may choose to use their own equipment.
- Workers may invoice you on a regular basis or you may choose to pay them through your PAYE system, usually on a day rate or an hourly rate. Paying them through your PAYE system is the safest thing to do insofar as complying with tax and NI regulations are concerned.
Because a worker is set up as a limited company DOES NOT necessarily mean they are self employed. If you want them to do the work personally, agree that they come to your organisation at specified times and comply with your policies and procedures they are probably a Worker – or maybe even a fixed term employee.
Workers are entitled to
- the national minimum wage.
- Annual leave calculated on the basis of hours worked.
- Break times as set out in the Working Time Regulations 1998.
- Statutory Sick Pay if they earn more than an average of £120 per week.
- To whistleblow.
Workers are not entitled to claim unfair dismissal but they may make a claim to the Employment Tribunals if they have not been provided with annual leave or the national minimum wage.
Insofar as Employees are concerned, there is a master:servant relationship. Providing what you require is legal, then employees must undertake the work in your prescribed manner, they must attend work at prescribed times and use your equipment to undertake the work. They must comply with all your policies and procedures as set out in their Statement of Terms & Conditions. In fact, the employer is in control, the employee is subordinate and is dependent on the employer. Employees are not usually allowed to work for other employers, except perhaps when the work for a second employer is totally different. For example a plumber may be allowed to work in a bar during the evenings but not to undertake plumbing work for a competitor.
Employers are responsible for their employees tax and national insurance and for providing a pension. Employees are entitled to the full raft of employment rights.
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