All businesses require support from non-employees, take your accountant for example, but determining employment status is not always clear cut.
Employees have some specific rights, the right not to be dismissed unfairly is the most important one. But other “human resources”, namely workers, have rights too. The right to a written statement, the right not to suffer unlawful discrimination and, in some circumstances, other employee rights such as sick pay and maternity pay.
Only the “genuinely self-employed” are exempt from these rights.
It is important therefore that employers are as clear as they can be about the distinction between these three forms of human resource.
The genuinely self-employed
The simplest form is the limited company. A company number should appear on their letterhead, business card or emails. Engaging a limited company, even if it is only one individual saves you from employment rights and tax implications (see below).
Other indications of self-employment would be:
- A VAT number
- That you are engaging them for one specific task, such as your accountant
- The work does not have to be done by the person you engage the person can substitute someone else
- Evidence (that you would not necessarily have)
- that they complete accounts
- of numerous other clients, not just one or two
Since you may not have the full evidence of self-employment you can see here that the lines can be “blurred”.
Workers
Being able to distinguish between workers (with limited rights) and employees is important but not always easy. Simply labelling someone as a “worker” is not sufficient. Tribunals will look beyond the label to seek the true relationship. The distinction is blurred by the intervention of HMRC, who have their own criteria for tax purposes. But from time to time you are likely to want to engage specific people without them acquiring employee rights. So, if you want to engage someone as a “worker” you should pay attention to the points below. The more of these points that apply the less likely it will be that the worker can claim full employment rights, particularly unfair dismissal
- Avoid “mutuality of obligation”. Avoiding this means that the individual can refuse work (without any sanction against them) and that you are not obliged to provide work. You might not have any at that time, for example. To ensure you meet this criterion is valuable if the individual refuses work from time to time and you don’t offer continuous work. Significant breaks in the times when you engage the worker can be helpful.
- See that the worker provides their own equipment.
- Allow them to determine their own hours of work.
- Designate tasks rather than buy their time.
- Try to ensure that your worker does work for others either in parallel with your work or at times when you don’t need them.
- Don’t integrate them into your business, e.g. by providing a business card. In one astounding case a “worker” was given a long service award! Game, set, match.
- Never apply the disciplinary procedure. Make a complaint, or complaints, instead.
- Add an amount for holiday pay on top of any agreed rate. Allow holidays to be taken at any time without prior approval – although you do have the right to require it.
- If you don’t put them on your payroll, be sure they are completing a self-assessment tax return.
With the possible exception of the first, none of these is a “magic bullet”. But the more that apply, the less likely a subsequent claim that the worker was an employee.
Employees
When it comes to workers versus employees, engaging employees is best regarded as the “default” position.
HMRC
HMRC has its own rules – what a surprise. If the worker is subject to “direction, supervision or control” then, so far as HMRC are concerned, they are employees, need to be put on the payroll, and be subject to PAYE.
For this reason, it may be best to avoid any suggestion of these three requirements applying to your worker. Give them designated task(s) and let them get on with them. Alternatively, put them on our payroll.
If you choose not to put them on our payroll (it further blurs the distinction between worker and employee) then you may wish them to indemnify you against any tax or employee national insurance claims from HMRC.
This blog is for general guidance only. Legal advice should be sought in specific cases.
Malcolm Martin FCIPD
Author Human Resource Practice