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Charlie Mullins, of Pimlico Plumbers has discovered that naming someone’s employment as self-employed or worker (or sub-contractor) will make no difference. The courts will determine the correct description on the basis of facts. Read more to understand why these distinctions are important and what you can do to protect your business from unexpected holiday pay demands and disability discrimination claims.

The titles in the heading are all about the rights to which an individual is entitled. It is worth having a broad understanding of relevant terms.

  • Truly self-employed individuals have few rights and these are restricted to what is in a contract; which, ideally, is written. Faced with the ending of a contract, or an acquired disability, self-employed people often seek to claim employment status because of the additional rights it gives them.
  • Workers gain a few of these additional rights, the National Minimum Wage among them, but also holiday pay and the right not to suffer unlawful discrimination (under the Equality Act). The latter can be pertinent, as in the case of the person whom Mr Mullins engaged, the individual suffers a disability and seeks the protection worker status affords.
  • Employees have many more rights, including the right not to be dismissed unfairly, maternity rights and sick pay. The plumber in question felt he had been dismissed unfairly and sought the protection employee status conveys.

Simply calling someone self-employed (or a worker) doesn’t “wash” with an Employment Tribunal and yet it can make all the difference to rights. So how do you protect your business?

Here are some pointers:

Self-employed people should be invoicing you, buying their own materials, keeping accounts and be able to make a profit or sustain a loss. They need to be able to operate independently of the business that engages them. Many of the requirements placed on plumbers by Mr Mullins’ Pimlico business, compromised his plumbers’ independence. To be safe, recognise individuals as independent in how you relate to them and seek to see VAT registrations, evidence of other customers or accounts to enable you to verify an individual’s status.

Workers will undertake work for you personally and not delegate to others. However, unlike employees, there is no obligation for them to carry out work at any particular time nor any obligation on you to provide work for them. Other practices can help confirm an individual as a worker rather than as an employee, such as project-based work. However, the most important aspect is the question of those obligations just mentioned. If you have an individual whom you have engaged on a long term basis it may be helpful, from time to time, to not offer him or her work. If they are keen to preserve their “worker” status then they should also refuse work from you from time to time. In that way you establish that there is no “mutuality of obligation” – a crucial point.

Employees work designated hours, cannot take time off on a whim and have the right to expect you to provide work for them to do. You have much greater control over employees. You can subject them to disciplinary processes, for example. Whether it is less expensive to employ employees than to engage workers depends on the labour market in which you operate and the nature of your business model. It is the case that, to some degree, employees have become less attractive as an option in recent years because their rights have increased.

Finally, please recognise that we can provide only pointers because, ultimately, employment status in any individual case is determined by the courts. But, in particular, saying an employee is self-employed (even if you both agree on the description) will make no difference in court.