Are My Self Employed Workers Really Employees? Should They Be On An Employment Contract

dreamstime_xs_20095916Are My Self Employed Workers Really Employees? Should They Be On An Employment Contract?

We’ve heard so much about the rise of the gig economy: a flexible market of on-line, self employed workers engaged on a project by project rather than job for life basis. There’s huge flexibility, but no job security, (at least in the traditional sense). It favours the adaptable worker who can market and promote their skills and make themselves indispensable to a client. It’s a client-supplier relationship, rather than an employer-employee relationship.

The problem is that this shift from an employee-employer to a client-supplier relationship is confusing employers and employees as many don’t know what their employment status is. Until recently Uber treated their drivers as self-employed, yet a tribunal recently ruled that Uber drivers in the UK are not self employed are therefore entitled to worker’s rights. Deliveroo and CitySprint are also facing legal challenges around the status of their seemingly self employed workers.

Personally, I think we need some mid-ground/breathing space between the self-employed and employed to accurately describe the modern gig-worker rather than shoe-horning and shackling them to polar ends of the spectrum when neither of them suit. The government is not showing any signs of creating this third unifying category of flexible worker to catch those gig-workers who fall between the posts, and so for now employers have to be vigilant and ensure that their self-employed workers don’t drift into the arena of the employed, because it could be costly.

If the HMRC or a tribunal decides that a self-employed worker is an actually an employee you could be subject to a retroactive penalty which could include backdated: employer’s NI payment, pension contributions, holiday pay, sick pay for the retrospective period that their so called employment status was deemed to have started.

It’s therefore recommended that employers who have engaged self-employed workers over a period of years should review the situation to check that no employment rights have been created. But, whenever engaging self employed workers it’s worth having a look at the following check-list to see if workers are really self-employed. If after reviewing this check-list you think there is a chance that some of your employees may have drifted into the arena of the employed, you’ll want to complete this government employment status test.

Factor Self-employed Employee
Personal service Will provide own services, but may also sub-contract work to others, or bring in outside assistance. Only provides his personal services.
Mutuality of obligation Is free to accepts or turn down work if he desires. The engager is under no obligation to offer any work, or further work. The employer is obliged to offer work, and the employee is obliged to do as the employer requests.
Right of control Likely to be in control of most aspects of the work done. An employer may control “what”, “how”, “where” and “when” work is done.
However, a highly skilled employee may also exercise “what” and “how” also as the employment demands.
Right of substitution May sub-contract work, or bring in assistance. Depends on nature of work; an individual may be engaged because of their personal reputation or skill and so no substitute will be acceptable. It is rare for an employee to have the right to appoint a substitute.
Provision of own equipment Will normally supply all small tools and bring in or hire in plant. May sometimes supply own small tools or equipment: employer will provide all plant and machinery.
Financial risk/ablity to profit Will quote on a job-by-job basis. Is able to make more profit by more efficient working, or may incur loss if overruns on time, or if required to rectify defects in own time. Paid whatever work is done,benefits from the National Living / Minimum Wage and statutory holiday entitlement. An employee will bear little risk unless exceptionally work directly relates to a bonus or commission scheme. Or, if poor work affects appraisal for promotion or other benefits.
Opportunity to profit Can profit if work is performed efficiently, or from re-charging and making a profit on materials. May only profit under a bonus or incentive scheme. However, may benefit from tips, or payments from third parties.
Length of engagement Generally a fixed-term or short-term contract. Contract will generally be open ended after probation period (if any).
Part and parcel of the organisation May become “a fixture” in that his work brings him to the company regularly, but acquires no additional responsibilities or privileges as a result. Is capable of being promoted, or manages other staff. Part of works pension, or SAYE scheme.
Employee type benefits Unlikely to be entitled to any type of benefits. May be invited to functions with other external suppliers. Part of pension scheme, enjoy canteen or sports club facilities, car parking, attends staff functions.
Right to terminate contract If other party is in breach. Would normally give notice under specified contract term.
Personal factors May be engaged because of skills, reputation etc. Personal factors may be the reason for appointment.
Mutual intention The intention of the parties should be stated in written contract. This may not be persuasive if in reality the parties behave differently. If the parties intend the relationship to be one of employment it is difficult for the courts to say otherwise. In most cases the parties will have agreed written terms of employment and the employee will have enforceable rights under employment law.

If you find that your self-employed workers really are employees, you’ll need to take action, which means sitting down with them and adjusting the situation to re-establish self-employed status, or putting them on employment contracts, PDQ, to be blunt.

You can find employment contracts to purchase and download here.

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