With the emergence of the ‘gig economy’ and the continual flow of case law which has been generated, the question of employment status is more important than ever. The impact of modern working practices means that the lines have become blurred between employees, workers and those who are genuinely self-employed.
Whilst we have a legal framework which defines ‘employee’ and ‘workers’, consideration of what the actual circumstances are may be needed to determine the nature of the relationship. Identifying the correct employment status is important not only for tax purposes, but it impacts on employment rights.
Employees only have the right to written particulars of employment, the right to request flexible working, access to grievance and complaints system, TUPE rights and the ability to claim unfair dismissal (subject to length of service). Whilst workers have the right to minimum wages, equal treatment protection, whistleblowing protection and holiday pay.
Those who are genuinely self-employed have very limited ‘employment’ rights, but on the flip side have the freedom to work when they want and for whom they want.
It is therefore essential for employers to understand the employment status of those they employ and whose services they engage and what rights arise from this.
The situation is often far from straightforward and there are a range of legal tests, which will all carry different weight depending upon the circumstances. What is clear is that courts and Tribunals will look beyond what any service agreement might state, and they will look at the reality of the situation.
Factors which will be taken into consideration include:
- What did the contract/written agreement define the individual as?
- How much control did the employer have over the individual’s actions?
- Did the individual have any right to substitution so that another individual could carry out their work for them?
- Did both the employer and the individual have mutual obligations?
- How much was the individual integrated into the business?
Factors that distinguish an employee from an individual in business in their own right can also include whether they use their own equipment, hires their own ‘helpers’, takes a degree of financial risk in the performance of the service provided, provides their own insurance, and has the opportunity to make a profit (to name but a few).
The tax status of an individual is certainly no longer a conclusive indicator, and just because an individual is deemed to be responsible for paying their own tax, it may not mean they are truly self-employed.
What can often happen is that a working relationship starts off being that of a self-employed individual providing services, but over the passage of time the working relationship evolves into a situation whereby due to the level of control exercised, the integration into the organisation, and the regularity and certainly of the services provided means that the individual effectively becomes a worker or an employee.
The question of employment status is one which will be of particular relevance if you are an employer who is caught by the IR35 regime. If you have any concerns about the true employment status of an individual, or feel that a working practice as evolved over a passage of time, our specialist employment team will be able to help assess the situation, and advise you.