How can I be sure of the employment status of someone I am paying?
We are often contacted by business owners who would like to engage someone on a self-employed basis to assist them in their business.
The usual rationale that we hear for business owners wanting to take on someone on a self-employed basis (rather than bringing in an employee) is that a self-employed person does not have the benefit of employment rights such as annual leave, sick pay, notice and redundancy pay. While it does of course seem attractive to have the benefit of engaging someone’s services without them accruing employment rights, there can be draw-backs too. For instance, a self-employed person will usually have their own insurance costs and be using their own equipment in carrying out the work and so will usually require a higher rate of pay than an employee performing a similar role. Further, it is much more difficult to control the activity of a self-employed person than it is to exercise control over an employee’s activities.
As with most things relating to employment law, the issue of employment status is complicated. Even something as seemingly basic as identifying whether someone is employed or self-employed is not as straightforward as most people think. What the parties call the relationship is not determinative. What is important is what is going on in practice on a day to day basis. A business owner might think someone is self-employed and get a nasty surprise when the individual subsequently claims that they have employment status with all the rights that go with it and a Tribunal finds that the individual has been unfairly dismissed.
There is no set test for defining employment status but there has been some good guidance arising out of case law where the point has been argued.
An individual is likely to be found to be self-employed if:-
- He can send a substitute to carry out the work on his behalf
- He uses his own equipment in carrying out the duties
- He has his own public liability / professional indemnity insurance
- He sets his own hours
- He carries out work for several different businesses
An individual is likely to be found to be an employee if:-
- He has to carry out the work personally
- He uses the business’ equipment and works under the business insurance
- The business sets the hours of work and rate of pay
- The business owner / manager can give him other duties and bring him in on other tasks
Whichever arrangement a business owner decides upon at the outset, it is important to record the terms of the engagement in writing so that, at the very least, the intentions of the parties are clear from the start. Whether it is a contract of employment or contract for the engagement of a self-employed associate, Collective Business Services can provide you with the right advice and record the terms in a written agreement.
Collective Questions is intended as a guide and for general information only and is not a substitute for taking specific advice relating to your situation. For specific advice regarding this or any other issue relating to employing people, please do not hesitate to contact us.
