Determining employment status

Flexible working is on the rise and more people are moving away from fixed employment and registering as self-employed. Simon Jones explains the key factors that determine employee status, and the precautions businesses should take to ensure the correct protections are given.

Taxi Drivers; Plumbers; Delivery Couriers; Car Wash Attendants; Fast-food delivery cyclists; Domiciliary Carers. People doing these jobs have something in common: they have all been involved, in recent years, in disputes over their employment status.

Until a few years ago, things were relatively straightforward. Generally speaking, people in work were either employed by a business, or they worked for themselves and were self-employed. However, there has always been a small group of people who aren’t employees, but who work regularly for an organisation, that the law classifies as “workers”. This means that they have some (but not all) of the rights of an employee, and conversely, the companies they work for have some legal responsibilities towards them.

Since the 2008 financial crisis, there has been an increase in the number of people who work in what are sometimes called ‘contingent’ or ‘precarious’ jobs, and with the rise of on-demand apps that rely on labour, they can call on at short notice (the so called ‘gig economy’), this group has now become a significant part of the UK workforce. Often these new businesses class the people working for them as self-employed and pay either per job or expect them to submit a weekly or monthly invoice. Being described as self-employed means the individuals have no rights to the minimum wage or sick pay and have to organise their own tax and holidays. They are also not bound by working time rules.

However, many of the companies that use this type of labour still expect people to abide by employment standards – some include performance reviews, require a company uniform to be worn or expect individuals to be available for work when the company requires it.

That has caused several legal challenges where the courts have concluded, in most cases, that the relationship between company and individuals is being ‘disguised’ and that these people are workers, and should therefore entitled to some of the protections of employment law.

So, how can you check if your business utilises people in this way? 

You need to use the same legal tests that the tribunal – or tax authorities - would use.

  1. When the person is in work, how much control do you have? Do you simply give them a job and it’s up to them when and how they do it? Or do you specify how it has to be done, require them to report in at various points or lay down particular times or places that they have to work? Do you review their performance regularly (which could include customer feedback from an app)?
  2. Is the person integrated into your business? Do they work as part of a team? Are they publicly identified with your organisation? Or do they work separately from your business undertaking jobs that don’t require much interaction with other people – for example, your accountant? 
  3. If you have work available, do you expect them to do it? Or can they turn down work if it’s offered?
  4. Can they substitute (send someone else to do the job)? Or do you expect them to do the work personally?
  5. Do you provide them with the equipment/facilities necessary to do the job? This could include a company vehicle, uniform, desk, or even potentially a company email address. 

If your answers to these questions overall seems to suggest a strong relationship between you and the individual, they are more likely to be classed as a worker and be entitled to paid holidays, sick pay and the minimum wage. If, on the other hand, the arrangement is much looser, they are more likely to be considered as ‘genuinely’ self-employed. You can use this questionnaire as a guide, but be aware it is more focused on the tax rather than employment implications.

Remember that, if challenged, the tribunal system will look at what happens in practice. So even if you have a written agreement with the individual that describes them as self-employed, if the reality is different then people may still qualify for rights as a worker. It’s important for your business to get it right -  it may cost you financially (as you may receive a bill for national insurance or other employer costs); operationally (as individuals will be less motivated if they think they are being dealt with poorly); and reputationally (companies have received a lot of negative publicity over what are seen as an attempt to avoid employment responsibilities).

Author: Simon Jones is the Director of Ariadne Associates and is a Chartered Fellow of the CIPD

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