False self-employment: know your workforce employment status
Like most companies, you may at some point outsource work to self-employed contractors due to a number of business needs. But what is the legal difference between self-employed individuals and employees or workers?
In recent years, such as the high-profile employment tribunal cases of Uber and Pimlico Plumbers, we have seen more and more businesses wrongly classify individuals as self-employed and in turn, deny such individuals of their basic statutory employment rights.
We are now starting to see the influence of these cases as there are an increased number of individual’s questioning their status and entitlements. This, in part, is result of their engagements coming to an end due to the effects of the pandemic.
More recently, in July of this year, a hairdresser successfully argued that although she had a self-employed contract, she was an employee due to the amount of control the salon had over her working practices.
The successful outcome allows the individual to pursue other claims including unfair and wrongful dismissal, sexual discrimination and failure to provide a written contract of employment, as well as claiming for notice, holiday and redundancy pay.
Whilst the legal principle preserves the status quo, this finding acts as a reminder that the Employment Tribunal will focus on the practical reality of relationship between the parties and look behind any self-employed contract.
How does this impact your company?
There are 3 different types of employment status:
- Employees, who enjoy the full protection of employment rights.
- Workers, who are entitled to limited basic employment rights.
- Self-employed contractors, who are considered to run their business for themselves, and therefore are not protected in the same way as employees or workers.
The employment status of an individual will determine their rights and ultimately their recourse in the event of dispute. You should therefore ensure that your written contracts reflect the practical working relationship, so you do not leave yourself open to claims being made against you.
How do I know if an individual is genuinely self-employed?
When assessing an individual’s employment status, there is no single test. However, the Employment Tribunal will consider the following:
- Is there sufficient amount of control over the individual’s working practices (i.e. supervision, place of work, working days, hours of work)?
- Is equipment required and if so, who provides it?
- Is there an obligation on the individual to provide work personally? Or is a substitution allowed?
- Is there an obligation on the company to provide work and an obligation on the individual to accept the work?
- Are there any rules and policies in the workplace relating to employees that apply to the individual?
- Does the individual get paid for holidays or sickness absences?
- Is the individual prohibited from working for another company?
- Is tax and national insurance deducted at source?
Generally, a self-employed individual will have greater degree of freedom in their method of working, working days and hours, and can send someone else at their own expense to do the work for you. The individual will be engaged on a contract to provide services and will invoice for their pay. As they work on their own accord, they are effectively their own boss and take on their own financial risk and responsibilities.
However, if the individual acts like an employee and is treated as such, it is likely that they will be one even if they engaged on a self-employed contract. It is therefore important you are certain as to what kind of employment status basis an individual is engaged on from the start.
If you unsure as to the status of any individual’s employment status in your workforce, please get in touch with our Employment Law Team on 01274 864 999.