You may well have seen recent headlines about people whose organisation told them that they were self-employed but actually ended up not being – for example the recent cases linked to Uber, Deliveroo and Pimlico Plumbers. So what are the differences between being self-employed and employed? Or for that matter being a “worker”?
Admittedly this can be a complex area and if you are in doubt or are being challenged by someone who works for you, you are always best to get expert advice.
However, there are some guiding principles and questions to consider when determining what someone’s employment status is. (ie. are they an employee, a worker or self-employed?)
Being an employee tends to be the “normal” form of employment status for many people. They are directly employed by an organisation via a contract of employment. This contract of employment outlines their role, responsibilities and entitlements while working for the organisation. Legally all employees must be issued with a contract of employment (also known as a “statement of particulars”) within 8 weeks of starting with an organisation. Failure to do this can lead to a financial penalty for the employing organisation.
Typically an employee works directly for the organisation they are employed by, in one of their workplaces, uses their equipment / facilities and is managed (or “controlled”) by them on a day to day basis. For example, Fred has a contract of employment issued by XCo. It outlines that he works in the office of XCo and is line managed and told what work to do by Jo, who is also employed by XCo. If Fred doesn’t attend work, he doesn’t have to send someone else in his place. As an employee Fred has certain entitlements or rights, such as being paid, being eligible to take paid annual leave and the entitlement to some form of sick pay if he is too ill to attend work. These are outlined in his contract of employment – so hence it is an important document to refer to to ensure that Fred is being treated correctly.
In the recent cases with Uber, Deliveroo and Pimlico Plumbers the people who challenged their employment status were deemed to be “workers”. All employees are “workers” but workers are not employees, even though there is some common ground.
A “worker” is defined as “someone who carries out paid work for an organisation but is not bound by or employed by a contract of employment”. A simple example could be – Jane comes in to do some work tasks for your organisation during the school holidays but she doesn’t have a contract of employment with you. She may be working via an employment agency (as a “temp”) or perhaps works directly for you. If Jane doesn’t attend work, she doesn’t have to send someone else in her place but if she works via an employment agency, they might send a replacement. As a worker Jane has certain statutory rights such as she must be paid the national living or minimum wage (dependent on her age), she has the right to the statutory minimum paid time off and cannot be discriminated against. However, as she is a “worker” and not an “employee” she has no entitlement to unfair dismissal protection, redundancy pay or the right to request flexible working.
Confused? There is further guidance online on the Gov.uk website that you might find useful.
- Self-employed / Contractors
There is, or should be, a real difference in how self-employed people or contractors work compared to people who are employees and workers. The fact there wasn’t a clear difference in the cases of Uber et al is part of the reason that the Employment Tribunal / Employment Appeal Tribunal ruled as they did.
The terms “self-employed” or “contractor” do not particularly make a difference when trying to determine someone’s employment status. What is important is the arrangements for how they are “engaged” to do a task, how the task is carried and by whom, and how the work is paid for. If someone is truly self-employed there is no contract of employment but there will be a “contract for services”. The “contract for services” defines what work is to be done but allows the person or people fulfilling it the freedom to decide how best to carry out the work. It may also mean that one person is substituted for another in order to fulfil the work, perhaps because they have a certain skill or area of expertise that is needed for a part of the work.
Self-employed people work for themselves and do not have a line manager in the organisation they are working for. They typically provide their own equipment, such as tools, a vehicle or IT equipment. A self-employed person invoices the organisation they are carrying out work for and receives the full amount of invoiced. They have to declare this income and pay the relevant tax and national insurance contributions directly to HMRC via their annual tax return. Again this is not an exhaustive or definitive list and further information can be found at: https://www.gov.uk/employment-status/selfemployed-contractor
The big advantage for hiring organisations is that self-employed people do not have employment rights – so are not entitled to things such as the national living wage or holiday pay. The hiring organisation also doesn’t have to pay for any employers’ tax contribution, employers’ national insurance contributions or employers’ pension contributions. These various contributions total up to a significant financial saving for the hiring organisation, so hence why companies such as Uber used the self-employed model to reduce their costs.
This is an area that remains under scrutiny as the government believes it is missing out on significant tax revenue due to people misusing the current system. The government has recently announced a number of reviews to look at the issue of self-employment, particularly as part of the “gig economy” and for the public sector, in more detail. There are bound to be developments so watch this space………….