An Essential Guide To Employing Self-Employed Staff & Paying self-employed Staff

Another case spotlighted on using self-employed staff status; this time the focus is on the beauty industry.

In Gorman v Terence Paul, the Employment Tribunal ruled that Ms Gorman was an employee and not self-employed staff.

Miss Gorman worked for Terence Paul Salon in Manchester for six years. During that time, she was told what hours to work and had up to 67% of her takings kept by the company. The company maintained that she was working as a self-employed staff member and, therefore, was not entitled to any of the legal protections under employment legislation or any of the benefits enjoyed by her employed colleagues.

The Employment Tribunal was unconvinced and ruled that she was not employed as a contractor. This has now paved the way (subject to any appeal raised by the respondent) for her to bring claims against the company for unfair and wrongful dismissal, sexual discrimination, a failure to provide a written employment contract, and claims for holiday pay.

This article examines the common mistakes that can give rise to legal challenges and how best to avoid them.

Easily.

Often, a company thinks it is hiring self-employed staff in good faith, but over time, the nature of the relationship can change.

There is a common misconception that working for a company on a self-employed basis, the self-employed need only be responsible for their accounting and submit invoices for payment. However, as we will see, there is much more to it than that.

Please note – the content of this article focuses on employment rights only; tax legislation may differ.

GOV.UK considers taking on self-employed staff when:

• Those hired as a contractor are responsible for the success or failure of their business and can make a loss or a profit.
• They can decide what work they do and when, where or how to do it.
• Those hired as a contractor can hire someone else to do the work.
• They’re responsible for fixing any unsatisfactory work on their own time.
• Their employer agrees to a fixed price for their work – it doesn’t depend on how long the job takes to finish.
• Self-employed staff use their own money to buy business assets, cover running costs, and provide tools and equipment for their work.
• Those employed as a contractor can work for more than one client.
• They put in bids or give quotes to get work.
• Self-employed staff are not under direct supervision when working.
• They submit invoices for the work they’ve done.
• They’re responsible for paying their national insurance and taxes.
• Those hired as a contractor don’t get holiday or sick pay when they’re not working.
• They operate under a contract (sometimes known as a ‘contract for services’ or ‘consultancy agreement’) that uses terms like ‘self-employed’, ‘consultant’ or an ‘independent contractor’.

It’s not a case of a certain percentage. For example, using self-employed staff as contractors may tick every box on the above list. Yet, if they are managed and ‘controlled’ in the same way as employees (as in Gorman v Terence Paul), this may be enough to tip their status in the direction of employee or worker.

Remember—the above is not an exhaustive list and is not intended to substitute for taking appropriate legal advice about hiring self-employed staff. If you have any questions, you must seek advice from our experts.

Yes.

For example, someone could have a ‘day job’ as a receptionist and work on a freelance basis as a designer.

Yes, but exercise caution when staff are going from employed to self-employed.

This is something we are asked a lot. As far as redundancies go, it may be something put forward by the employee during consultation. For example, an Architect facing redundancy because there is not enough work to fulfil all their contractual hours may be employed as a contractor or freelance for any short-term projects.

This type of query doesn’t always come up in a redundancy situation, though employers may have an employee come to them and request a change of status from employed to self-employed. This appears to be low risk purely because the employee has asked for it, but this is not so. Go back to the list above. If these criteria are not satisfied, then there will be no change just because the employee requests a change from employed to self-employed. It does not mean there is no risk to the employer.

There’s a saying, ‘Don’t trouble trouble til trouble troubles you’ However, you are taking a risk if you have identified employment issues and fail to take the corrective steps to address them. Hiring self-employed staff can be complex.

You may be lucky, or you may not, but if you think you are employing staff as self-employed when, in fact, they are not, you run the risk of the types of claims being faced by Terence Paul and it’s not going to be cost-effective in the long run.

Yes, they do.

Someone employed as a contractor has rights under health and safety legislation and protection against discrimination.

As we highlighted at the start of this article, the status of an employee working for someone on a self-employed basis can genuinely change over time. The best thing to do is to keep their status under review by checking periodically if the list of self-employed staff characteristics continues to apply.

We often find (as was the situation in Gorman v Terence Paul) that it is less about the technical characteristics of whether someone is self-employed staff or not that tends to cause issues, such as whether they are responsible for their tax payments, are paid by invoice, etc. Instead, the lines become blurred as to what working as self-employed means due to the amount of control or mutuality of obligation placed upon a self-employed person.

If you are using self-employed staff in the same way as you manage your employees, you need to be careful.

Yes, but within reason.

However, while you can expect someone hired as a contractor to adhere to policies like health and safety and equal opportunities, the appointment of someone employed as a contractor is fairly fluid.

Ask yourself what you need. If you need someone for a particular project and they need to work 9 to 5 each day without fail, they have to dedicate all their time and energy to this project alone and not be engaged in any other client work. They are expected to use only your materials, be supervised and managed by you, and have no option to subcontract the work to someone else—this is not someone who is hired as a contractor.

‘Having your cake and eating it’

When working for someone on a self-employed basis, you can’t reasonably expect that person to adhere to all of the above but at the same time not put them through payroll, not pay them holiday or sick pay or offer them any of the contractual benefits you provide to your employees. If employing self-employed staff but treating them as if they are an employee, you are placing your business at risk and make no mistake, any tribunal that will apply if that person’s status is challenged will be unforgiving and costly.

No, the message of this article is not to discourage employing self-employed staff or freelancers. After all, hiring self-employed staff or freelancers can offer significant skills and expertise for a specific project or to fulfil a particular task. You need to seek the appropriate advice to apply the correct label to avoid any legal pitfalls where confusion can arise when using self-employed staff.

Please seek advice from our experts if you plan on hiring self-employed staff. There is not always a ‘one size fits all’ answer to many of these scenarios, and mistakes will be ever more costly for your business in the current climate. Please quote your Client Account Number on all correspondence and telephone calls. 24-hour client advice line: 0800 151 2935