In this article we examine the common mistakes which can give rise to legal challenges of this nature and how best to avoid them.
How can it be possible to get this wrong?
Often someone is taken on under a self-employed contract for services in good faith but what can happen is that over time the nature of the relationship changes.
There is also a common misconception that to be self-employed you need only be responsible for your own accounting and submit invoices for payment but as we will see, there is much more to it than that.
How do you define ‘self-employed’?
Please note- the content of this article focuses on employment rights only; tax legislation may differ.
GOV.UK considers someone to be self-employed if most of the following are true:
- they’re in business for themselves, 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
- they can hire someone else to do the work
- they’re responsible for fixing any unsatisfactory work in their own time
- their employer agrees a fixed price for their work – it doesn’t depend on how long the job takes to finish
- they use their own money to buy business assets, cover running costs, and provide tools and equipment for their work
- they can work for more than one client
- they put in bids or give quotes to get work
- they’re not under direct supervision when working
- they submit invoices for the work they’ve done
- they’re responsible for paying their own National Insurance and tax
- they 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’
What percentage of the above list will be enough to decide someone’s status?
Its not a case of a certain percentage. For example, your self-employed contractor may tick every box on the above list, yet if they are managed and ‘controlled’ in the same way as employees (as was the case 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 be a substitute for taking appropriate legal advice. If you are in any doubt, you must seek advice from our experts.
Can someone be self-employed and employed at the same time?
For example, someone could have a ‘day job’ as a receptionist and work on a freelance basis as a designer.
Can I make someone redundant but keep them on as a self-employed contractor?
Yes but exercise caution.
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 who is facing redundancy because there is not enough work to fulfil all their contractual hours, may be re-engaged in the future on a self-employed contractor or freelance basis for any short term projects.
This type of query doesn’t always come up in the context of a redundancy situation though, employers may have an employee come to them and ask to change their status from employee to self-employed. This appears to be low risk purely because of the fact the employee has requested it but this is not so. Go back to the list above, if these criteria are not going to be satisfied then there will be no change to their status and just because the employee requests it, that doesn’t mean there is no risk to the employer.
I suspect I have someone who is self-employed but may be an employee. However, they are happy with the status quo, as am I, why should I rock the boat?
There’s a saying, ‘don’t trouble trouble until trouble troubles you’ however, you are taking a risk if you have identified any employment issues and fail to take the corrective steps to address them.
You may be lucky, or you may not but if you do have someone who is being classed 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.
Do the self-employed have any rights at work?
Yes they do.
Someone who is self-employed has rights under health and safety legislation and also has protection against discrimination.
What is the best way of avoiding falling into this trap?
As we highlighted at the start of this article, you may well have taken someone on under a genuinely self-employed arrangement but this can change over time. The best thing to do is to keep their status under review by checking periodically if the list of self-employed 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 or not which tends to cause issues, such as whether they are responsible for their own tax payments, are paid by invoice etc., Instead but instead the lines become blurred due to the amount of control or mutuality of obligation that is placed upon a self-employed person.
If you are managing someone who is self-employed in the same way as you manage your employees, you need to be careful.
Surely, I can expect to have some control over someone who is self-employed, I can’t have them running roughshod over my business!
Yes but within reason.
However, whilst you can of course expect a self-employed person to adhere to things like health and safety and Equal Opportunities policies, the appointment of a self-employed person 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 of 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 with no option to subcontract the work to someone else- this is not a self-employed relationship.
‘Having your cake and eating it’
You can’t reasonably expect someone to adhere to all of the above but at the same time benefit from not having to put them through payroll, not pay them holiday or sick pay or offer them any of the contractual benefits you offer to your employees. If you do you are placing your business at risk and make no mistake, the legal test that a tribunal will apply if that person’s status is challenged will be very unforgiving and costly.
Should I just avoid taking anyone on as self-employed then?
No, the message of this article is not to discourage working with self-employed contractors or freelancers. After all a self-employed contractor or freelancer can offer great skills and expertise for a specific project or to fulfil a specific task for example.
You just need to seek the appropriate advice to make sure the correct label is applied in order to avoid any legal pitfalls.
Please ensure that you seek advice from our experts as there is not always a ‘one size fits all’ answer to a lot 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: 0330 100 8704