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Myth busting: Employers can engage staff on a self employed basis if they have a written agreement in place

Employment laws generate a lot of comment. Hardly a day goes by without the media reporting scare stories about the employment rights of UK employees, which are depicted as being anti-competitive, unduly restrictive and in many cases overly generous.

We are exposing some of the most common employment law myths and explaining the reality behind them. We are not pretending that employment law is easy – it isn’t, but generally it should not be difficult to get the basics right.

This month we look at the status of independent contractors.

Myth

Employees can engage staff on a self employed basis of they have a written agreement in place.

Busted

It is fairly common in some industries to see agreements between individuals and their employers, which expressly state that they are “independent contractors” in business on their own account rather than employees. However, unless the agreement reflects the reality of the parties’ working relationship and the individual is genuinely self-employed, the agreement can be ignored even if both parties have signed it.

Employment law recognises three categories of person; “employee”, “worker” and those who are “self-employed”. The status of an individual is important because employees and workers have employment rights (although workers have fewer rights than employees) that are not available to those who are genuinely self-employed.

These include rights to receive the national minimum wage; paid holiday; rest breaks; be protected against unlawful discrimination and not to have deductions taken unlawfully from their wages. Employees also have the right not be unfairly dismissed, to receive a redundancy payment if they are made redundant and to take time off for family leave (such as maternity, paternity, adoption etc.).

It is often not easy to determine the status of an individual and the concepts used by the courts to decide cases can sound archaic to modern ears. Courts will look at factors that point towards employment/worker status and those that point towards self-employment and will undertake a sort of balancing act.

That said, there are some factors that are more important than others. For example to be an employee, the individual must work under a contract and undertake the work themselves (i.e. personally). Employees can’t elect to send someone else in their place or refuse to accept work when this is provided to them. In addition, the employer must agree to provide work in accordance with the terms of the agreement and an employee will be entitled to be paid, even if the employer has no work for them to do until such time as they are made redundant or laid off. Plus, the employer will “control” when the employee works, what they are required to do and how much autonomy they have. Workers also have to work under a contract, (generally) to undertake the work themselves and agree the terms under which work is provided and accepted (known as “mutuality of obligation”). They do not have to accept work that is offered but when they do work, they will usually be integrated into the employer’s business.

A worker will only be considered to be genuinely self-employed for the purposes of employment law if they are providing professional or business services to a client or customer. Self-employed workers usually work for a number of different clients, are free to accept or turn down work, can determine exactly when/where they work and the charges they will make to their clients. In addition, whilst many may do the work themselves, they are free to engage subcontractors to help them or indeed complete the work for them.

It is worth noting that even if HMRC agree that a worker you engage is self-employed for tax purposes (and they have been responsible for their own tax and NI liabilities) an Employment Tribunal or court can reach a different decision for employment status purposes. HMRC only recognise two categories of worker for tax purposes; employees and self-employed and this distinction can lead to genuine misunderstandings about the legal status of an individual.

Finally, if the parties are considered to have unequal bargaining power (usually the employer is considered to have the most power as it decides who it wishes to employ and sets out the relevant terms) the courts will be particularly keen to look beyond the strict wording of the agreement to find/interpret the true nature of the agreement between the parties.

Published: 6 March 2017


Employment Law Update - March 2017

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Key Contact

Sybille Steiner