Self-employment; will we finally see some clarity?

On 14 February 2016, the founder of the Cambridge Satchel Company, Julie Deane OBE, published her review of self-employment in the UK, which looks at the challenges and opportunities for those wanting to work for themselves. The report estimates that 15% of the UK workforce is currently working on a self-employed basis. However, with the lack of definition as to what precisely self-employment is, it can be a costly mistake to make.

A definition for self-employed

One of the report’s main recommendations is that there should be a single definition of ‘self-employed’ for tax and employment law purposes.  Personally I would wholeheartedly welcome such a definition, but creating one is by no means a simple task.

In the past, I have come across clients who insist that their staff member is self-employed, because they are responsible for paying their own Tax and National Insurance contributions.  Their accountant has told them that they are self-employed, and so that is the end of it. However, sometimes it isn’t that simple.

The fact that HMRC has determined that an individual is self-employed for tax and social security purposes does not necessarily mean that an employment tribunal would not treat them as an employee for employment rights purposes.

Even if not found to be an employee, the tribunal might find that they are a ‘worker’.  A worker has more rights than a self-employed individual, but fewer than an employee.  They are entitled to the National Minimum Wage and holiday pay, for example.

The definitions for employees and workers are set out in the Employment Rights Act 1996 but in order to fully understand these it is necessary to look at the decisions of the employment tribunals and the courts.  Labourers, plumbers and actors have all previously been held to be workers in certain cases whereas painters and decorators and electricians have not.  Each situation varies considerably on its own facts, however, and so these instances could potentially be reversed, depending on the situation at hand. At present, there is no such definition for self-employed.

The main factors that a tribunal will consider in determining employment status are:

• Personal service: did the individual undertake under the contract to personally perform work or services? This means the individual cannot send a substitute to perform the work.
• Mutuality of obligation: was there mutuality of obligation between the individual and the employer? If the company is obliged to offer work and the individual must accept it then there is mutuality of obligation.
• Control: how much control does the employer have over the individual? The more control  the company has over the individual, the more likely the individual is an employee.

Practical Tip

Remember, simply because you have labelled a contract ‘self-employed’ does not mean a tribunal will agree. The tribunal will look at the reality of the situation; not the documentation. Therefore before hiring any new staff, it is important to consider what type of contract you will offer to that individual to ensure you are not caught out further down the line.

If your staff raise the issue of employment rights with you, don’t assume that HMRC’s view is the end of the matter.  Seek proper legal advice to ensure that you are not acting illegally and putting your business at risk.

If you have concerns about the status of your workforce and would like advice you can contact Julia Furley on 0207 388 1658 or by email at jfurley@jfhlaw.co.uk.