Employed or Self-Employed?
There has been much commentary in recent months around the subject of bogus self-employment as a tax avoidance measure. With the HMRC clamping down on the misuse of self-employed workers, it is important that employers are making the correct distinction between the hiring of employees, contractors and workers.
Aside from the obvious tax and national insurance savings for employers, the benefits of engaging genuine self-employed contractors includes not having to pay sick pay, holiday or pension contributions, as well as not being bound by the ever increasing raft of employment legislation that is not applicable to self-employed individuals. It is therefore easy to see why some employers are tempted to use self-employed contractors arrangements where they are not genuinely applicable. Nevertheless, with penalties for wrongly treating an individuals as self-employed when they should be employed including back dated PAYE payments, a significant fine and more intense scrutiny from the tax office, it is essential that employers be cautious. Similarly, if an Employment Tribunal deems your contractor to actually be an employee, then that individual will be able to pursue eligible tribunal claims.
Whilst each case will be investigated on its own facts by either the HMRC or an Employment Tribunal in determining whether an individual is an employee or a genuine contractor, the following check points are generally used when determining an individual’s status. If the answer is ‘yes’ to most of the below, then the individual is likely to be an employee, not a contractor:
- Do you ever tell them what to do, or how, where or when to do it?
- Do they have to take the work you offer them?
- Do they work a set amount of hours per week / day?
- Are they paid by the hour, week or month rather than for a specific project or piece of work?
- Do they work at your premises or at places determined by you?
- Are all materials and pieces of equipment provided by you not the individual?
- Are they prevented from working for others?
- Do they receive overtime, bonus payments or other benefits?
- Do they have to undertake the work personally themselves (i.e. they are unable to provide a substitute to complete the work)?
Because there is no clear statutory definition of who is or is not an employee each case is considered on its merits and can sometimes be difficult to determine – the law is full of grey!
If you need any assistance with assessing the position for an individual at your organisation or drafting a suitable contract please feel free to contact us on 08451271360 or email [email protected].