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Employment Status: A Hot Topic for Employers

Recent headlines surrounding Uber and Deliveroo have made employment status a hot topic for many businesses. In our latest blog Natalie O’Hare, HR & Employment Law Consultant at BeyondHR, explains what you need to know to ensure arrangements with your staff are accurate and legal.

For those of you leading or aspiring to lead a start-up it is important to understand the legal status of those working in your business.  From our experience start-ups operate at a fast and furious pace where different skills are needed in addition to the core team for short to medium periods of time.

But did you know that the “self-employed” freelancer you have engaged might not actually be deemed to be “self-employed” and that you have a potential Employers NIC liability? Or, that the contractor that invoices you each month might actually be deemed to be a worker and therefore has some employment rights?

The aim of this document is to highlight the main types of working individuals and to help to discern the difference. 

Essentially there are three main types of working individuals.

  • Employee
  • Worker
  • Self-employed

Employees

An employee is defined in law as “an individual who has entered into or works under a contract of employment” and are entitled to full employment rights such as:

  • a written statement of terms and conditions
  • statutory sick pay
  • maternity, shared parental, paternity and adoption leave and pay
  • minimum notice periods
  • protection against unfair dismissal
  • redundancy rights and statutory redundancy pay

Although there is no definitive checklist the following factors are likely to mean that an individual is an employee.

  • They are required to work regularly unless they are on leave.
  • They are required to do a minimum number of hours and expect to be paid for time worked.
  • They are subject to control on when work is done and how it is completed.
  • They cannot send someone else to do their work.
  • The employer deducts tax and National Insurance contributions (NICs) from their wages.
  • The business provides the materials, tools and equipment for their work.

Workers

A person is generally classed as a ‘worker’ if:

  • they have a contract or other arrangement to do work or services personally for a reward
  • they only have a limited right to send someone else to do the work (subcontract)
  • they have to turn up for work even if they don’t want to
  • their employer has to have work for them to do as long as the contract or arrangement lasts
  • they aren’t doing the work as part of their own limited company in an arrangement where the ‘employer’ is actually a customer or client

Workers are entitled to certain employment rights, including:

  • getting the National Minimum Wage
  • protection against unlawful deductions from wages
  • the statutory minimum level of paid holiday
  • the statutory minimum length of rest breaks
  • to not work more than 48 hours on average per week or to opt out of this right if they choose
  • protection against unlawful discrimination
  • protection for ‘whistleblowing’ – reporting wrongdoing in the workplace
  • to not be treated less favourably if they work part-time

Workers usually are not entitled to:

  • minimum notice periods if their employment will be ending, for example if an employer is dismissing them
  • protection against unfair dismissal
  • the right to request flexible working
  • time off for emergencies
  • Statutory Redundancy Pay

On a regular basis we have to break the news to employers that the worker they have in their business is actually an employee with all the rights and liabilities that go with it.

The Self-employed

The status is important as while the employee has the protection of a range of employment rights and pays National Insurance and tax, the genuinely self-employed have few employment protection rights and are taxed differently.

In general, the self-employed run their business for themselves, they are not paid through PAYE and they do not have the employment rights and responsibilities of an employee.

Someone is probably self-employed if most of the following are true:

  • they are 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 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 and submit invoices for the work they have done
  • they are responsible for paying their own National Insurance and tax
  • they do not get holiday or sick pay when they are not working

However, if a person is self-employed it is important to know that:

  • they still have protection for their health and safety and, in some cases, protection against discrimination
  • their rights and responsibilities are set out by the terms of the contract they have with their client

There have been a number of cases in the media recently in relation to employment status, the majority of which involve the claimants claiming that they are ‘workers’ and therefore entitled to ‘workers rights’ such as holiday pay for example Uber and Deliveroo.

Need more help deciding which type of employment status is the right one for your business? Email Natalie at BeyondHR now.