One of the subjects we come across again and again with our clients is the question of employment status. We’ll be looking at this in detail this month, but perhaps the most frequent circumstances we come across are where a small employer has engaged or is thinking of engaging self-employed consultants (or what it thinks are self-employed consultants…) and the question arises whether they are in fact self-employed at all.
Clients aren’t even necessarily seeking to avoid their employment obligations in these discussions, it’s frequently the case that the individual in question wants self-employed status and is reluctant to be employed.
Often we get asked whether there is anything that clients can do, or write in a contract to make sure the individual concerned is self-employed, and the answer is no there isn’t. Even if you have an excellent quality contract with the individual clearly indicating self-employed status, a court or tribunal would consider the reality of what is actually happening to be much more significant and have been known to dismiss contracts as being sham where it is clear that the nature of the relationship between the parties is one of employment.
There is no single factor or factors which definitely indicates self-employment, it’s about taking a look at the overall picture and determining whether the nature of the relationship between the parties is one of employment. If it is, then what a contract says won’t change that.
So if there is no silver bullet solution to ensuring someone is self-employed, what factors will be taken into account by those making a decision? Here’s a useful list of things to take into account when deciding whether or not someone you engage to work for you is or will be self-employed or employed.
Is there a requirement for the work to be done in person?
If the individual has to do it him/herself and cannot send a substitute, that’s an indicator of employed. Be careful, because putting a right to substitute in a contract will not help you if a court or tribunal considers that in reality an attempt by a worker to provide a substitute would not be acceptable to the employer.
Is there mutual obligation?
If the employer is contractually obliged to offer the individual work, and (in reality, even if not in the contract), the employee is expected to perform the work, then that’s an indicator of employment.
Does the employer control the way work is done and circumstances under which it is done?
If the worker is told what results are expected but the way the work is actually performed is up to them, that’s an indicator of self-employment, but if the control over the work is largely in the hands of the employer, that’s an indicator of employment.
Does the individual pay their own tax?
That is an indicator of self-employment but be careful, off-loading your PAYE obligations doesn’t indicate self-employment if the relationship is otherwise one of employment.
Does the individual get paid against an invoice?
This is an indicator of self-employment, but again, the manner of payment doesn’t indicate self-employment if otherwise the relationship is one of employment.
Does the individual get paid by the hour or by results?
Someone who gets paid for the amount of time they spend is more likely to be employed than someone who gets a fee for a set project.
Do they take financial risk?
As above, if they are paid by the project, and take a risk about how much time it will take them, the resources they might need to expend to fulfil that project, then that’s an indicator of self-employment.
Length and continuity of relationship
If the individual has been working with you for a long time, and continuously rather than for brief periods with gaps in between that could be an indicator of employment.
Does the individual have other clients?
Working for several clients is a good indicator that the individual is genuinely self-employed and providing services rather than employed.
Who provides the equipment?
Self-employed people would most frequently be expected to provide their own equipment, so if the person will be using your equipment, they may be employed.
Where do they work?
If the person can do the work wherever they like and are not expected to sit in your offices doing their job that can indicate self-employment.
The nature of the job
If the job or is one which you’d normally expect to be fulfilled by someone employed, then that’s an indicator of employment.
Part of the organisation
Similarly, if the person fills a role which is or could be on a structure chart, and is “part and parcel” of your organisation, that’s an indicator of employment.
It’s important to remember that most of these factors on their own won’t necessarily indicate self-employment. For example, if someone works from home, that doesn’t automatically mean they are self-employed, and similarly if someone gets paid by the hour, that doesn’t mean they are automatically employed.
It’s about the whole picture. If you consider the circumstances of a consultant you currently work with using the questions above, and on balance it looks more like employment than self-employment, then a tribunal or HMRC may well feel the same way.
If you have queries about employment status in your own business and need some advice, do get in touch.