We’ve established earlier this month what criteria there are for deciding whether someone is employed or self-employed, and confirmed that it’s the reality of the situation rather than what any contract says that is most important.
But if you have people working for you on a self-employed or casual worker basis, it’s not just a case of satisfying yourself that they meet the relevant criteria. Things can develop and evolve, especially in a small business, so as well as making sure their employment status is correct at the time they start working for you, you need to also regularly review things to make sure your assumptions about their status and your obligations towards them are still correct.
So what sort of situation do you need to watch out for? As well as making a good habit of reviewing things against current guidance on a regular basis anyway, you can also keep an eye out for a number of different common changes which can catch employers out and may indicate that the employment status of someone working for you may have changed or be changing.
Are their hours becoming more regular?
Either regular in terms of specific times or days, or just regular as in they are coming into work more often. Check invoices or timesheets for regular patterns or increasing hours. Genuinely self-employed or casual workers are likely to show variance in the number of hours they do each week/month. The same or similar numbers or hours month in month out could be a sign of employment.
Are gaps between periods of work reducing or disappearing?
If they were self-employed or casual on the basis that although they worked quite a few hours when there, but had big gaps in between periods of work, perhaps doing holiday cover or similar, but you find the gaps are reducing in frequency or length, that may be an issue. It’s common for employers to gradually become more and more reliant on individuals who are reliable and perform well but this can evolve into ongoing employment.
Are they becoming more integral to your business?
If they are doing a job that you would or could employ someone to perform, and/or are now doing something which could be included on a structure chart, are taking on some line management responsibilities or have changed their tasks slightly to be more central to the business rather than peripheral, that’s something to look out for.
Do they still have other clients?
Working for a number of clients is a good indicator of self-employment, but if your self-employed consultant has perhaps increased hours for you slightly, and has either deliberately or naturally let other clients go, that could be an indicator that they are in fact employed, particularly if they are no longer actively seeking other clients.
Could they still genuinely send a substitute?
An indicator of self-employment is the right for the individual to send a substitute in his or her place to perform the duties. But if the nature of the work they are doing has evolved slightly, and the relationship between you has strengthened, ask yourself would it still genuinely be acceptable for them to send someone else?
If you think one or more of the above changes might be happening in relation to someone in your business, you have two options. First option is to make adjustments to “undo” the relevant changes in order to preserve their self-employed status. You could cut back on their hours, use them less frequently or with longer gaps between periods of work for example.
The second option is to discuss the situation with them, explain that you feel the relationship is evolving into one of employment, and discuss issuing an employment contract to replace any self-employed or casual worker agreement you may currently have, accurately reflecting the situation.
There is of course a third option, which is to do nothing at all, but this is not advisable. If someone working in your business should be on an employment contract but is not, you are denying them their employment rights (which as a responsible employer you wouldn’t want to do, right?) and potentially not paying tax and NI that should be paid on their behalf. As well as not being the morally right thing to do, both of those things would expose you legally in terms of claims in an Employment Tribunal and investigations and big bills from HMRC.
Of course if relations are good, and the worker is keen to remain self-employed for their own reasons (perceived prestige, tax advantages, flexibility being some of the reasons we’ve come across), you may be tempted to leave things be. But someone’s employment rights cannot be signed away even if they don’t want them, and it’s your responsibility as an employer to ensure your staff benefit from the rights they are entitled to.
In addition if relationships deteriorate for any reason, or the worker has a change of heart or change in personal circumstances (pregnancy being the classic example) meaning that they now wish to benefit from employment rights, you are leaving yourself incredibly vulnerable.
So schedule in regular reviews of any self-employed or other atypical workers you use in your business, and in the meantime keep in mind the above factors, so that you can protect your business and ensure contracts accurately reflect what’s really going on. For further advice do get in touch.