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Employed, self-employed, or worker?

  1. self employed
    DocsWizard

    DocsWizard UKBF Contributor Full Member - Verified Business

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    When you're running a business, the lines between who is self-employed and who is actually employed can become blurred.

    It’s important to know the status of the people working for you, so you understand the rights they have and your responsibilities towards them.

    What does the law say?

    In law, there are various types of employment status. The key ones are:

    • Employee
    • Worker (sometimes called a casual worker)
    • Self-employed (most contractors and freelancers are self-employed, although they may be workers or employed by an agency or another organisation)

    The status, rights and responsibilities of an employed person are easier to understand, but the boundaries with self-employed contractors can be fuzzy and with workers fuzzier still! Here is what these three types of employment status look like:

    An employee status is characterised by:

    • Requirement to work unless they are on leave or absent.
    • Guarantee of work: the business has an obligation to provide them work.
    • Requirement to fulfil the work provided and be paid for the time worked.
    • The business has control over what work is done, when, where and how.
    • Cannot send someone else to do their work.
    • The business provides the materials tools and equipment for them to do the work.
    • The business deducts tax and National Insurance contributions from their wages.
    • The employee can join the pension scheme (or may be automatically enrolled).
    • Disciplinary and grievance procedures apply.
    • Subject to covenants: for example, specifying that they must only work for the business and that if they have another job, they must ask permission from the employer.

    Workers are characterised by:

    • No obligation to accept work (and the employer isn’t obliged to offer it).
    • Normally under the control of a manager or supervisor (in the same way an employee is).
    • Not usually able to send someone else to do their work.
    • Normally paid through PAYE, and tax and National Insurance are deducted from their wages.
    • The business provides the materials, tools and equipment needed to do the work.

    Self-employed staff are characterised by:

    • Invoices must be submitted rather than being paid through PAYE. The self-employed are responsible for paying their own tax and National Insurance, and don’t get paid holiday or sick pay.
    • Ability to decide what work they do, which clients they want to work for (they probably have more than one), when, where and how they do it, or even whether they want to hire someone else to do their work.
    • Unsatisfactory work must be fixed in their own time.
    • Needing to use their own money to buy business assets, cover costs and provide tools and equipment for their work.

    How do you identify which category your staff fall into?

    Unfortunately, it isn't all straight-forward in employment law. There is no one particular test or rule that will identify whether someone is an employee, worker or self-employed. An employment tribunal would look at the contract that’s in place and critically look at how the contract works in practice.

    For example, if the contract suggested that the individual was self-employed, but they were clearly treated like an employee, then the tribunal would look at the practicalities of the situation and probably rule that the individual was an employee.

    Errors employers make when managing their ‘self-employed staff’ include:

    • Asking them to provide doctors certificates if they are ill.
    • Inviting them to attend a disciplinary hearing.
    • Processing their pay through payroll.
    • Inviting them to employee-only events (social events).
    • Penalising them if they do not make themselves available for work.

    It is possible, however, that the status of someone can be different for HMRC purposes and employment rights purposes, so don’t assume you are safe from the employment tribunal just because HMRC has categorised them in one way! They will be looking for different things.

    What’s the risk of not having clear distinctions between staff?

    The biggest risk is the enormous cost of getting it wrong. If you view staff as self-employed (when, really, they are being treated like employees or workers) then you could be liable for paying the cost of wages, holiday and benefits if the individual decided to challenge it in a tribunal and were subsequently confirmed as a worker or employee. You may also suddenly find yourself having to defend any claims employees can bring, for example, unfair dismissal.

    Had you been aware of this when identifying your original business model, it might be that you would have taken a very different approach to pricing and business planning. Paying out compensation that goes back up to six years - and having to suddenly start paying for workers’ rights going forward - can be very costly if you have not accounted for that. It could even bring a business down if not sufficiently capitalised.

    Make sure you are clear who is working for you, from the beginning!

    DocsWizard gives you easy and cost-effective access to legally compliant and fully editable HR documents for your small business. Find out more by visiting DocsWizard today.

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  2. essam alsaher

    essam alsaher UKBF Contributor Free Member

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    thank you
     
    Posted: Aug 22, 2018 By: essam alsaher Member since: Aug 21, 2018
    #2