Employment law

[NJW39]

Hi

i employ some people - if you change a worker from being an employee to self employed, with their consent, am i correct in saying:

-national min wage legislation still applies (ie when they send me a monthly invoice it must work out that they have been paid a min of £6.08 per hour)

-since they are not employees they are not entitled to statutory min paid holiday

 

[MrPAYE]

This may be illegal from a tax point of view - you can't just pay someone as self employed because you want to.

Google "employment status tax issues" or go on to the HMRC website or trawl through the zillions of related posts on here to find out more.

 

[kyeb]

hello

National Minimum Wage would not apply to self-employed people. That said, it would seem harsh and a little unethical for them to go from being employed at NMW and getting holiday pay on top to self-employed and losing their holiday pay and dropping below NMW.

They would not be entitled to holiday pay if they were genuinely self-employed but they could bring an employment tribunal claim that they were in fact an employee or "Worker". Worker status is eaiser for them to argue than proving they were an employee and given that they were previously employees, an employment tribunal judge would probably favour them to start with. That is putting aside HMRC coming along and saying they should have been employees (hitting you with a heft bill, plus interest and penalties).

If you were to go down this route, I would make sure it is all handled correctly and that you have done your homework into what makes someone an employee, worker and self-employed. There is an extensive amount of case law to consider in this area.

Kye Burchmore
Marble Commercial Contracting

 

[IANL]

Hi

i employ some people - if you change a worker from being an employee to self employed, with their consent, am i correct in saying:

-national min wage legislation still applies (ie when they send me a monthly invoice it must work out that they have been paid a min of £6.08 per hour)

-since they are not employees they are not entitled to statutory min paid holiday

We did this some years ago with one employee. He wanted to go self employed we advised him that he needed to resign and we did not contract with him as a self employed person for over a month. We also made sure that he was brought in as self employed in a slightly different role and told him he needed to get public liability insurance.

These all assisted in keeping the realtionship above board and not a tax avoidance measure.

He also had other companies that he did some work for.

 

[sjbeale]

I would agree it is not straightforward to change an employee to a self employed person. You have to change they way you have them work for you and have the correct written agreement in place. There are potential tax implications. If you just dismiss them from their employee contract without good reason there is the risk they could take you to an employment tribunal for unfair dismissal.

Your proposal carries lots of risks.

 

[NJW39]

OK i believe the following is correct having researched it myself and read your useful replies:

-Best to have self employment for new staff rather than change existing
-A self employed person cannot be given direction by our company - we must simply ask them to clean for a certain number of hours but cannot tell them how to clean or performance manage them if their cleaning is of a poor stnd
-Our recourse in the event the self employed person was no good is ultimately to terminate their contract
-Them not being an employee also means they have no right to go to tribunal.
-They must submit a monthly invoice to us rather than be on the payroll.
-Many cleaning companies i know use staff on a self employed basis- it would appear then that if they give any direction to their cleaners they inadvertently create and employee employer relationship and that therefore they are breaking the law by calling such cleaners self employed

As per all employers i am seeking to reduce our cost base but want to be 100% sure that we stay within the law - both taxation law and employment law

 

[Employment Law Clinic]

OK i believe the following is correct having researched it myself and read your useful replies:

-A self employed person cannot be given direction by our company - we must simply ask them to clean for a certain number of hours but cannot tell them how to clean or performance manage them if their cleaning is of a poor stnd

You can't ask "them to clean", as you will be contracting them to have the cleaning done; you won't be able to require they do it personally without risking their status being found to be an employee. You can require the cleaning to be done to a standard, but who does it should be of no concern to you.

-Them not being an employee also means they have no right to go to tribunal.

Any worker, or even a job applicant, can bring a claim to a tribunal, and so too can another business for some aspects of TUPE cases.



Karl Limpert

 

[kyeb]

Cleaning potentially opens up a whole new can of worms for you...

There is specific legislation that deals with the employment status of cleaners that you should be aware of. Thi does not apply to all types of cleaning but covers office cleaners.

If you type in 'Categorisation of Earners Regulations 1978 cleaners' into Google it should provide you with more information. The basic principle from it however is that although they may be treated as self-employed people for tax and employment purposes, they will be regarded as employees for national insurance.

This not only means the financial benefit of having them on a self-employed is lost but also leaves you in a difficult position and makes your paperwork and payroll a nightmare. It would also be confusing for the individuals as they will not really understand why they are not employees yet you apply NI to them. If you were to adopt this route, there was a case in the Employment Appeals Tribunal around May this year that said that an individual can still be self-employed even though PAYE and NI was applied (I would find this and keep a copy).

I appreciate that others in the industry may do it which would ultimately leave you with a competative disadvantage but if they are doing it with office cleaners, they are wide open to HMRC attack and you may either have to run the risk yourself or wait patiently for when/if HMRC catch up with them.

Kye Burchmore
Marble Commercial Contracting

 

[NJW39]

karl- thanks v much for again giving me excellent advice.

Kye- thank you v much to you too.

So i conclude: worth evaluating further if new staff that are not office cleaners can be self employed. If this route is followed a well drafted contract is essential and you run the risk that since you cant choose who does the work this carries an inherent risk.

Dont do it for office cleaners

Sadly if you look at cleaning company job ads many of them do use self employed status - and i strongly suspect that many of them are in violation of employment and tax law.....

 

[kyeb]

No worries, if you need contracts drafted, I know a reputable company that specialises in drafting bespoke self-employed contracts.

Obviously it will costs a few quid but having poorly drafted contracts can cause more damage than good so always best to deal with people that know the ins and outs of employment status challenges and risk.

Send me a PM if you want their details.

 

[MrPAYE]

No worries, if you need contracts drafted, I know a reputable company that specialises in drafting bespoke self-employed contracts.

Obviously it will costs a few quid but having poorly drafted contracts can cause more damage than good so always best to deal with people that know the ins and outs of employment status challenges and risk.

Send me a PM if you want their details.

Just for the avoidance of doubt for the OP as there is an awful lot of misinformation out there on this, and also a lot of "reputable companies" who can knock out a "tax-friendly" contract.

From a tax point of view, the contract is only of use if it ACCURATELY REFLECTS the actual working practices and relationship between your business and the worker. As has been proved (yet again) in the tax courts recently, a contract WILL BE IGNORED in determining the tax status of the worker if it is drafted with the sole intention of getting favourable tax treatment with no correlation to the facts.

A "reputable company" in my opinion is one who provides advice on the situation, not just provides a (maybe) suitable contract even if this advice is not what the client wants to hear, i.e. employment is unavoidable so don't bother.

 

[Dotty]

It might also be worth pointing out that if they are self employed then (from what I know from speaking to the job centre) you can't just pay them minimum wage. As they will have to take their own expenses and cover their overheads (including insurance, Tax etc) then you will have to pay them more in order for it to be minimum wage - this was at least correct a couple of years ago.

I also thought that if they were self employed that they would have to provide their own materials? This was something we came across when using self employed tutors - they could work from our briefs but had to supply their own equipment otherwise they didn't fall in to the category of self employment. (This might not be correct though so don't quote me).

 

[jfalegal]

Hi

i employ some people - if you change a worker from being an employee to self employed, with their consent, am i correct in saying:

-national min wage legislation still applies (ie when they send me a monthly invoice it must work out that they have been paid a min of £6.08 per hour)

-since they are not employees they are not entitled to statutory min paid holiday

Can I just ask here why you want to change the status? There are lots of disadvantages to doing this and you will potentially lose a lot of control over your staff, such as the ability to dictate what hours they work and whether they personally carry out the tasks themselves.

The reality of the situation in any event is that it makes no difference what agreement you have in place it is the reality of the relationship, rather than the label you choose to attach to it that is important.

If the purpose of the exercise is to avoid having to guarantee hours (maybe because you are unable to do so) you could consider a zero hours employment contract or including lay off provisions in your employment contract.

It seems to me that if you are a cleaning company then sub contracting your work to what would effectively be another cleaning business is not the way to guarantee quality or to protect your tax position.

If you are able to wait until January to resolve this I will be offering a free employment health check to new clients and will happily take you through the options available to you.

Jenny