Something I hear about more and more often these days is organisations taking on new recruits (and often even existing or ex staff doing the same job they did previously) as self-employed contractors instead of employees. Given the economic situation over the last few years, many employers are reluctant to commit themselves to employing people on permanent contracts, in case they find they have to lose people afterwards. So this is one way for employers to give themselves a bit more flexibility, as well as saving a few bob on benefits and entitlements. The difficulty is when the lines between employee and hired worker get blurred… Hopefully I can clarify some of the issues here!
There are a number of factors which can be considered in determining whether someone is an employee or self-employed – its known as the Multiple Factors test as they are all looked at in combination rather than one overriding factor. It covers:
Mutuality of obligation – Both parties must have an obligation to the other for an employment contract to be in force. So this means an obligation on the employee to accept and do whatever work is offered, and a corresponding obligation by the employer to provide work. If no work is guaranteed by the organisation, and the worker doesn’t have to take the work that is offered, that suggests they are not an employee.
Provision of a personal service – An employee has a contract ‘of service’ – i.e. they must do the work themselves. A self-employed person has a contract ‘for services’, so they can provide someone else to do the work for them as long as it gets done.
Number of contracts – If the person can undertake work for more than one employer, this suggests they are self-employed, whereas an employer usually has the right of exclusive service for employees.
Control – Less of a deciding factor but still worth considering. This takes into account the extent to which the employer has control over the worker and when, where and how they do the work. The greater the direction and control, the more likely the person will be classed as an employee. Another issue here is who owns and provides the equipment, materials etc needed – if the employer provides them, then again this suggests the person is an employee.
Integration into the organisation – how much is the person either peripheral to the organisation, or part and parcel of it. E.g., effectively carrying out tasks similar to other people in the company and subject to the same terms and conditions, policies and procedures etc.
How and when they are paid – if they are paid a regular wage (particularly through PAYE so tax and NI is deducted) rather than being paid by one-off or sporadic fees (eg through an invoice from them so they are responsible for their own tax and NI) this suggests an employer/employee relationship. Also whether they receive other payments such as holiday pay, sick pay etc.
So there’s a lot more to it than who takes responsibility for paying the tax! Generally speaking, if it looks like a duck, sounds like a duck and feels like a duck, it’s probably a duck, even if it sends you its bill (no pun intended…) So if you don’t want a ‘self-employed’ contractor suddenly claiming to be an employee and wanting paid maternity leave, holidays, redundancy pay etc. , it’s worth making sure you resolve the identity crisis, as getting it wrong can turn round and bite you on the backside later!
