The line between contract worker and employee is a fine one. There has been considerable commentary in the HR press about the way organisations should treat their temporary workforce in order to mitigate the risks; so is HR taking notice?
Contractors, temps and interims are being treated in the same way as permanent employees. A recent survey conducted by HR Management Consultancy Reflect confirmed that over a quarter of the 250 HR decision makers surveyed, believed the line managers within their business did not understand the implications of treating temporary staff like permanent employees.
Additionally, of the 69% of HR who thought their line managers did understand the implications of treating temps like permanent staff, over a third confirmed temporary workers were being appraised using the existing performance management process designed for permanent staff.
Other examples of inappropriate behaviours highlighted in the survey ranged from the provision of non-business critical training to including contractors in company disciplinary or grievance procedures.
Either way, these behaviours create an environment where the contractor may have a credible claim in front of an Employment Tribunal for employee status or rights. In fact, contractors caught under IR35 or those that feel entitled to compensation after having their contract ended have little to lose by making a claim if such evidence exists.
Understandably, companies that use self-employed contractors want to establish some methods of control over the relationship; the cost of these types of resource can be high and therefore it’s important to ensure there’s a measurable return on investment. But one must tread carefully. If too much control is exerted, this could be seen as evidence of an implied contract of employment by an Employment Tribunal, granting the contractor status or rights normally reserved for the permanent employee.
Justin McAvoy, managing consultant at Reflect, said that although no employer had so far lost a tribunal case against a contractor, it is just a matter of time before such a decision is made. “Regardless of whether the managers feel a misguided sense of responsibility towards the career development of the contractor, by exerting forms of control they are exposing their company to the risk of costly Employment Tribunals. Several such cases have found their way to tribunal hearings in recent years including Franks v Reuters and Dacas v Brook Street.
“How would an organisation’s HR department feel to set the precedent for losing such a case and being named in every legal textbook in the UK?,” says McAvoy.
Obviously, there is a need for employers to look closely at the way they treat and monitor their contractor workforce. But if some type of review is not being carried out, the company is missing out on valuable information relating to the contractor’s service. So the question remains: how do you monitor your contractor’s performance without putting your company in danger of legal procedures?
One solution could be to introduce a third party to review contractors. The aim is to reduce the degree of control applied to the contractor directly, while maintaining control over the review process.
HR consultancy Reflect recently conducted a review for a London-based financial services company. The client had two outstanding claims by contractors for employee status. Firstly, all line managers at the firm received training to review and change behaviours towards contractors in line with the law.
Furthermore, Reflect was engaged to operate between the contractor and the line managers in terms of reviewing contractor service delivery. This enabled the organisation to improve control over their contractor-based projects, and highlighted areas where permanent staff might be more cost effective than using contractors. It also increased the accountability of managers that procured contractors in the first instance.
McAvoy said: “By putting a third party between the line and the contractor to perform and manage the review process, a client is able to illustrate that they are not directly controlling their third party suppliers in the same way they performance manage their permanent staff, whilst having the ability to measure return on investment”.
One Response
Misinformation in the marketplace
Faboulous article.
I often find myself in this position. As a sole trader I am often pressured by potential clients into going Ltd in order that they can cope with IR35 implications.
The consultancies/clients have very limited understandings of the issues, their policies being driven by the accounts department and not by common sense recruitment.
If they wanted a limited company ie. employee status why didnt they subcontract again instead of advertising for freelancers? The reality is they need freelancers (sole traders) but are unclear how to manage them. Why then am I coerced into becoming a Ltd co at interview and still asked for my ID details at interview – its unecessary if you are contracting out work to another Ltd co?
Talks with the tax office indicate that the onus is on the sole trader to prove their self employed status and not the ’employer’. If the contract is only 6 month I am all the more able to prove I work for a variety of clients – agin no reason for Ltd co status.
The employers need educating, not the sole traders!