Employed or Self-Employed - are you getting it right?
It seems that everyone is self-employed these days. Couriers, drivers, hairdressers, sports coaches and estate agents are all professions where more and more vacancies are advertised on a “self-employed” basis rather than on an employed basis. I’ve even seen employers try to argue that their receptionists and bar staff are self-employed.
We have also seen the first few Employment Tribunal cases go through the courts, and so far at least, Uber, Pimlico Plumbers, Deliveroo, City Sprint, and taxi firm Addison Lee have all lost their argument that their workers are self-employed.
The tide is turning. Both HMRC and Employment Tribunals are taking on cases and looking beyond what is written in agreements between employer and “self-employed” worker, to try and understand how working arrangements operate in practice. And they are coming to the same conclusion.
The explosion in self-employment is largely fuelled by arrangements that do not comply with the law as it currently stands. And with publication of the Government’s Good Work Plan, the direction of future travel is clear.
The authorities are ready to crack down on self-employed arrangements that don’t comply with the law. And employers need to review their situations urgently.
The attraction – to the employer at least - is obvious. A self-employed person doesn’t go on the payroll. They aren’t entitled to the national minimum wage, holiday pay, sick pay, or a workplace pension. When you no longer need them, or they don’t perform as required, you can simply tell them not to come back. No need to pay notice or redundancy pay, or go through a disciplinary process.
And, let’s not deny that a lot of workers seem – on the face of it at least – to be happy to work on a self-employed basis.
But even if both sides are happy, it doesn’t mean it’s legally correct.
If both sides are happy today, it doesn’t mean the arrangement will always suit the employee in the future - the cases above were brought by people who had worked happily on a self-employed basis until there was a dispute with the employer.
The rest of your industry operating in the same way doesn’t mean it’s legal.
A person having more than one “self-employed” role, or running their own business, doesn’t mean that they are automatically self-employed in any role they undertake – you can be employed and self-employed for tax purposes
Agreeing that someone will invoice you for the hours they work doesn’t make them self-employed.
The individual wanting to be self-employed doesn't make them self-employed.
Labelling an arrangement as “self-employment” doesn’t stop HMRC investigating whether it passes their tests, nor does it prevent someone from lodging an employment tribunal claim to argue that they were really an employee after all.
And both HMRC and the employment tribunal will look at the agreement between employer and self-employed person, and will put it to one side, and then test what the real arrangement was in practice between the two parties.
You see, there are rules about what constitutes employment or self-employment. You can find the rules, and an online checker, here https://www.gov.uk/employment-status, but in a nutshell they boil down to one big question.
WHO IS IN CONTROL?
Imagine the response if you ring an independent plumber and say,
“My boiler is leaking, and I need you to come at 9:00am on Tuesday morning to fix it. I’ve got a couple of spanners you can use. And I’ll pay you £20 for the work but you must tidy up afterwards.”
Good luck with that approach!
Because in the real world your plumber has to market their services and find their own customers. When a customer seeks their services, the plumber decides when they will come and do the work, and what standard of work they do. If the self-employed plumber gets it wrong, they will come back in their own time (and at their own expense) to put the work right. They provide their own tools, their own vehicle, and their own uniform or workwear. If they would rather go and see a different client, they might send one of their employees, or another sub-contracted plumber to do the job – they don’t have to actually do the work themselves. And they will give you an invoice for the work done, at the rates they decide, from the company they run. You just have to pay the invoice.
Your plumber passes the tests HMRC sets for self-employed status.
But:
If you want someone to work for you at the hours you specify, doing the work you decide they need to do, in the way you decide it is to be done, to the standards you set, then you will need to employ them.
If you want them to wear your uniform, use your tools or systems and drive in your liveried vehicle, then you will need to employ them.
If you are the only business they work for, then you will need to employ them.
And if you want to decide the rate of pay, then you will need to employ them.
The costs of getting it wrong could be significant. If you have someone working for you who is self-employed, and an HMRC inspection or employment tribunal rules they should have been employed, you could be liable to HMRC for unpaid PAYE, and National Insurance contributions, plus interest and penalties going back up to 6 years.
And under employment law, you could also be liable for backdated holiday pay, sick pay, pension contributions, maternity/paternity pay, and any underpayment of national minimum wage.
It is perfectly possible to construct many jobs in a way that means they pass the tests for self-employment, but only by the employer giving up control of the working arrangements to the self-employed person. But there will be cases where this is too high a price to pay – in which case, employment is the only answer.
If you are starting to wonder whether your self-employed workers are really self-employed, give me a call on 07902 903086. Let’s talk about your specific situation and see whether you have got it right, or how we can put it right.
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