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Deciding someone’s employment status can be complicated and Employment Tribunals and HMRC may consider different factors when deciding what status you have, as there is no single legal definition. IR35 legislation has muddied the legal waters further, and not knowing how to correctly define yourself can lead to Tribunals and, in some cases, financial penalties. For more information on determining your legal status if you are a Contractor, see our IR35 Guide.
There are three different types of working individuals
It is important to establish your status, as:
It is therefore equally important for Employers to know the correct status of those you employ.
To read about Internships/Work Experience see our Interns article here. For more information on unpaid Volunteers and Voluntary Workers see our new article.
If you are an Apprentice read our Guide to Apprenticeships.
In 2015 the Office of Tax Simplification published a report on employment status, making several proposals on how to simplify establishing someone’s status, which you can read here.
Read the details of the 2016 Uber drivers employment tribunal.
And Acas have published new guidance for employers in relation to employment status (March 2017) which you can see here. The guidance is to assist employers following the recent cases regarding employment status in the ‘gig economy’ and also covers agency workers, apprentices, fixed term workers, piece work, volunteers, work experience, internships and zero hours contracts.
Presently, there is no single legal test to determine if you are an employee or a worker, but you are likely to be an Employee (whether on a Permanent (open-ended) contract or on a Fixed-Term contract) if –
If you are an Employee your contract is called a ‘contract of service’.
On 1st September 2013, Employee-Shareholder contracts were introduced into UK law – this is a new type of employee contract and full details are here.
There is now a provision in law where someone employed on a Fixed-Term contract can receive a permanent (open-ended) contract if:
This is broader category than an ‘employee’, introduced by European Union legislation (although there is no EU definition). A worker is anyone who works for an employer under a contract of employment (but this may be a written contract or not and the contract may not come directly from the Employer) and performs the work personally (which can include some freelancers).
Workers are usually:
In addition, there are also Home-workers (or Piece-Workers) who have more limited rights than normal ‘workers’. See our Guide to what Employment Rights you have here.
More about Agency Workers: On 1st October 2011 the Government introduced the Agency Workers Regulations which gives ‘agency workers’ the right to equal treatment (with permanent staff working at the same organisation). For full details of these Regulations see our new Guide to the AWR here.
At present the Employer hiring the temp (not the Agency) is responsible for ensuring the Working Time Regulations weekly hours and rest breaks entitlements are met and are responsible for the temp’s health and safety. The Agency that employs the temp’s services is responsible for ensuring the temp takes their statutory holiday entitlement and ensuring they are paid at least the national minimum wage.
You are likely to be self-employed if:
If you are self-employed your contract is called a ‘contract for service’. You can read what rights you have if your Client cancels your contract here.
If you are freelance, have you considered forming a Limited Company?
See also our Guide to How to Make Sure your Contracts are IR35 proof.
An Employment Tribunal will make a decision based on all the circumstances of the case to decide your status if there is a dispute between you and your Employer. There are four main categories they look at:
However, none of these on their own will decide your status on its own. One Judge has described it as ‘painting a picture’ of all the details and looking at the ‘picture’ from a distance.
In the 2014 case of Pimlico Plumbers v Smith, Mr Smith was employed as an ‘independent contractor’. He was described as “in business on his account” and was required to provide his own tools and submit invoices to be paid, and was required to have professional indemnity insurance. His Agreement with Pimlico said he could choose his particular working hours and reject jobs, although the Tribunal accepted that he was required to work a minimum number of hours per week (5 days per week/40 hours). Pimlico Plumbers were not under an obligation to provide work if there was no work available.
He did however have to wear a Pimlico uniform, have a Pimlico ID badge and mobile phone, drive a van with a Pimlico logo (which he had to pay rent for) and could only be contacted by customers through the company; Customers would receive contracts and estimates in the name of Pimlico and would only pay Pimlico. He had his movements monitored by Pimlico through GPS installed in the van and the Agreements he signed said if he did private work for a customer this would result in dismissal; also the Agreement contained post-termination restrictive covenants.
Following a heart attack, Mr Smith asked to reduce his working hours to 3 days per week and when this was refused Mr Smith bought claims for unfair dismissal and/or wrongful dismissal and direct disability discrimination amongst others. The original Employment Tribunal found that he was not an employee and the Employment Appeal Tribunal agreed: Mr Smith assumed a financial risk and had a degree of autonomy and both parties acted as if he was self-employed without mutality of obligation. Both Tribunals found, however, that he was a ‘worker’ for employment rights purposes because he provided a personal service and there was NO RIGHT OF SUBSTITUTION, because he was required to work a minimum number of hours per week (despite what the documentation said) and because of the amount of control exercised over Smith by Pimlico. The Court of Appeal agreed with this in February 2017 and confirmed he was a ‘limb’ worker (who can be described as someone who is self-employed and providing services as part of a profession or business undertaking carried out by someone else).
The Court of Appeal’s decision provides principles in relation to substitution clauses in a contract: – if the right of substitution only applies when the individual is unable to carry out the work, or the employer needs to give consent for the individual to provide a substitute – this will normally mean the individual is a worker, as this is consistent with ‘personal’ performance. If the right of substitution can apply at all times (is ‘unfettered’) then this will normally mean the individual is genuinely freelance; similarly when the right of substitution only requires the individual to show that their substitute is as qualified as they are to do the work, and no consent is needed by the employer other than this, will normally mean the individual is genuinely freelance.
If you answer:
A very important legal case in 2011 (Autoclenz Ltd v Belcher) has made it clear that the courts will focus on the actual reality of the working relationship (using the tests above) and not what the contractual documentation says. More details of the case are in our article here.
And another important case in 2012 (Stringfellow v Quashie) made it clear that the Courts find the most important factor in determining the employment relationship was the control that the Employer had over the individual, and Mutuality of Obligation was placed in a secondary position. This decision was overturned at the Court of Appeal in 2013. More details in our article here.
In this article we look at the Office of Tax Simplicifications 2015 Report on Employment Status, which looked in detail at:
If you are an Employer and need ongoing professional help with any staff/freelance issues then talk to Lesley at The HR Kiosk – a Human Resources Consultancy for small businesses – our fees are low to reflect the pressures on small businesses and you can hire us for as much time as you need.
Please note that the advice given on this website and by our Advisors is guidance only and cannot be taken as an authoritative or current interpretation of the law. It can also not be seen as specific advice for individual cases. Please also note that there are differences in legislation in Northern Ireland.
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