Self employed workers – a legal risk to your business?

In this two minute HR Blast, we ask what church organists and lap dancers have in common. Not a lot you might say. But you would be wrong! And into this musical mix you might add cleaners, IT consultants, trainers, business consultants, accountants, teachers, designers and a whole host of other people…

So why do we put all of these occupations potentially into the mix? Well it’s all those who you (i.e. businesses) might consider self employed, but who the courts might consider employed should the relationship ever be tested.

An explosion in the use of self employed workers

In recent years, Jaluch has experienced nothing short of an explosion of businesses who prefer to pay people on a self employed basis rather than employ them directly. There are of course numerous benefits to this arrangement and usually there is benefit for both parties – particularly in respect of tax and/or National Insurance (NI) payments (or non-payments!). However, as with so many arrangements, when/if the relationship sours, you have to consider whether you are financially or legally exposed.

A recent legal decision

It was a lap dancer at Stringfellows on £200K per year who has been testing the boundaries. In pursuing her unfair dismissal claim, at the Employment Appeal Tribunal (EAT), the court said that she had satisfied the minimum requirements for a contract of employment to exist. They said that there was an element of control and personal service involved. They also said that there was a mutual obligation between the lap dancer and her employer to provide and complete the work. The EAT said that despite the paperwork that clearly showed she was self employed, on the nights she worked she was employed and on nights she didn’t work, there was in effect an ‘umbrella contract’ in place.

Why do you need to think about this?

But Stringfellows woes aside…

  • It might feel smart to get your head count down by making some workers self employed, but make sure your strategy is not a short term or short sighted one.
  • It might feel that your NI, training, welfare and other obligations are limited by using self employed workers, but could this come back to bite you in the bottom?
  • It might feel more time efficient to reduce the staff you have to line manage and worry about, but could this give your line managers an opportunity to mess up and expose your business unnecessarily?

So where do you stand?

A few points to consider…

  • There is no statutory definition of a contract of service (employed) or of a contract for services (self employed).
  • What the two parties call the relationship is relatively irrelevant. What they do in the relationship is what matters when assessing employed versus self employed.

Are you safe or do any of these apply to you?

These are some of the ways in which we see companies messing up the relationship which they think is one of self employment:

  • Over time, the company comes to expect the person to perform the work personally, rather than giving them the freedom to ask someone else to do it when they are not available
  • The organisation gives them little control over when work is to be done and how it is to be done
  • The company offers to put their salary through the payroll each month to ease admin workload, which effectively moves away from payment on an invoice basis
  • The line manager asks the worker to send in a fit note if they are off sick or makes a mistake and pays them holiday or maternity pay
  • The company applies its own disciplinary and grievance processes to the worker
  • Somehow, over time, the worker stops providing work for other employers and instead works solely on your behalf
  • To make life easy the worker works only on your premises using your tools and equipment
  • To motivate and retain your worker you bring in a bonus scheme that reflects their individual performance
  • An error is made in a letter/document sent out that mistakenly suggests or states that the worker is viewed by the employer as ’employed’

Want to mitigate the risk?

Here is what we suggest…

  • Audit your workers who you consider to be self employed and check that they way you manage them reflects their self employment status
  • Review your contract for services document to ensure it protects you
  • Educate your line managers about how not to make errors when managing self employed workers
  • Educate your finance staff about how to identify if errors are being made in the management of self employed workers
  • Don’t be complacent and watch out for any self employed relationships that morph over time due to work needs or relationship changes

Want help? Not sure what to do? Would like an independent party to help you audit? Need to reissue or rewrite contracts? Contact Jaluch for support with these and all other everyday HR issues.

The information contained within this article is for general guidance only and represents our understanding of employment and associated law and employee relations issues as at the date of publication. Jaluch Limited, or any of its directors or employees, cannot be held responsible for any action or inaction taken in reliance upon the contents. Specific advice should be sought on all individuals matters.

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