Employee or Self-Employed Person?
The parcel delivery service, Hermes, has recently come under scrutiny following complaints by its workers about their pay and working conditions.
Hermes drivers are currently classified as self-employed persons meaning that they pay for their own costs of performing the job role and do not have the benefits and legal rights of employees.
The issues faced by Hermes drivers came to light as workers accused Hermes of not paying the National Living Wage of £7.20 per hour.
As a result of this HMRC have launched an investigation into the working practices including establishing if the workers are self-employed or not for the purposes of HMRC’s legal classification.
This is a particularly hot topic at the moment with many Companies using ‘self-employed’ relationships, particularly service roles which use new technology such as Hermes, Uber and Deliveroo for example. Those of you who listen to my podcast will also know that there is a challenge to the status of Uber drivers in the Employment Tribunal at the moment. If you have not listened and you want to you can do so here.
With an increase in the National Living and National Minimum wage, auto enrolment pensions and increases in other costs it is an attractive option for businesses to have ‘self-employed’ persons instead of employees, however there are risks associated with getting it wrong including the risk of an investigation from HMRC.
Interestingly the Treasury has given an indication of their intention to create a new ‘Employment status and intermediaries’ team, which will focus on false self-employment.
So how do you get it right?
The test and criteria used by HMRC and the Employment Tribunal to determine employment status do have variances, and HMRC may place a different emphasis on certain criteria to the Employment Tribunal, therefore it is important to get advice from a tax expert in relation to where you stand for the purposes of HMRC.
For the purposes of the Employment Tribunal and establishing employment status for other employment rights there is unfortunately no rule set out in law and instead various tests and criteria have developed over the years through various cases.
Establishing if they are an employee or not?
The starting point for establishing employment status comes from a case in 1968 known as the Ready-Mixed Concrete case in which 3 key tests were determined:
1. Personal Service
3. Other Factors
Factors that determine employment status include:
1) Mutual obligations
If the employer has an obligation to provide the individual with regular work and the individual is under an obligation to make themselves available to do the work then there is a mutuality of obligations which you would expect to find with an employment relationship.
2) Personal service
Where the individual is required to provide their services personally and they are not able to send a substitute to do the work it is likely to indicate the status of an employee.
This can be a crucial determining factor in deciding if someone is an employee.
It essentially means that the individual does what they are told to do, they are told how it is done and when it is done.
There will of course be circumstances where the person holds a senior position in the business and they are the persons who issue the instructions, but this does not mean they are not an employee.
In addition to obeying instructions the individual is required to behave in a particular way or dress as prescribed by the employer.
You can normally get a flavour of who is genuinely in ‘control’ fairly quickly just by asking a few questions about the relationship.
If the individual is not free to work for other organisations without permission it is a strong indication that they are an employee as self-employed persons by the nature of what they do would be able to work elsewhere.
5) Nature and length of the engagement
If the contract for work is for a short period or to undertake a specific task or piece of work this would be more likely to indicate self-employed status than employee. Although employees can be employed for a fixed term, it tends to be for a longer period than self-employed individuals who are typically brought in to fulfil a particular task or requirement.
6) Pay and benefits
If the individual is paid a fixed amount on a regular payment date and they receive the same benefits as other employees such as pension, bonus, private medical insurance, company car or other benefit it will indicate employed status.
Self-employed persons tend to invoice for the work undertaken on completion rather than be paid a set amount each week or month.
If the individual is integrated into the business they are more likely be an employee.
For example, I had a case where I acted for the employee and he had a business card provided by the company, company email, name badge and ID, and he appeared on the telephone directory internally. To customers and other employees, he was part of the workforce and they did not view him any differently than other employees.
In this case the employer was arguing otherwise but the evidence of my client’s integration into the business was very compelling and the Employment Tribunal found in his favour that he was an employee.
8) Facilities and equipment
If the individual is provided with the equipment, tools and facilities and they do not have to provide their own or pay to use them then this would indicate employee status.
9) Financial risk
If the individual is paid even if there is not sufficient work to keep them fully occupied and they have no financial risk it would point towards employee status as self-employed persons have a degree of financial risk depending on what work is available.
If the employer deals with the administration and payment of income tax and national insurance contributions then this would appear to be acceptance by the employer that the individual is an employee.
As you can see if can be difficult to determine a person’s legal status for the purposes of employment rights and HMRC, therefore if you are not sure whether or not someone working for you would be classified as an employee I would recommend you seek specific advice about your situation.
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The information contained in this blog post is provided for guidance and is a snapshot of the law at the time it is written. It is provided for your information only and should not be used as a substitute for obtaining legal advice that it specific to your particular circumstances.
The guidance should not be relied upon in any decision making process. It is strongly recommended that you seek advice before taking action.