Earlier this year the Real People newsletter featured an article on employment status and we thought it would be helpful to provide some further detail on this, including a summary of the three main types of employment status; guidance on what employers need to be aware of; how to avoid potential issues; and the impact of recent case law from the Supreme Court.
There are three primary categories of employment status: employee; worker; and self- employed (often referred to as ‘contractors’ or ‘sub-contractors’). Many of the recent legal cases relate to whether those engaged by an organisation are ‘self-employed’ or whether they are ‘workers’ or ‘employees’. This matters because each status confers different rights and levels of legal protection upon the individual.
Employees’ have full statutory employment rights and legal protection. They are the only group who are able to make a claim for unfair dismissal. ‘Workers’ share some of the same rights and protections with employees but there are some significant rights that only apply to employees, these include: protection from unfair dismissal; maternity and paternity leave and pay; redundancy pay; and the right to request flexible working. Workers are however, entitled to receive the minimum wage, working hours rights, and the right to be accompanied. Those who are ‘self-employed’ have very few employment rights and have minimal legal protections because they are deemed to be their own boss.
There have been a number of ‘tests’ established by the courts over the years to help identify which type of employment status applies in different cases. The following are considered by tribunals when looking at employment status:
- How much control the employer exercises.
- How well integrated into the business is the person, this includes looking at who bears the risks, who provides the tools to do the job and can even go as far as to whether they are included in work activities such as away days.
- The extent to which the person must carry out the work themselves (i.e. can they nominate a ‘substitute’?)
- Whether the work is on a continuing basis.
- If the employer deducts income tax and national insurance contributions.
- How the arrangement is labelled by those involved.
The most recent case law from the Supreme Court was in Pimlico Plumbers Ltd v Smith in June 2018. In this case the Court found that despite Pimlico’s assertion that Smith was a self-employed contractor, and was therefore not able to request flexible working arrangements due to a serious health issue, that in fact the employment arrangements meant he was actually a worker. Therefore the Supreme Court ruling meant he could submit a claim for disability discrimination, holiday pay and failure to make reasonable adjustments (although he was not entitled to claim for unfair dismissal as the court ruled he was a ‘worker’, not an ‘employee’).
The Supreme Court found that Smith was not ‘self-employed’ because he had to wear a uniform and drive a van which were both branded with the company’s logo as well as having to work a minimum number of hours per week. His contract also contained references to wages, gross misconduct and dismissal.
Employers need to have a clear understanding of the different types of employment status, especially when engaging workers or self-employed contractors. An employer may advertise a role for a ‘contractor’ but what they then require from this role (and what they offer) may ultimately, through implied terms and conditions, create an ‘employee’ or ‘worker’ relationship.
The consequences for employers who get this wrong can be significant, both from a financial and reputational perspective. If taken to tribunal then employers may have to retrospectively cover the costs of holiday, sick pay and wages that individuals were entitled to. From a reputational viewpoint the risk is that employers appear as if they have been attempting to restrict employment rights.
In addition to this, employers need to be mindful of scenarios where an existing or potential employee requests that, rather than continuing as/becoming an 'employee', they carry out work on a 'freelance' basis (meaning they would be 'self-employed'). Whilst the risk of tribunal claims may be low as the individual has agreed to this employment status, it is important for employers to be aware that this type of arrangement can lead to potential issues with the HMRC who, due to tax implications may decide to investigate whether this is in fact the most appropriate employment status.
At Real People we understand that organisations may wish to use different types of employment contracts to help them achieve their goals and this is something we are able to provide advice and guidance on to our customers. In addition to this we can also provide advice on existing contractual arrangements you may have in place.