Employment status: employee, worker or self-employed?
The Employment Rights Act 1996 (ERA 1996) defines an employee as “an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment” which means a contract of service which can be express or implied and whether oral or in writing.
A worker is defined in the ERA 1996 as an individual who has entered into or works under:
(a) a contract of employment, or
(b) any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby he has to provide services personally.
It is the second limb above which has been subject to most of the employment status cases, specifically cases involving Uber taxi drivers and more recently the case of Pimlico Plumbers & Charlie Mullins -v- Gary Smith in the Supreme Court.
The various factors which indicate an individual’s employment status have caused parties difficulties in determining an individual’s legal status for employment law purposes.
As a result, we are seeing an increase in alleged self-employed individuals asserting that they have worker status. This is because workers are afforded more rights than a self-employed person.
Before providing an update as to case law, let’s consider some of the factors which indicate employment status: –
MUTUAL OBLIGATION
Employee – The company is under an obligation to provide the individual with regular work and the individual must make themselves available to do so.
Self-employed – The company does not have to offer work on a regular basis and the individual is under no obligation to accept the work.
PERSONAL SERVICE
Employee – The individual provides their services personally. Generally, there is either no right to appoint a substitute or this must be approved by the company and only used in certain circumstances.
Self-employed – The individual is not required to provide their services personally and has an unqualified right to appoint a substitute.
EXCLUSIVITY
Employee – Generally the individual is not free to work for other organisations.
Self-employed – The individual can provide their services to other organisations.
LENGTH OF ENGAGEMENT
Employee – Apart from when an individual is employed to work a fixed term contract, the length of engagement is not normally determined.
Self-employed – The individual is engaged for a fixed period usually until a specific task or project is complete.
PAY, BENEFITS & TAX
Employee – The individual is generally paid a fixed amount on a regular and fixed payment date. They may receive benefits such as a pension or a bonus. The company is responsible for payment of income tax and national insurance contributions on the individual’s earnings.
Self-employed – The company pays the individual upon completion of a specific task or project. They do not receive benefits. They are responsible for payment of their own income tax and national insurance contributions on their earnings and registering for VAT.
INTEGRATION
Employee – The individual’s name appears on the company’s telephone directory, they wear a uniform and have a company business card.
Self-employed – The individual is not integrated in this way.
The Pimlico Plumbers & Charlie Mullins -v- Gary Smith case involved a plumber engaged by Pimlico Plumbers. Pimlico Plumbers gave the impression to its customers that it’s plumbers were employees. The company controlled Mr Smith’s uniform and his administrative duties, as well as when and how much payment he received. The dominant feature of Mr Smith’s contract was that he should perform the work himself; he did not have an unfettered right to give away the work. He could however swap his shift with another Pimlico Plumber.
On the other hand, the plumbers had to raise invoices (to trigger payment), were VAT registered, personally accounted for tax and national insurance and were able to reject work. These are indications of self-employed status.
The Supreme Court has now upheld the Court of Appeal’s judgment indicating that it considers that the plumbers are workers and not self-employed. This might not be a surprise following the Uber case where taxi drivers who operated under the Uber app also alleged worker status.
In that case the Employment Appeal Tribunal upheld the earlier ruling that Uber drivers are workers within the meaning of the ERA 1996 and therefore qualify for workers’ rights such as:
- 5.6 weeks’ paid annual leave each year;
- a maximum 48-hour average working week and rest breaks;
- the national minimum wage (and the national living wage); and
- protection of the whistleblowing legislation.
A further appeal of the Uber case is to be heard at the Court of Appeal on 20th November 2018.
In the Pimlico Plumbers case the Supreme Court discussed the concept of personal performance and held that an unfettered right to substitute does not indicate worker status however a conditional right to substitute may not be inconsistent with personal performance.
Each case is of course judged on its own merits.
In our experience the status issue normally arises out of another dispute however it’s always best to be prepared and to have considered the status of individuals in advance of any challenge.
It’s worth doing a reconciliation of your working relationships at some point to establish whether you consider that your business is really mislabeling individuals.
It is also important to look at what agreements you have in place to assess whether you have documented the situation as it is working in practice: –
- Do you have properly drafted documentation or have you amended an already unsuitable document to save costs?
- Have you at least had the document you amended checked? If not, you should maybe review your terms.
If you have any concerns about employment or worker status in your business contact our team on 0113 322 9222. We can review your documentation and speak to you about any issues you may have.