There are 3 main types of employment status: self-employed, worker and employee. You may call your self-employed contractor a contractor, but is that the true reality of the engagement? Just because you employ somebody as a contractor, doesn’t automatically make them self-employed if in reality they act as a worker, or even an employee.
You may wonder why this matters. Well, it matters. A lot! The self-employed have far less employment rights than a worker, who also have less employment rights than an employee. Treating a contractor (by agreement) as a worker, doesn’t make them any less a worker if the reality of the relationship shows them as a worker. Nor does treating a worker (by agreement) as an employee make them any less an employee if in reality, they are treated as an employee, and so on and so forth. The reality of the engagement will be considered more than what is written in the contract by any tribunal judge.
It is therefore of the utmost importance that as a business you are not depriving a supposed contactor (who demonstrates more characteristics of a worker) of things such as holiday pay or a payslip. Doing so, could find you in a position that many businesses have found themselves in – an employment tribunal resulting in a hefty compensatory fine.
Below is an easy-to-follow bullet point list of the key characteristics of self-employed, a worker and an employee, followed by their rights. This will help to identify and confirm the status of those that do work in your business.
What are the characteristics of each?
- In business for themselves – owns a company or is freelance
- No mutuality of obligation
- Invoices for their services
- Responsible for how and when the work is done
- Able to send someone else to do the work (if appropriate)
- Able to work for different clients and charge different fees
- A ‘contract for services’
- Not in business for themselves
- Personally performs the work
- Little obligation to receive or do work but should work when agreed e.g., a 0-hour contract
- Obligation to provide a personal service
- Mutuality of obligation (meaning that the employer is obliged to provide work and the employee obliged to do the work)
- The employer controls the way in which the work is completed and when it is completed
- Level of integration with the company, company uniform, access to company benefits
What rights are each entitled to?
Self-employed have limited employment rights:
- Protection against discrimination
- Protection of their health and safety standards when carrying out work for the business.
Workers are entitled to all of the above, plus the following:
- Entitled to written terms outlining their rights and responsibilities
- Paid holiday
- National minimum wage
- Protection for whistleblowing
Employees are entitled to all of the above, plus the following:
- A written statement of particulars, issued on or before the first day
- Sick pay
- Holiday pay
- Parental leave
- The right to redundancy pay (after 2 years’ service)
- The right to claim unfair dismissal (after 2 years’ service)
The importance of getting employment status right cannot be understated. Many businesses get this wrong and find themselves in tribunal.
Maybe you have had contractors working with you for years. Or perhaps you’re a business owner and recently decided to expand your team due to increased workload. That’s great! But please ensure that if you are hiring a contractor or freelancer, the contract is synonymous with the reality of the engagement, ensuring they are receiving all of the employment rights they are entitled to.
If after reading this, you are in doubt that the lines from contractor to worker or employee may be blurred, please do get in touch via the contact us page so that we can discuss your situation further.