Employed, self-employed or worker? How to tell them apart. These distinctions matter. We explain why here.
As a business, you need to decide which side of the fence you want to be on, freelance or employed, and stick to your guns. As soon as you start to try to have the benefits of one side (for instance the tax breaks of freelance engagements) and some of the benefits of the other side (for instance control over the individual’s work) you can get into trouble. Our advice is to choose which you want it to be, and to stick to it. But make sure you have landed on the right side of the fence.
Worker status is an important consideration, because this stands somewhere in between employee and genuine freelance. This means that someone who can appear to be a genuine freelancer, for instance because they are working at home to their own pace, might turn out to be a worker. The recent cases in City Sprint, Uber and Pimlico Plumbers are all relevant to this. It may be that the individual you are treating as a freelancer is in fact a worker, because one or two of the factors below apply to them. This may mean that you are unwittingly not giving them paid annual leave or maximum working times. In most cases our advice is to ignore worker status, as this will confuse matters, and to keep things clean-cut: either freelancer or employee. More details on this particular distinction can be found here.
So which way should you go? The nature of the relationship ‘on the ground’ is all-important i.e. what actually happens day to day in the workplace. The paperwork, and the name given to the relationship will have little to no relevance.
In terms of factors pointing for and against employment status, we have prepared this synopsis from the literally thousands of cases there have been on this difficult subject.
These are the factors that Courts will tend to focus on:
Employee: may be general, but subject to a job title. Any reasonable instructions would usually be mandated.
Consultant: usually specific tasks
Employee: much greater degree of control, usually a management system, disciplinary procedures.
Consultant: expected to rely on their own skill, in their own way and in their own time.
Employee: will tend to use his/her employer’s.
Consultant: will tend to provide their own. For instance they may need to use expensive specialist equipment.
Hours of work
Employee: hours of work and place of work will very much be controlled by the employer.
Consultant: will usually carry out the work in their own time and at their own location, although there will usually be a timeframe within which their work needs to be completed.
Employee: will provide personal service as only they will be employed.
Consultant: will usually be able to involve a replacement in the work. However, a specialist consultant will have to do the work themselves.
Employee: generally they don’t take any financial risk either on the consequences of any negligence in the work they do or, indeed, in terms of being paid their salary.
Consultant: will take a financial risk in terms of the time it takes them to complete a particular project, and whether they have quoted a profitable price for it.
Employee: will be paid through the PAYE system and the employer will need to pay national insurance contributions.
Consultant: will look after their own tax affairs, and may charge VAT.
Length of engagement
Employee: this is usually without limit, except in fixed term contracts.
Consultant: this is usually for a fixed term.
Employee: will rely on the back office and office support of the employer.
Consultant: will usually have to provide their own.
Restrictions on other work
Employee: will usually be prevented from working for anybody else, and from competing to a certain extent after employment ends.
Consultant: will usually be able to work for other businesses during the engagement, but may still have to give undertakings not to compete, albeit usually in a more limited way.
Mutuality of obligation
Employee: mutuality is a complicated but fundamental concept. It essentially means that employers have to provide work for the employee, and employees have to do it. This would certainly be the case for employment.
Consultant: will usually be more free to pick and choose what work they do.
None of these individual factors will be make or break in themselves. Courts and Tribunals will look at the whole picture in order to form a feeling for the economic reality of the situation.
Fundamentally the choice from the businesses point of view will boil down to how much control a business wishes to have, and also how much the work being undertaken is outside the scope of what they can do.
Contact us to find out about our fixed fee employment document service.