To provide a definite answer to the question of whether someone is or is not self employed can be very difficult particularly in marginal cases. It is in fact often considered that a very large proportion of so called independent contractors are actually disguised employees. If they are employees then the 'employer' is at risk both of HRMC (the UK equivalent of the IRS) seeking all the back tax and of an employment law claim on termination. In addition to employees and the self employed, there is a sub-set of people in the middle called 'workers'. Apart from the obvious taxation differences - that employees are taxed under monthly or weekly deduction PAYE system and the self employed paid gross there is a wide variance in the rights given to employees and others. The difference is that employees get all employment rights including unfair dismissal, maternity and redundancy rights. 'Workers' get holiday pay, minimum wage and a few other rights. The genuinely self-employed get no employment rights at all. The attached chart shows the difference.
The courts have formulated a number of tests for determining where someone falls on the line between self-employment, worker or self-employed. One of the most important concerns 'mutual obligations'. This can be expressed by the question is there a mutual expectation of rights between individual and the Company. This could be an implied obligation on the individual to accept a certain amount of work and on the Company to provide it. This may not have been expressed at the outset of the relationship but may have grown up over time. A person who works from home - a 'homeworker', may be employed, a worker or self employed. The answer to their status depends on the tests set out below. We regularly advise on these issues and can draft policies and contracts to deal with these issues.
Has a contract of service or apprenticeship whether express or implied. Tests for employment include:
|All rights, including unfair dismissal, redundancy and maternity rights - includes all those rights enjoyed by workers|
|Worker||Someone who is not an employee but who has agreed pursuant to a contract (which can be oral or written, express or implied) to personally perform services for another party and who is not a client or customer of any profession or business carried on by the individual||Discrimination rights, unlawful deduction from wages, rights in respect of the Working Time Regulations (including holiday rights), minimum wage rights; right to be accompanied at disciplinary and grievance procedures; rights under the Part Timer Workers (prevention of less favourable treatment)|
|Genuinely self employed||Genuinely in business on own account - for example, provides own tools (other than hand tools) and accepts risk.||Certain rights in respect of trade unions and under the Human Rights Act only.|