Status Symbol – clearing up the ‘contractor or not?’ confusion

It’s becoming more and more common these days for organisations to take on new recruits (and often even existing or ex staff doing the same job they did previously) with the status of self-employed contractors instead of employees. Given the economic situation over the last few years, many employers are reluctant to commit themselves to employing people on permanent contracts, in case they find they have to lose them soon afterwards, or have little for them to do except sit around playing on Facebook and tweeting Stephen Fry. So using freelancers is one way for employers to give themselves a bit more flexibility, as well as saving a few bob on benefits and entitlements.

This is probably particularly significant for those of us that run our own businesses, need some extra help but don’t want to commit to employing someone. Alternatively, you may be self-employed and find yourself hired by another business to provide services to them. But is that a contract for service, or a contract of service?

It’s a significant point, particularly when it comes down to entitlement for anything from sick pay, maternity leave or use of the kitchen, to protection from discrimination. Not to mention who is liable in the event of a health and safety issue or poor work(wo)manship! Whether you’re hiring or hired, the difficulty is when the lines between employee and hired worker get  blurred.  So let’s clarify some of the issues here!

There are a number of factors which can be considered in determining whether someone is an employee or self-employed – it’s known as the Multiple Factors test, as they are all lumped together and looked at in combination rather than taken individually, or there being one overriding factor. It covers the following issues – so these are the things to think about…

 

Mutuality of obligation

– Both parties must have an obligation to the other for an employment contract to be in force. So this means an obligation on the employee to accept and do whatever work is offered, and a corresponding obligation by the employer to provide work. If no work is guaranteed by the organisation, and the worker doesn’t have to take any work that is offered, that suggests they are not an employee.

 

Provision of a personal service

– An employee has a contract ‘of service’ – i.e. they must do the work themselves. A self-employed person has a contract ‘for services’, so they can provide someone else to do the work for them as long as it gets done. So if you have minions that you can send out to do some of your donkey work, looks like you’re  a contractor, not an employee!

 

Number of contracts

– If the person can undertake work for more than one employer, this suggests they are self-employed, whereas an employer usually has the right of exclusive service for employees. So even if you spend most of your time working for one business, if you can take on work for others at the same time, you’re probably a hired worker. (Actually you’re probably an exhausted hired worker, with very little free time and high blood pressure. But you can’t sue anyone for that.)

 

Control

– Less of a deciding factor but still worth considering. This takes into account the extent to which the employer has control over the worker and when, where and how they do the work. The greater the direction and control, the more likely the person will be classed as an employee. If you can pretty much choose when and where to do the work, as long as it’s delivered on time, you’re more likely to be a contractor. Another issue here is who owns and provides the equipment, materials etc needed – if the employer provides them, then again this suggests the person is an employee. So if you show up with your own laptop/tools/stationery supplies/widgets and grommets, you’re probably a hired worker (even if you liberate the odd biro or sneak a swift use of the photocopier.)

 

Integration into the organisation

– how much is the person either peripheral to the organisation, or part and parcel of it? E.g., effectively carrying out tasks similar to other people in the company and subject to the same terms and conditions, policies and procedures etc. If you have to work the same hours, do the same work, in the same place, and obey the same rules, regulations and ways of doing things, you’re more likely to be an employee.

 

How and when they are paid

– if they are paid a regular wage (particularly through PAYE so tax and NI is deducted) rather than being paid by one-off or sporadic fees (eg through an invoice from them so they are responsible for their own tax and NI) this suggests an employer/employee relationship. Also whether they receive other payments such as holiday pay, sick pay etc. If you are spending your evenings churning out invoices, doing your VAT returns online and hoping you’re runny nose doesn’t develop into flu because you need to pay the rent, then you’re likely to be self-employed.

 

So there’s a lot more to it than who takes responsibility for paying the tax! Generally speaking, if it looks like a duck, sounds like a duck and feels like a duck, it’s probably a duck, even if it sends you its bill (no pun intended…) There have been many tribunal cases of supposedly   ‘self-employed’ contractors suddenly claiming to be an employee and wanting paid maternity leave, holidays, redundancy pay etc., which is traumatic for both parties. So it’s worth making sure you resolve any identity crisis,  as getting it wrong can turn round and bite you on the behind later!

 

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