Call us on:  0808 172 93 22

Employed or Self-employed? Correctly Label the Employment Status in Your Business

to-be-or-not-to-beSUMMARY: How can your business avoid the employee/self-employed quandary that Hermes Couriers now faces?

Are workers receiving the thin end of the wedge where their rights are concerned? You would be forgiven for thinking the answer is quite possibly “yes” in the light of numerous news reports of recent weeks and months. To date, reports of poor treatment of staff have been made, in respect of Sports Direct and Amazon to name but two prominent businesses, it would seem that Hermes Couriers is the latest company to come under the media spotlight following the compilation of a dossier of complaints that its drivers are treated unfairly. The claims primarily allege that the company has failed to pay its drivers the National Minimum Wage (“NMW”).

Hermes Couriers’s initial response is that the drivers are self-employed workers and not employees and thus not entitled to the NMW. As an individual’s employment law rights differ depending on their employment status, it is imperative that a business correctly labels that status at the outset. With case law littered with examples of those individuals who are genuinely employed versus those who are genuinely self-employed, it is reasonable for businesses to think it is relatively easy to get the label right.

So why is there still room for dispute? Quite simply because case law has given rise to a number of tests/theories which are to be applied when deciding the question. As part of our quick guide series we have identified the six key questions to be asked by businesses in these times of doubt.

The 6 Key Questions:

1. Is it the expectation that the service is undertaken by the individual or does the individual have the right to substitute him/herself with another individual?

If there is no right of substitution (or there is a right but it is a very limited right) this is more consistent with the relationship being one of employment.

2. Is the business obliged to offer work and, when offered, is the individual obliged to undertake that work?

If the business can choose, without limitation, when it offers work and the individual is likewise at complete liberty to decide whether he/she will do the work which is offered, the relationship is more consistent with one of self-employment.

3. Is the individual expected to comply with the business’s policies and procedures (such as its disciplinary and grievance procedures), internal working practices (such as hours of work) and directions/instructions for undertaking the work?

Although it is fair to expect compliance with health and safety policies by both employees and the self-employed alike, the more integrated into a business’s working practices the individual is, and the greater the degree of overall control exercised by the business together point towards an employment relationship. Likewise, if the individual is a member of the business’s various schemes offered to employees (e.g. share option, bonus or medical insurance schemes), the relationship is more consistent with one of employment.

4. Does the individual bear any risk/have the ability to benefit from any profit?

Bonus arrangements aside, if the individual runs the risk of being out of pocket financially when undertaking work for a business, this will point toward the individual being in business on his/her own account and therefore self-employed.

5. Does the individual work solely for the business or for a variety of businesses?

In circumstances where an individual performs services for more than one business at any one time there is a greater likelihood of the relationship being one of self-employment than is the position where an individual works for a number of different businesses during any given period of time. However, a degree of caution should be applied when asking this question as the issue of part-time working can arise.

6. How do the parties term the relationship and who is responsible for accounting for tax?

This last question is one where businesses often fall into difficulties. The description applied to the relationship – even when it is agreed by both parties at the outset of the relationship – is not decisive. Just because an individual has described themselves as “self-employed” does not mean they are for employment law purposes. Similarly, where parties elect to adopt the tax practices of the genuinely self-employed (such as issuing invoices for services rendered) does not automatically mean the courts will find that no employment relationship exists.

When coming to a decision about a worker’s employment status, it is necessary to consider each of the six questions opposed to taking one in isolation to the others; this explains why businesses find themselves in some difficulty when determining the employment status of its workforce. Therefore, despite HMRC’s statement to the BBC in respect of Hermes Couriers which indicates key question 6 is going to be one that receives close scrutiny in determining the exact status of the drivers, it will be the complete picture that is scrutinised.

Only time will tell whether Hermes Couriers is correct in its assertion that its drivers are self-employed. In the meantime your business can avoid similar difficulties by conducting a review of any current arrangements and practices (utilising the 6 key questions above) for those engaged on a self-employed basis.

Contact Details

If you would like more information or advice on employment status issues please contact:

fgmedia@fgsolicitors.co.uk

+44 (0) 808 172 93 22

This update is for general guidance only and does not constitute definitive advice.

Updated: by FG Solicitors
Call us on:  0808 172 93 22

EMPLOYED OR SELF-EMPLOYED? CORRECTLY LABEL THE EMPLOYMENT STATUS IN YOUR BUSINESS

to-be-or-not-to-beSUMMARY: How can your business avoid the employee/self-employed quandary that Hermes Couriers now faces?

Are workers receiving the thin end of the wedge where their rights are concerned? You would be forgiven for thinking the answer is quite possibly “yes” in the light of numerous news reports of recent weeks and months. To date, reports of poor treatment of staff have been made, in respect of Sports Direct and Amazon to name but two prominent businesses, it would seem that Hermes Couriers is the latest company to come under the media spotlight following the compilation of a dossier of complaints that its drivers are treated unfairly. The claims primarily allege that the company has failed to pay its drivers the National Minimum Wage (“NMW”).

Hermes Couriers’s initial response is that the drivers are self-employed workers and not employees and thus not entitled to the NMW. As an individual’s employment law rights differ depending on their employment status, it is imperative that a business correctly labels that status at the outset. With case law littered with examples of those individuals who are genuinely employed versus those who are genuinely self-employed, it is reasonable for businesses to think it is relatively easy to get the label right.

So why is there still room for dispute? Quite simply because case law has given rise to a number of tests/theories which are to be applied when deciding the question. As part of our quick guide series we have identified the six key questions to be asked by businesses in these times of doubt.

The 6 Key Questions:

1. Is it the expectation that the service is undertaken by the individual or does the individual have the right to substitute him/herself with another individual?

If there is no right of substitution (or there is a right but it is a very limited right) this is more consistent with the relationship being one of employment.

2. Is the business obliged to offer work and, when offered, is the individual obliged to undertake that work?

If the business can choose, without limitation, when it offers work and the individual is likewise at complete liberty to decide whether he/she will do the work which is offered, the relationship is more consistent with one of self-employment.

3. Is the individual expected to comply with the business’s policies and procedures (such as its disciplinary and grievance procedures), internal working practices (such as hours of work) and directions/instructions for undertaking the work?

Although it is fair to expect compliance with health and safety policies by both employees and the self-employed alike, the more integrated into a business’s working practices the individual is, and the greater the degree of overall control exercised by the business together point towards an employment relationship. Likewise, if the individual is a member of the business’s various schemes offered to employees (e.g. share option, bonus or medical insurance schemes), the relationship is more consistent with one of employment.

4. Does the individual bear any risk/have the ability to benefit from any profit?

Bonus arrangements aside, if the individual runs the risk of being out of pocket financially when undertaking work for a business, this will point toward the individual being in business on his/her own account and therefore self-employed.

5. Does the individual work solely for the business or for a variety of businesses?

In circumstances where an individual performs services for more than one business at any one time there is a greater likelihood of the relationship being one of self-employment than is the position where an individual works for a number of different businesses during any given period of time. However, a degree of caution should be applied when asking this question as the issue of part-time working can arise.

6. How do the parties term the relationship and who is responsible for accounting for tax?

This last question is one where businesses often fall into difficulties. The description applied to the relationship – even when it is agreed by both parties at the outset of the relationship – is not decisive. Just because an individual has described themselves as “self-employed” does not mean they are for employment law purposes. Similarly, where parties elect to adopt the tax practices of the genuinely self-employed (such as issuing invoices for services rendered) does not automatically mean the courts will find that no employment relationship exists.

When coming to a decision about a worker’s employment status, it is necessary to consider each of the six questions opposed to taking one in isolation to the others; this explains why businesses find themselves in some difficulty when determining the employment status of its workforce. Therefore, despite HMRC’s statement to the BBC in respect of Hermes Couriers which indicates key question 6 is going to be one that receives close scrutiny in determining the exact status of the drivers, it will be the complete picture that is scrutinised.

Only time will tell whether Hermes Couriers is correct in its assertion that its drivers are self-employed. In the meantime your business can avoid similar difficulties by conducting a review of any current arrangements and practices (utilising the 6 key questions above) for those engaged on a self-employed basis.

Contact Details

If you would like more information or advice on employment status issues please contact:

fgmedia@fgsolicitors.co.uk

+44 (0) 808 172 93 22

This update is for general guidance only and does not constitute definitive advice.