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Worker status - top tips for employers
It was hard to miss the recent Supreme Court decision in June concerning Pimlico Plumbers in which the Court decided that a plumber, who worked for the company in a purportedly self-employed capacity, was in fact a “worker” and entitled to holiday pay and other basic workers’ rights.
The case is the latest in a long line of so-called “gig economy” cases which focus on employment status. However, despite the decision coming from the UK’s highest court, it does not take us any further in terms of providing a clear test for establishing worker status. The issue of employment status continues to be a minefield for employers.
In the absence of a clear test, here are our top tips for employers when dealing with the tricky issue of employment status.
1. Consider business needs at the recruitment stage
It is important to consider worker status from the outset. What do you really need from the person performing the role? That should be more important than trying to “avoid” conferring employment rights or tax structuring.
It is not possible to exercise complete control over your staff whilst at the same time denying that they have “worker status” and are entitled to the rights which come with that status. Do you value flexibility over protection of your brand or business assets? Do you require exclusivity of service or will you allow the individual to work for someone else? Do they need to perform work personally? How and when will they perform their role? All of these questions will help you decide the appropriate working relationship and will ultimately go towards determining whether the relationship can properly be structured as genuinely self-employed or employment, or something in between.
2. Think about how the relationship works in practice
The Supreme Court made it clear that the decision in Pimlico Plumbers rested on the unique facts of the case and the reality of the working arrangement - the terms contained in the contractual documentation did not determine the relationship. The key factors the courts have taken into account when considering worker status include:
- Personal service – this was a key feature in the Pimlico Plumbers decision (i.e. did the plumber have to perform the work himself or could he appoint a substitute?). The fact that the plumber was required to perform the services personally and was only able to appoint a substitute who already worked for the company indicated worker status. You should therefore consider whether individuals are required to carry out work personally or if there is an option for them to appoint someone to perform the work on their behalf (without the company’s approval).
- Control – the extent to which Pimlico Plumbers had control over the individual was another key factor in the Supreme Court’s decision. It was noted that the company had tight control over the individual in respect of his uniform and van, the instructions from head office and the restrictions on his ability to compete following termination of employment. This high level of control suggested the individual was a worker rather than self-employed. Companies should therefore review the level of control asserted over their workforce in terms of how, when and where they perform their role and the extent to which they have to comply with company policies and procedures.
Other key factors which must be considered include: mutuality of obligation (if there is an obligation to provide work and the individual is obliged to accept, the individual is more likely to be considered a worker); integration (the more integrated the individual is in the workforce, the more likely to be a worker); and taxation status (whilst this is not determinative, someone who pays their own tax is more likely to be considered self-employed rather than a worker).
3. Check your contracts
Although the courts will often look beyond the terms of the contract to ascertain how the relationship works in practice (see above), it is nevertheless important to ensure that your contractual documentation is up-to-date and in line with the requirements of the business.
We recommend that you review key terms such as pay / payment methods, duration of appointment, location, duties and responsibilities. Also, make sure that the contract accurately reflects the understanding of both parties: the courts have criticised many businesses for overcomplicating contracts and trying to conceal the reality of the working relationship.
4. Review business practices
You should review your business practices to ensure that they are in line with the overall intention of working relationships. If there are parts of the workforce who are labelled as self-employed but have a large amount of control exerted over them or are not able to appoint a substitute, consider whether the needs of the business will allow the individuals greater independence and flexibility. If not, then it may be necessary to change their worker status.
Similarly, if there are areas of the business where self-employed contractors have become integrated into the business over time, is it possible to establish some distance between the company and the individual? For example, you could consider allowing the individual to decide themselves whether or not to work from home or in the office, stopping them from attending company events, removing the need to wear or use branded clothing or materials, and limiting their interaction with company employees.
5. Don't forget IR35!
Many companies choose to engage individuals through an intermediary, such as a personal service company, in order to increase the certainty of self-employed status. However, when an individual provides services in this way, income tax and national insurance liabilities can fall on the intermediary for the individual it provides. IR35 will apply if the individual would have been regarded as an employee of the business, had the individual not contracted through the intermediary.
IR35 rules use the same tests that already exist for distinguishing employment from self-employment. Therefore, you should remember to also consider the above points when engaging individuals through personal service companies or other intermediaries.
Despite a flurry of case law in this area, the legal position concerning employment status remains uncertain. If you are not sure whether your consultancy agreements are fit for purpose, please contact the HR law team at Fox Williams, who will be pleased to advise you.