Employed or Self-Employed? – How To Spot The Difference In Your Business

How are you employing your staff?

You will no doubt have heard reference in the press to the ‘gig economy’ and employment status and in June of last year it was heavily reported again in a high-profile judgement made by the Supreme Court. The case was Pimlico Plumbers Ltd and another -v- Smith. The decision was significant as there was a crucial jurisdiction issue to determine in relation to each of Smiths’ claims - as eligibility to bring the claims were dependent on Smiths’ employment status.

Smith carried out plumbing work for Pimlico Plumbers and after his engagement was terminated, Smith submitted various claims in the Employment Tribunal which included claims for Unfair Dismissal, Disability Discrimination and Holiday Pay.

Before Smith could proceed with his claims to a Final Hearing, it was necessary to identify what his employment status was and so a Preliminary Hearing took place. The Employment Tribunal’s findings were that Smith was not an employee but that he was a worker. Accordingly, the Employment Tribunal had jurisdiction to consider his complaints of Disability Discrimination, Holiday Pay and Unlawful Deduction of Wages but not the claim for Unfair Dismissal.

How does your business achieve a distinction between an employee, a worker and a self-employed contractor?

It is important to remember that whilst you may create an express agreement, it also counts as to what you do in practice regarding the working relationship. In determining the employment status of an individual, it must be understood that these cases are extremely fact-specific and do not necessarily rely on precedent cases. Pimlico reaffirms that the courts are willing to examine the day-to-day reality of any working situation when determining an individual working status. They will not take, at face value, what a contract may assert about status or about working arrangements.

Below is a brief overview on the definition of an Employee, Worker and Self-Employed.

Employee Status

In accordance with section 230(1) of the Employment Rights Act 1996, an employee is an individual who has entered into or works under the terms of a contract of employment. The contract can be created expressly or implied by the nature of the relationship. For an individual to have employee status they will: -

• Be obliged to work personally and not be able to substitute their work.
• Provide the work to the employee and the employee is obliged to accept the work.
• The employer has control over how the employee carries out the work.

Worker status

In accordance with section 230(3) of the Employment Rights Act 1996, a worker means an individual who has entered into or works under a contract of employment or any contract whereby they agree to perform work personally. In essence, the worker is sometimes seen as a ‘half-way house’ between an employee and someone who is self-employed.

Whilst workers do have fewer statutory rights they do have several key legal rights which include; protection from discrimination, entitlement to the national minimum way, entitlement to holiday pay, for example.

Self-Employed

Individuals being self-employed should;

• Be in business for themselves and be responsible for the success or failure of their business which can make a profit or a loss.
• Decide when they work, where and how to do it.
• Can hire someone else to do the work.
• Are responsible for fixing any unsatisfactory work in their own time.
• There’s a fixed price for the work – i.e. it doesn’t depend on how long the job takes to finish.
• Use their own money to buy business assets, cover running costs and provide the tools and equipment for their work.
• Work for more than one client.

Here at Amica HR, we can guide you through this specialist area and also provide you practical advice on how to limit risks to your business. If you would like to discuss this matter further or you have any other Employment Law issue, please do not hesitate to contact us on 01522 370190.