You may have heard the term employment status on the news at the end of October 2016 in relation to Uber drivers. This has prompted many business owners to think about the status of the people they engage.
1. What is Employment Status?
- Employment status looks at the nature of the relationship between an employer and the people that work for that company / provide services to that company.
- Employment status looks at how bound and obliged the 2 parties are to each other and defines the employment status accordingly.
2. What are the key categories?
The key categories when looking at employment status are:
- Self employed
The Uber drivers were found to be ‘workers’ and not self employed
3. Why is Employment Status important ?
Employment status is important because it determines employment rights
(Self-employed have the least rights, employees have the most rights)
- Independent contractors – the truly self-employed have very few rights in relation to their work; for example, they have no entitlement to be paid minimum wage, holiday pay or sick pay.
- Workers have various employment rights such as the right to minimum wage, paid holiday, appropriate daily rest breaks,
- Employees have all the employment rights that workers have but have some additional protections including (subject to length of service) the right to: bring an unfair dismissal claim; request flexible working; statutory maternity pay; redundancy pay; and to a minimum notice period.
The HMRC website has an employment status indicator that you can use to look at how the Inland Revenue view employment status with respect to the paying of taxes.
4. Surely if I agree with someone that they are self-employed and they are happy with that, then that is okay
- That might sound okay and work out okay at the start of the relationship, however if the person is truly a worker or truly an employee attaching the label of self-employed to them doesn’t make them self-employed.
- Furthermore it is always a good idea to look at a relationship – not when things are going well – but when things are not going so well. For instance when you want to part company with the person – if they are not self-employed then parting company with them may not be as easy as it would be if they were truly self employed
- When determining employment status a court will look at the reality of the situation – they will look at what happens in practice
- A court will look at the detail of the relationship with a fine tooth comb
5. How do I work out what someone’s employment status is?
To work out someone’s employment status there are many different tests but here are a few key areas to look at:
- One of the most important things to consider is ‘mutuality of obligation’ – does mutuality of obligation exist between the company and the person? If there is mutuality of obligation then that points towards the person being an employee. If there is a lack of mutuality of obligation then that points towards the employment relationship being looser and therefore the person could very well be a worker or self-employed.
- It is worth looking at control also. How much control do you have over the person?
- In the Uber case the court looked at the amount of control the employer had over the drivers. The court looked at the substance of the relationship between employer and driver – not the language of the documentation issued to the drivers – again just because you call someone self-employed does not make them so
- The Uber situation isn’t new law – it was a case of applying old law to a set of modern circumstances.
6. So once I have worked out employment status for each person then I don’t need to bother checking it again?
- That is a very good question. It is worth being aware that some employment relationships develop over time and can mutate/change into something different. For instance – someone may start off as a casual worker but over time there becomes a mutuality of obligation that makes them move from being a casual worker to actually being an employee.