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Are your ‘workers’ on the right employment status?

By Stephen Cowburn

Contemporary talk is about the gig economy. Workers say ‘gigs’ are a less secure and more exploitative form of employment. Businesses will say that it is tapping into a trend for flexible working that allows individuals a choice and where, when and how they work.

Interestingly the CIPD reports that the nature of work has not fundamentally changed in the last 20 years and, secondly, in summarising the outcomes of 5 surveys, between 14% and 33% of people in atypical work are only in these roles because they could not get regular employment suggesting that this form of working can suit people.

So far, so good…

In the last quarter there have been a number of legal cases that have found against high profile SMEs because there is confusion over the employment status of the worker or group of workers engaged in the business. This comes at a time when government policy is geared to protecting, or increasing, the tax take.

We would suggest there are two points emerging from the reported cases affecting companies like Pimlico Plumbers, Uber, Deliveroo and other less well known organisations.

One point is that companies are confused about the subtle differences between workers, employees and self-employed contractors, choosing to engage individuals on the least costly terms (to comply with the relevant legislation) feeling secure that ‘contracts’ will protect them in the event of any investigation. The message is that investigators will be looking more at the reality of the relationship rather than what is written down. There are some well known tests to be considered, for example:

  • Mutuality of obligation – for example to provide the service personally or through a substitute
  • Control – for example the individual deciding how, when and where to carry out services
  • ‘Worker’ owns own business so supplies services to contracting organisation and others as well

In the cases of Pimlico Plumbers, Uber and Deliveroo the issue being contested is whether individuals are workers or self-employed contractors. For these purposes, self-employed contractors will have their terms spelt out in the terms of their contract with the client, effectively amounting to a day or project rate. Workers are entitled to the National Minimum Wage, holiday pay, sick pay and certain protections against, for example, discrimination, less favourable treatment if working part time.

In the case of Pimlico Plumbers the ‘operative’ was required to provide his services personally, work a minimum number of hours to cover the company expenses of the branded van and mobile phone, give half of his earnings to the company and not work as a plumber in any part of Greater London for three months after the termination of the relationship.

Although the tribunal ruling is being appealed, in the case of Uber, drivers are engaged to work in an authorised area, be signed up to the Uber app and be ready and willing to accept bookings.

Deliveroo’s ‘independent contractor’ riders are requesting union recognition and employment rights as workers.

The message to MD owners is that if some or all of your ‘workers’ are engaged in similar terms to the above situations, the weight and relevance of each of the tests for employment may well differ and the key point is that individual circumstances and the overall picture need to be taken into account. HMRC is looking at the detail of the relationship – they appear to be increasingly less interested in what is written in any contract or handbook. And if the detail points to an employment relationship the company, and employees, will face both fines and back-payment of tax owing.

The other point is that attitudes change. What may have suited an individual in the early days may change over time to feelings of being taken for granted and exploited. For example, take someone who is engaged as a worker on an assignment by assignment basis over say 5 years. The inevitable happens and the company stops the arrangement. The worker brought a claim for unfair dismissal arguing that each individual assignment was a contract of employment giving him continuity of employment. The tests mentioned above were applied but one of the decisive factors was that the company’s own handbook referred to assignments as being contracts.

So, if you are contemplating setting up a new business or service, or concerned about the implications of what is written here for your business, contact us for a confidential conversation stephen.cowburn@lgbusinessadvisors.co.uk or 07974 425361 or Richard.terhorst@lgbusinessadvisors.co.uk or 07827 293651.

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