It is very important to understand the employment status of your employees.
Many employment rights, such as the right not to be unfairly dismissed, and the right to redundancy pay are only applicable if the worker is an employee.
In some cases, an employer may call someone self-employed, a ‘casual worker’ or ‘trainee’, when that person is really an employee. This may be done to avoid paying tax and national insurance for their employees and avoid them having employment rights.
It is irrelevant what the employer calls the worker, whether they are known, for example, as self-employed, an agency worker, or a casual worker.
In addition, just because someone pays tax and national insurance as a ‘self-employed’ person, does not automatically follow that they are actually self-employed rather than an employee.
What happens in practice about how they work is what matters. Who decides what work they do and what they are expected to do by the employer.
How to tell if someone is an employee or self-employed
The following factors will all help you decide whether a person is an employee or self-employed so employment rights are clear:
• does the employer tell the worker what work to do and how to do it (even if they are left alone to actually carry out the work)? Does the employer provide them with work, or do they have to go out and find their own work to do? If the employer controls the work to be done and provides the work, this is a factor in favour of them being an employee
• how they are paid? If they are paid a regular amount of pay at regular intervals, rather than being paid per job done, this could indicate they are an employee
• who is responsible for getting the work done? If they have to find someone else, such as a sub-contractor or a friend, to do the work if they are unable to, this would indicate they are self-employed. If the employer finds someone else to do the work if, for example, the worker is off sick, this would indicate they are an employee
• who provides tools and materials to do the work? If the employer is responsible for supplying main tools and machinery and materials, with the worker responsible for supplying only a few of their own tools, they are likely to be an employee
If you are unsure whether the worker is an employee, you should speak to an experienced adviser, for example, your employment law solicitor.
If you want to know whether the worker is an employee or self-employed in order to work out how much tax or national insurance to pay, the rules are slightly different to the ones described here.
For more information about these rules, go to the HM Revenue and Customs website at: www.hmrc.gov.uk.
Employees must have a contract of employment. This does not have to be written down. A contract of employment is agreed between the employer and the employee and can be a verbal contract. (Link to section on contracts of employment).
You can find more details on Contracts of Employment here.
If a worker is getting work through an agency, they may be:
• treated as an employee of the agency (although this is unlikely), or
• self-employed, or
• employed by the organisation they work for.
There are special rules about how agency workers pay tax and national insurance contributions and how to decide if they are employees or self-employed.
If you have any queries about being an agency employee, you should consult an experienced adviser, for example your employment law solicitor.
What if the employer wants an employee to switch to self-employed status?
If an employer asks an employee to sign a new contract which states they are self-employed rather than an employee, signing the contract does not mean the worker becomes self-employed.
Regardless of what the employer says, whether or not the worker is an employee or self-employed depends on what happens in practice and the relationship between the worker and the employer.
Contracts that aim to limit employee’s rights
If you are an employer, you must not employ people on contracts designed to avoid the employee gaining employment rights.
Examples of poor (or illegal) practice include:
a) Employees employed on a series of short term contracts and casual workers
Some employers may employ employees on a series of short term contracts, usually lasting for about a year, but always less than one or two years. This is done to avoid the employee gaining employment rights.
They may also employ the employee only during a particular season, such as during the summer to pick fruit, but the employee may be expected to go back and work for that employer each year during that season.
Some employers call their workers casual workers in order to avoid having to give them what they are entitled to under employment law. Even if the employer says the worker is a casual worker, this does not mean they are.
b) Employer calls employees trainees
Some employers may call their worker a trainee in their employment contract to prevent them from having their statutory rights.
However, this does not necessarily make them a trainee. It is important to look at the working relationship between the employee and the employer and what is in the employment contract to see whether the worker is actually a trainee or whether they have the same rights as other employees.
If they have been on a Work Based Learning scheme for young people but have completed the scheme and taken on as an employee, they will have the same statutory rights as any other employee.
These rights will apply from the first day that they became an employee, unless their employment contract says otherwise.
Their contract could, however, contain terms which only apply for a certain period of time and which are less favourable than those which apply once this period has come to an end. These terms cannot take away their statutory rights.
c) Contracts without specific working hours
‘Zero hours contracts’ are contracts of employment which do not specify any number of hours that the employee will be required to work. They are common for shop workers. The contract says that instead of working a specific number of hours per week, the employee must be ready to work whenever asked.
‘Key time’ contracts are those where the employee is guaranteed some work, but are not guaranteed regular hours each week.
The problem with zero hours and key time contracts is that employees are only paid for the time they work, so even if they have to wait on work premises or be at home waiting by the phone, they may not be paid for this waiting time.
Legally, if an employee is on a zero hours contract, they are entitled to be paid for any time they have to be on work premises waiting for work, unless their contract of employment says otherwise. They should be paid your normal hourly rate or, at the very least, the National Minimum wage.
It is a legal requirement that all employees must be given a written statement of their terms and conditions of employment. This must include terms and conditions about hours of work, including normal weekly hours, any overtime requirements, the rate of pay and how often it is paid.
Even if the employees’ contract does not give details of the number of hours they must work each week, only stating ‘hours of work will vary each week’, it is still a legal contract.
If the contract states that the employee has no set hours of work and they must be available to work, but in reality they work the same number of hours each day/week, it may become an implied term of their contract that they have a set number of hours to work each day/week.
If they are willing to work this number of hours but are given no work to do they may be entitled to be paid your normal wage for these hours.
How we can help
Our employment law solicitors are experienced in providing legal advice for employers and can help you with all your employment law issues.
Please contact our employment lawyers via Daniel Zakis on 0121 705 7571 or email email@example.com
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