An employee in ‘self-employed’ clothing: Are you breaking the law?
Can you spot a disguised employee? Broadly speaking, if someone behaves like an employee and is treated like an employee, they probably are an employee – simply invoicing your boss for your time does not make you self-employed. So when is an employee, not an employee? Let’s look a little deeper…
Whether you are hiding your employer status to save money and remove the shackles of employer responsibility or as a worker you are attempting to lower your tax burden – it’s the differences in the relationship that a self-employed worker has with their employer compared to an employee that sets them apart. Failure, to meet your employer obligations could result in a lawsuit and costly compensation.
To help employers stay above the law and determine whether an individual should be employed or self-employed HMRC has developed an Employment Status Indicator test.
When is an employee not an employee? Let’s look a little deeper…
Who controls the worker’s work life? This is important because it sheds light on the control of employer and the ‘self’. So ask yourself, does the employer have control over the individual, deciding when and where they will work? Can the employer move the individual to a variety of tasks or change their role? Does the employer require the individual to work the same hours as other workers? Does the employer decide which part of a project the individual will carry out? Does the individual have to request when they can take time off? Is he or she expected to “busy themselves” when work on a particular project dries up? Is the worker expected to be available for work even when zero hours are provided? If the answer to any of these questions is yes, it’s likely the individual is an employee, not self-emlployed, freelance or contractor.
Example 1: A worker joins an organisation and agrees to work Monday to Thursday (10:00am – 8:00pm) for 15 weeks to deliver a project. The worker removes themselves from the organisation whilst other phased work takes place and returns when required. The project is fast-tracked and completed early but the agreed contract price is still paid. This is a contractor not an employee.
Example 2: A worker takes a position to provide childcare in a nursery. The individual is expected to work 9:00am – 3:00pm, Tuesday – Thursday. The organisation pays gross on receipt of an invoice and the individual is expected to pay their own tax and NI liabilities. The worker’s role is similar to other employees in the organisation and like other employees when child numbers are low they are expected to keep busy with other tasks. They are provided in-house training, a uniform, attend staff meetings and the contract is on-going. When the worker is off sick the nursery covers the role with their own staff. This is an employee not a contractor.
Who’s really pulling the punches? In an employee/employer relationship, there is something called “mutuality of obligation”, what this means is a worker is obligated to complete work. Therefore, if a worker can refuse work offered, they are more likely to be a contractor.
It’s also important to understand a real ‘service company’ can outsource tasks to aid contract completion. If the individual can’t substitute someone else to do their work or bring in additional paid workers (from their own service company) to help complete a contract they may be regarded as an employee.
Business assets can also demonstrate whether a worker is indeed a contractor or employee. Does the individual provide their own computer, specialist equipment, premises, transport (not just to get to and from the place of employment) in order to fulfil their contract? If so, they will appear more likely to be a contractor.
At the end of the day HMRC will look to see if the individual in question is indeed true masters of their own destiny. Obvious signs like advertising and promoting their services outside of their current employer, contracts with other clients and operating as a sole trader will of course all help identify them as such.
If you are concerned whether your workers should be employees, here’s a useful article by the Citizen’s Advice Bureau
Further advice available
For all your PAYE advice, workplace pension & auto enrolment specialist requirements – do give us a call 01179 323444