Companies are responsible for correctly working out the employment status of their workers.

Employment status is not a matter of choice

People cannot simply decide to treat working arrangements as either self-employment or employment. It is the circumstances of the working arrangement that determine how it is treated. In most cases, deciding a worker’s employment status will be straightforward but sometimes it can be more difficult.

Ultimately only a court or Employment Tribunal can make a final decision on employment status. They will base their decision on a number of different factors, which are in line with legal tests developed through case law.   An Employment Tribunal will look at how an employment relationship works in practice to determine employment status. They will look at whether:

• you have to take on the work personally, rather than sending a substitute or sub-contracting the work
• your work provider has a significant degree of control, or right of control, over you
• you are paid a regular salary
• your employer or work provider deducts tax and National Insurance (rather than you being responsible for making these payments)
• you receive holiday pay, sick pay, maternity pay etc
• you work at your employer's premises and use your employer's tools and/or facilities
• you are integrated into the business (for example, if you appear in the company organisational chart, are subject to the company's disciplinary and grievance procedures)
• you have any financial risk or reward, for example bonuses depending on how quickly or well the work is performed
• you work exclusively for one business rather than performing work for a number of 'customers'
• you have an employment contract or any other contractual documentation, eg a letter of appointment, which describes you as an employee (also know as a statement of mutual intention)

Normally if you are self-employed for employment rights, you will be self-employed in relation to your tax status. However, if you are self-employed for tax purposes it will not prevent an Employment Tribunal from finding that you are an 'employee' or a 'worker' for employment law purposes. HM Revenue & Customs (HMRC) decisions are not binding on Employment Tribunals.

The following gives more detail:-

Workers are generally self-employed if they are in business on their own account and bear the responsibility for their business's success or failure. There are a number of factors which can indicate whether or not a worker is self- employed.

Right of control – the degree of control or direction a Company has over a worker is an important factor to consider. The greater the degree of control by the contractor, the more likely it is that the worker is an employee, so it is important to establish who has control over:-

• what work is done
• when it is done
• how it is done.

The Company should consider not just the degree of control, but also their right to direct the worker if they so choose.

If a worker is required to, and does, supply any equipment, materials, tools, vehicles etc necessary to do the work, this suggests self-employment.

The greater the degree of financial risk for the worker, the more likely it is that he or she will be self-employed. The basis of payment and the surrounding financial circumstances of the arrangement will therefore be important.

For example, a Company pays a worker for all hours of attendance at an hourly rate, the worker faces little, if any, financial risk, and is therefore more likely to be an employee. On the other hand, a worker may be contracted to carry out a defined task or activity at a fixed price. If the completion of this task is vulnerable to delay, for example, because of bad weather or it proves more difficult than expected, and the worker bears the financial risk of such delays, it is more likely that the worker will be self-employed.

Other relevant factors include the nature and degree of expenditure that the worker incurs on his or her own account, and whether the work contract was won as a result of a competitive tendering process.

If a worker has the right to substitute (freedom to hire and pay) someone else to do the work, that suggests self-employment.

The length of engagement may be a factor, but will not be decisive. You must consider the terms of engagement even where a worker is engaged only for a day. Long periods working for one Company may be typical of an employment, but even a very short-term engagement could amount to employment. Regularly working for the same Company, even under daily or weekly contracts, points to employment. The fact that a worker moves from site to site with the same Company is also likely to suggest employment.

Summary

Common indicators of employment

• The Company has the right to control what the worker has to do - where, when and how it is done – even if the Company rarely uses that control.
• The worker does not supply his or her own equipment, materials, tools, or vehicles etc.
• The worker does not risk his or her own money and there is no possibility that he or she will suffer a financial loss.
• The worker has no business organisation, for example, an office, stock, materials, or workers. (These examples are not exhaustive.)
• The worker is paid by the hour, day, week or month.

Common indicators of self-employment

• Within an overall deadline, the worker has the right to decide how and when the work will be done.
• The worker supplies the equipment, materials, tools or vehicles etc needed for the job.
• The worker bids for a job and will bear the additional cost if the job ends up costing more than the worker's original estimate.
• The worker has a right to hire other people who answer to him or her and are paid by him or her to do the job.
• The worker is paid an agreed amount for the job regardless of how long it takes.

To make a decision on an individual case, you will need to consider all the details, and the overall situation.

Workers

There is a third type of working status; that of Worker. 'Workers' are defined more widely than employees and are different from the genuinely self-employed. The status of Worker includes individuals working under a variety of contracts. Employees are Workers, but employees have different employment rights and responsibilities than Workers.

As a Worker you are entitled to core employment rights, including the right to:

• receive the National Minimum Wage.
• protection against unlawful deduction from wages.
• a minimum period of paid holiday (annual leave).
• minimum length of rest breaks.
• not work more than 48 hours on average per week or to opt out of this right if you choose.
• protection against unlawful discrimination (including less favourable treatment on the grounds of part-time status).
• protection for 'whistleblowing' (reporting wrongdoing in the workplace).

You may also be entitled to Statutory Maternity, Paternity or Adoption Pay, Statutory Sick Pay. However, you should check your entitlement to these because they depend on a number of different things, including how much you earn.

The key requirements for establishing 'worker' status are that you:

• have to perform work or services personally and cannot send a substitute or sub-contract the work.
• are not undertaking the work as part of your own business (eg if the 'employer' is actually one of your clients).

Employment Status Indicator (ESI)

The ESI is an interactive tool that can help and advise you whether your workers are employed or self-employed for tax and NI purposes in all but the most complex cases. It is available at www.hmrc.gov.uk/calcs/esi.htm