When hiring someone, you need to ask yourself whether you should be taking them on as an employee or as a self-employed person.
From your point of view, taking on a self-employed person is better than taking on an employee. This is because self-employed people do not enjoy the whole raft of rights that employees have under UK and European law, including:
- the right to paid holiday (a minimum of 5.6 weeks a year for all employees);
- the right to statutory sick pay;
- the right to 52 weeks maternity leave (irrespective of length of service) and other maternity
- paternity and parental rights; and
- after a year’s service, the right not to be unfairly dismissed.
You might think that with this in mind, you should have no employees at all and that you should only engage self-employed people and that that way you would avoid having staff with expensive employment rights.
Well, unfortunately, the employment tribunals and HMRC wised up to that long ago; so even if you treat someone as a self-employed person at some point in the future either they themselves or HMRC may establish that in fact they are employees:
- The issue is most likely to be raised by the individual themselves when you terminate their engagement (ie they may then argue that in fact they are an employee and accordingly can sue for unfair dismissal).
- The issue is most likely to be raised by HMRC during the course of a PAYE audit. You don’t want HMRC to conclude that you have staff claiming to be self-employed who should be treated as employees for payroll purposes. Not only will the business will end up with a bill for the PAYE deductions that ought to have been made in respect of the relevant individuals (plus interest and penalties), but the business will for years thereafter be under close scrutiny from HMRC.
So whilst it is better from your point of view to engage staff on a self-employed basis, you should only do this when you are confident that in the circumstances you could (if challenged) persuade both HMRC and an employment tribunal that they are genuinely self-employed.
How can you tell?
HMRC publishes guidance to help organisations work out whether someone who works for them should be treated as an employee or as a self-employed person.
As HMRC say in that guidance, if the answer to all of the following questions is “Yes”, then the worker is probably an employee:
- Do they have to do the work themselves?
- Can someone tell them at any time what to do, where to carry out the work or when and how to do it?
- Do they work a set amount of hours?
- Can someone move them from task to task?
- Are they paid by the hour, week, or month?
- Can they get overtime pay or bonus payment or other benefits normally awarded to employees?
And if the answer to all the following questions is “Yes”, then the worker is probably self-employed:
- Can they hire someone to do the work or engage helpers at their own expense?
- Do they risk their own money?
- Do they provide the main items of equipment they need to do their job, not just the small tools that many employees provide for themselves?
- Do they agree to do a job for a fixed price regardless of how long the job may take?
- Can they decide what work to do, how and when to do the work and where to provide the services?
- Do they regularly work for a number of different people?
- Do they have to correct unsatisfactory work in their own time and at their own expense?
- Can a substitute be nominated if they are absent?
Most of your staff are probably going to fall within the employee category because they have to do the work themselves, cannot choose where and when they work, are paid an annual salary, do not provide their own equipment and have no financial risk etc.
Note that if there’s any doubt, employed status is the default option for HMRC.
Andrew Fishleigh is an experienced employment lawyer at Keystone Law advising employers and employees in contentious and non-contentious matters. Having initially commenced his legal career with the Treasury Solicitor, Andrew subsequently practiced with DJ Freeman and Garretts in London and Reading. You can email him here.
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