Employment status

Specialising in employment status and contract terms since 1997

This is a complex area of law with complicated tests

Whenever engaging an individual it is always important to understand the rules and rights that apply. These are determined by the employment status of the individual, whether they are an employee, a worker, a contractor, self employed or via a company (e.g. a PSC or umbrella), or some other kind of casual operator. This is a complex area of law with complicated tests that apply in all cases, save where an individual is an employee on the basis of a contract that is described as an employment contract.

Employees have a wide range of employment rights including the right to claim unfair dismissal and redundancy. Other kinds of arrangement could mean that the individual is a worker with fewer rights, for example; without the rights mentioned or no right to minimum notice of termination. A self employed individual has even fewer rights. The application of PAYE tax and employed NICs has historically been affected by status. For this reason the hiring of individuals on a basis other than employment has facilitated flexibility in the workforce, and has become very popular in the UK over the last two decades.

“A job described as being ‘outside IR35’ may in fact fall within the scope of the rules”

However it has been set in law for many years that the mere designation of a status in a contract does not solely determine the actual status. Thus, for example; a contract stating that an individual is not an employee may not stop the individual from actually being an employee with all accompanying rights. Similarly, a person may claim to be self employed and indeed be self employed on some basis but if the work arrangement does not reflect this, the status of self employment may not apply to that arrangement. Hence the expressions ‘genuine self employment’ or ‘false self employment’ which are used by HMRC. A job described as being ‘outside IR35’ may in fact fall within the scope of the rules.

Understanding employment status…. and using the right contractual terms…are factors that every employer and hirer will be interested in

Status is determined by factors such as the existence of ongoing obligation between the parties, the exercise by the hirer of control over how the work is done, what work is done and when. The nature of the engagement determines the actual status meaning that it is sometimes not possible to have certainty around status in the absence of a tribunal decision. In addition HMRC now uses employment status tests to determine the application of certain deemed employment taxes, for example under IR35, and the agency tax rules, where the actual engagement may not be one of employment at all. This causes confusion and is difficult for lawyers, let alone for lay people.

Whilst we share the widespread view that the tests in this area are outmoded, the lack of certainty being problematic (the rules around employment status may be changed in the coming years following the Matthew Taylor review), it is the position that wherever hiring on any basis other than employment, understanding employment status is a critical factor. It is then also critical to use the right contract terms taking into account the issues and risks that may arise. Use of a third party engager does not guarantee removal of the risks and chain supply compliance, ensuring that contract and rights arrangements are set up and operated correctly, is a factor that every employer and hirer will be interested in.

Lawspeed offers advice, status assessments and contract terms applicable to a wide range of arrangements. IR35, managed and consultancy services are key topics of interest arising in 2019.

For more information about our services call 01273 236236 or use our contact form.

Areas for advice include:

  • Agency regulations
  • Agency Worker Regulations
  • Disputes, fee recovery and back door hire
  • IR35 and tax relevant to agency workers, contractors and freelancers
  • Employment issues including employee management
  • Employment status
  • Data protection/GDPR
  • Contract issues
  • Relationship aspects, for example with 3rd part suppliers
  • Modern Slavery and Supply chain issues
  • Vendor/RPO issues