Onrec logo The Online Recruitment Resource

Why understanding employment status is important in 2019

Whenever engaging an individual it is always important to understand the rules and rights that apply.

Company Profile

Lawspeed Ltd

These are determined by the employment status of the individual, whether 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 the 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 the 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.

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 self employment, the status of self employment will not apply to that arrangement. Hence the expressions ‘genuine self employment’ or ‘false self employment’ which is used by HMRC. A job described as being ‘outside IR35’ may in fact be within the scope of the rules.

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 often 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.

With the proposal to extend the public sector IR35 rules to the private sector, the consequent tax risk for hirers and operators in the supply chain, and resultant effect on contractual terms and pay rates, now more than ever status is set to become a key consideration. Where in the past use of a third party engager may have limited the risks, this is no longer any guarantee. Total flexibility has already been eroded, and supply chain compliance, ensuring that contract and rights arrangements are set up and operated correctly, is a factor that every employer, hirer and contractor supply business will be interested in.

For more information call Lawspeed on 01273 236236.

www.lawspeed.com