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Self employed or worker - the risks for the employer
Businesses sometimes choose to take on people who, ostensibly, are classed as “self-employed” or “independent contractors” or “sub-contractors”.
Two recent high profile cases demonstrate the risks, even when the individual has signed a document confirming a “self-employed” arrangement.
An Employment Tribunal decided that Uber drivers were workers for the purposes of the Employment Rights Act 1996, the National Minimum Wage Act 1998 and the Working Time Regulations 1998. And in the Pimlico Plumbers case on 10 February this year the Court of Appeal said that an individual was a worker and not an “independent contractor”.
In both cases complex contractual documentation – signed by both parties – purported to set out the employment relationship, but in both cases the tribunal and the courts reviewed these documents in order to establish the reality of the relationship. If, as was the case here, the individual provides a service personally, the court is likely to deem them to be workers.
Does this matter to the employer?
There are risks for a business that wrongly asserts that individuals are self-employed when they are in fact workers. For example, workers are entitled to holiday pay, to make claims for discrimination under the Equality Act, to make claims for unlawful deductions of (unpaid) wages and claims if they have not been paid the National Minimum Wage (NMW) for all the hours worked.
The latter has far-reaching implications as the worker could complain to HMRC if they have not been paid the National Minimum Wage. HMRC officers can carry out inspections at any time, without providing a reason, and can require employers to produce records and provide other information to determine entitlement to the NMW and the level of pay their workers received.
Under existing rules it is presumed that the worker has not been paid the NMW unless the employer can prove he has. So an employer who has not kept records (because it asserts that the individual was self-employed) will be at a disadvantage. It should be noted that there are also criminal offences associated with failure to maintain records and/or the falsification of records. Workers also have the right to see their employer's records. Should the employer fail to allow access within 14 days of a written request, the worker can bring a claim in the employment tribunal and, if that claim is successful, the tribunal can award up to 80 times the relevant NMW.
Should HMRC investigate and conclude that NMW has not been paid, they can issue a notice of underpayment for arrears that were outstanding at the start of the investigation. This will be done regardless of any explanation or excuse given by the employer (for example, the underpayment was accidental). In addition, HMRC can impose a penalty up to 200% of the total underpayment, subject to an overall maximum penalty of £20,000 per underpaid worker.
In the light of the publicity of the Uber and Pimlico Plumbers cases “self-employed” individuals may want to challenge their “self-employed” status. Businesses that engage people on a “self-employed” basis should assess the risks this could pose to their business and their reputation.
If you would like help with assessing such risks or need more information about topics covered in this article, contact Reggie Lloyd on 01206 217347