Do you have more employees than you think?
In a recent survey of people who ‘work for themselves’, it was found that 1 in 10 were actually employees, even though these people were classed as self-employed.
However, the biggest area of concern is the Construction industry where it is estimated that over 50% of self-employed workers are, in fact, employees.
This could mean that over a million ‘employees’ are missing our on such things as holiday pay; the government is losing tax revenue which could be over £1.5 billion per year; and responsible businesses risk the problem of being undercut by companies who use this bogus ‘self-employed’ workforce.
So how does this happen?
Some unscrupulous companies ‘encourage’ staff to become self-employed when, in fact, they should be employees. This means that these companies can avoid paying employer’s National Insurance contributions, the minimum wage, holiday pay, sick pay and pension contributions, etc.
This can mean that these self-employed ‘employees’ could be losing around £1500 a year (based on minimum wage for 40 hours per week) in lost holiday pay, plus they could be paying over £60 per year more in National Insurance contributions than they would pay if they were an official employee. In addition, they would not be entitled to any redundancy pay, sick pay, maternity/adoption/paternity/shared parental pay and do not have employment protection rights.
What are the benefits of using self-employed workers as opposed to employees?
In terms of engaging a self-employed worker, apart from the significant savings in tax and National Insurance contributions, you have greater flexibility and can take on someone for a particular job or project as and when necessary. A genuine self-employed worker will normally quote you a price for the job and you can choose the contractor who you feel will give you the best service. Should they personally be unable to work (or have other work to do for a different company), they can leave your particular project for a day or two or provide an alternative worker to do the work in order to complete the work in the quoted timeframe.
But there are also benefits from taking on an employee. Employees have an obligation to turn up for work at the times you specify and you have control of the work they do, how they do it and the equipment they use to carry out the job to your requirements. In other words, you can tell an employee when you want them to work and they must comply with this. If they want time off, they have to request permission so you have prior notification that they won’t be there and can therefore make alternative arrangements if necessary.
Would your company fall foul of the self-employment test?
It can sometimes be difficult to decide as different Government departments, including HMRC and the Department for Work and Pensions, have slightly different definitions of self-employment. We would therefore have to look at an Employment Tribunal’s view of whether someone is an employee or a self-employed worker.
The Employment Tribunal would look at the actual work relationship, covering such aspects as:
- Do they have to take the work you offer to them?
- Do they work a set number of hours per week?
- Do you pay them an hourly/weekly/monthly rate?
- Do they receive overtime or bonus payments?
- Do they have to ask for time off?
- Do you tell them how to do the work and when to do it?
- Do you provide the equipment they need to do the job?
- Do you provide a vehicle?
- Do they have to do the work personally?
- Are they prevented from working for others?
- Do you cover them under your insurance?
If you have answered ‘yes’ to more than a couple of questions, it is likely that this person may be an employee rather than self-employed.
However, if you are at all unsure, please book a consultation and we will be happy to assist.
By Elaine Pritchard