June 8, 2016

After the 9-to-5: understanding Employment Status Types

Employment Status Types can be complicated in the modern working environment. And they can cost business a lot of money too – HMRC collected £737m last year alone from non-compliance, predominantly from SMEs.

So how do you protect your business?

Dolly Parton working 9 to 5 Tumble out of bed and stumble to the kitchen,
pour myself a cup of ambition,
and yawn, and stretch, and try to come to life…

The opening lyrics there from Dolly Parton’s 1980 smash hit ‘9 to 5’ and, like this picture, a reminder of the way we used to work.

Radical changes to working practices over the past 36 years, from the technology we use to where we use it, have altered the picture substantially.

Fewer and fewer employees will recognise 9 to 5 as the way we work today.

Many of these changes have been led by the demands of modern life, with flexible working and other employment statuses becoming more prevalent in the current employment market as employees seek greater work/life balance.

But how is this affecting small and medium sized businesses?

Financial consequences for failing to comply with complex employment status types

All this change has been happening while the government continues to clamp down on incorrect employment statuses – particularly on individuals wrongly classified as self-employed – with SMEs hit hardest.

According to recent research completed by UHY Hacker Young, HMRC collected £737.3 million from investigations into employer compliance, much of it relating to self-employment.

Payroll errors also cost UK employers more than £700 million in the last financial year, with unpaid tax relating to errors made on their employment statuses.

All of which adds up to a hefty – and unnecessary bill – for SMEs.

What you need to know: modern Employment Status Types and what they mean

There are a number of different working arrangements that have developed over the years, allowing greater flexibility in the workplace.

Getting the right employment statuses for your people will protect your business from the taxman.

Here are the three main types you need to know:

  • Employee
  • Worker
  • Self-employed

A person’s employment status dictates their rights and entitlements and also spells out their employer’s responsibilities.

In many cases, this is a straightforward relationship which is easily to recognise.

However it becomes more complicated for other types of modern workers, such as contractors or freelancers, who may not have a convectional contract or permanent role with the employer.

Confusion can arise because an individual’s employment status can be different under new tax law and employment law.

Five Key Points to consider when looking at your Employment Status Types

  1. Employees have more employment rights than workers, so if the right applies for a worker then this would automatically apply to an employee
  2. The national minimum wage and paid annual leave applies to a worker and therefore an employee
  3. Apprenticeships are work-based training programmes that lead to a nationally recognised qualification
  4. Volunteers carry out unpaid work for charity and other organisations for fundraising events
  5. Other common statuses include:
    • Agency workers
    • Apprentices
    • Interns
    • Internships
    • Volunteers

Protecting Small and Medium-sized Businesses

SME’s were hit particularly hard by the crackdown on payroll tax deductions, accounting for about half of the cash collected – despite being responsible for only a tenth of the UK payroll.

Much of the underpaid tax was down to genuine mistakes and errors, but in these austerity-led times HMRC are looking to reclaim every penny they can.

Responding to the UHY research, Helen Hargreaves, associate director of policy and research at the Chartered Institute of Payroll Professionals (CIPP), said the research findings demonstrated the need for employers to use qualified payroll practitioners:

With increasingly complex government legislation, as well as HMRC’s greater focus on compliance, it is unsurprising that more issues are being discovered.

Moorepay have been offering expert payroll and employment law advice for 50 years.

Call us if you would like more information to see how Moorepay can help you with your payroll and employment law compliance.

Ring 0845 184 4615 or click here for more information on our employment law services.

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About the author

Stephen Johnson

Stephen has over 25 years experience in private sector HR and management roles, working as a Manager for over 10 years and eventually moving into the financial services industry. In his current role as an HR Policy Review Consultant he develops, reviews and maintains our clients’ employment documentation. With extensive knowledge of management initiatives and HR disciplines Stephen is commercially focused and supports clients in delivering their business objectives whilst minimising the risk of litigation.