Employee or Self-employed

Many important legal rights are dependent on whether an individual is employee or self-employed. Some notable rights are only available to employees:- e.g. protection from unfair dismissal, right to statutory minimum notice, statutory redundancy payment, written particulars of employment, statutory sick pay, maternity leave maternity leave and pay, adoption leave and pay.

There are, however, many rights that apply to both employees and self-employed workers: - e.g. protection from sex, race, and disability discrimination disability discrimination, protection from unlawful deductions from wages, entitlement to annual leave in accordance with the Working Time Regulations.

The rights and obligations between employer and employee, and the business and self-employed worker differ. Employees are obliged to carry out the reasonable instructions from their employer, work diligently, and not to compete with the employer’s business, to give contractual or statutory minimum notice, to work faithfully for their employer. A self-employed person is obliged to carry out the obligations under the contract with the business he/she is working for, and work with due diligence and skill. However, the self-employed individual can work for others, and is not subject to the same level of contract by the business.

So, the benefits to a business in using  self-employed staff is saving the complications of deducting tax, national insurance, giving statutory minimum notice, and not having to worry over any claim of unfair dismissal when the contract is ended, are counterbalanced by the reduced control and inability to prevent competition from the self-employed worker.

There have been many businesses that have benefitted from the greater flexibility provided by using self-employed staff. However, problems have arisen, when employment tribunals have examined the nature of these working partnerships. Some people may believe they are self-employed, when in fact a closer analysis of the working relationship reveals that they are in fact an employee;- and therefore able to claim protection against unfair dismissal. The employment tribunal will first look for a contract between the parties. Then it will examine if their contract is a contract of employment contract of employment -

a) The contract must impose an obligation on the individual to do the work in person. I.e. if the contract allows the individual to send a replacement worker in their place this would suggest it is NOT a contract of employment.

b) There must be a “mutuality of obligations” between the parties.

I.e. basically there must be an obligation to do work when offered, and on the business to pay the individual when work is done. Usually, in basic terms, this obligation is fulfilled by the employer being obliged to pay for the work done by the employer. So, if an individual is free to go and work for others between paid jobs that are offered, then there would not normally be a mutuality of obligation. A right to turn down a particular offer of work would indicate that there is no “mutuality of obligation”.

c) The individual must in practice agree to be subject to a significant level of control during the work from the other party.
Nb. This does not mean that they are subject to control over every detail of the work. Clearly senior staff have a large degree of control over the work they do, but ultimately are under the control and responsible to the employer. An obvious indicator of this is being subject to a disciplinary procedure.

There are a number of factors that an employment tribunal expect to see in the case of a self-employed person, e.gs;-

i) he/she provides own equipment,
ii) he/she  hires own helpers,
iii) he/she is free to genuinely negotiate the pay,
iv) he/she is actually treated or regarded by others as self-employed,
v) He/she pays own tax/national insurance.

None of these factors alone, even tax status, determine this issue, but are useful in accessing the overall nature of the work relationship.

Obviously in the case of employees the employer must provide written terms of employment (se PAYG employment of contract). In the case of the self-employed or consultant it is always advisable to have a written contract specifying the work to be done and requirements and expectations of both parties (see PAYG Consultancy Agreement).