Employment status does it matter?

Employment status does it matter?

Knowing what employment status to attribute to working individuals continues to be a complex and confusing area of employment law. The debate and litigation concerning this thorny issue is undoubtedly likely to continue to rumble along throughout 2018.

The Government has launched a public consultation to discuss whether proposed changes to the legal framework will make it easier for businesses and employers to determine employment status. This will close on 1 June 2018, so it may well be the latter part of the year before any changes are introduced to the current legal framework. In the intervening period businesses may remain vulnerable to challenges from individuals who believe that their working status has been incorrectly classified by the business.

What can we expect for the future?

At the end of the Government’s period of consultation it is expected that there will be:

  • Certainty and clarity regarding the issue of employment status,

  • Codification of what constitutes an employee, dependant contractor (proposed new name for worker) and self-employed,

  • A new comprehensive test/formula to determine employment status,

  • The introduction of an online tool.

Why is employment status important?

It’s important because the status of an individual will determine the employment rights that are available to them.  Consequently, failure to correctly identify the legal status of an individual could result in an individual being denied access to their employment rights. For example, if an employer mistakenly categorised an individual as self-employed when they ought to have been labelled as a worker, saying it was a genuine  mistake, will be no defence to any  future complaint by the individual that they ought to have received paid holidays.   

Employment status audit

In view of this, it would be sensible for business owners to consider carrying out an audit of everyone who currently provides labour and services to their business with a view to identifying, who is an employee, worker or self-employed. Unfortunately, there is no precise test to follow to determine an individual’s employment status.

  1. Over the years decisions from our courts have created useful questions that should assist employers in determining the issue of employment status.  Examples include:  

  2. What is the economic reality of the situation you are looking at?

  3. Is there a contract of service (employment contract)?

  4. Is the contract of service a sham (disguised employment)?

  5. What is the true agreement between the parties (are you calling an individual self-employed but treating them like an employee)?

  6. Does the business retain control over the individual?  

Additionally, allowing the following may also point towards a determination of self-employment:

  • Freedom to choose how to perform the work and hours to work.

  • Freedom to accept or decline work.

  • Freedom to set the fee or price.

  • Freedom to market their services to third parties.

  • Freedom to provide a substitute to carry out work.

  • Freedom to use their own equipment.

What can you take away from this?

Determining employment status is a complex issue and one which has caused confusion not only for businesses but also the Government. At present there is no codified legal framework to determine the issue of an individual’s employment status. Where a dispute arises, a myriad of case law judgments have to be consulted in an attempt to clarify an individual’s status. Ultimately, where a dispute in relation to employment status is unresolved an employment judge will need to make a final decision on the issue. If you are in any doubt about how to determine the status of individuals, always seek legal advice.

As always, if you have a legal query please get in touch with the FSB Legal Helpline on 0345 0727727 and we'll be happy to assist you.