The distinction between a person who is employed and another who is self-employed is usually sufficiently clear. However, when an individual is trying to enforce their legal rights, such as a person who claims that he/she has been unfairly dismissed, it is not uncommon for employers to argue that the person is actually self-employed and therefore not entitled to make a claim. Such cases are often made more difficult for the alleged employer where a written contract exists but the parties disagree as to its effect.
If a person who is described as being self-employed is found by a Tribunal in reality to be an employee, the main consequences that arise fall upon the employer. Employers may be found liable to account for the PAYE and National Insurance Contributions that should have been paid over the course of the employment as well a potential compensatory award against them by the Tribunal.
The basic tests that have been applied by Employment Tribunals to determine whether a person is employed or self-employed relate to two main headings. For an employment relationship to exist, there must be:
The Tribunal will determine whether there is some obligation on an individual to carry out tasks or work and some obligation on the employer to pay for that work. If both of these situations exist then this generally indicates the existence of a Contract of Employment
Where employees are permanently employed this obligation tends to be straightforwardly determined. However it is less clear in relation to staff who are casual or non-permanent.
In some situations, Employment Tribunals have held that there may be a general Contract of Employment if a casual worker has a long-standing relationship with the employer which is so regular and constant that it creates the mutuality of obligation on each party. These contracts are often called ‘umbrella’ contracts.
The employer must also have sufficient control over an employee for there to be mutuality of obligation. An employer can tell an employee what to do and how and when to do their work. In these situations it is clear that the employer has sufficient control. Conversely where the worker can choose to perform the contract by sending someone else in his or her place this will indicate that no Contract of Employment is likely to exist.
For persons to be employed under a Contract of Employment, they must demonstrate that they are not in business on their own account. Examples which indicate that a contract of employment exists are:
Examples which indicate self-employment are where such persons:
In general terms the more the employer treats the individual as one of their employees, the more likely it is that a Contract of Employment will exist regardless of the label of self employment that may be attached to it.