These recent employment cases involving Uber and Pimlico Plumbers have highlighted the shift in working practices across the UK. While Philip Hammond has promised to find an efficient way to tax workers in this ever-changing economy, now is the time to review how you engage the services of your contractors and ask yourself the following questions:
- Can your contractors send someone else to do their work?
- Can they work when, where and how they like?
- Are you under no obligation to provide them with work?
- Do they provide their own equipment and cover their own running costs?
If you can answer yes to some of these questions, they may well be self-employed and your business should have no issues. Otherwise you may need to be worried.
In the recent employment cases with Uber and Pimlico Plumbers, the contractors were classed as workers. Under the contract between an individual and a business, an individual is a worker if they are required to perform the work personally and have to undertake most (but not necessarily all) of the work that the business is obliged to offer them. A worker does have very limited rights to send someone else to do their work in certain circumstances, however.
If the contractors are classed as workers, it can have costly implications on businesses. While Uber and Pimlico were not tax cases, there is overlap on the issues. As well as significant tax and national insurance implications, workers have certain entitlements that self-employed contractors do not, for example the National Minimum Wage, statutory minimum level of holiday pay and minimum length of rest breaks.
While an individual may have a different employment status under employment and tax law, all employees are workers. Employees, however, have additional responsibilities to workers, which include:
- The obligation to undertake all of the work that is provided to them
- Have to perform all the work personally – providing a substitute is not an option
- The requirement to do a minimum number of hours work – at a location specified by the employer
As a result, employees enjoy various additional entitlements including statutory redundancy pay, minimum notice periods and protection against unfair dismissal.
If contractors provide their services through their own company, this still can cause issues, although in the main not for the business owner. HMRC has rules known as ‘IR35’ that contractors must follow if they provide their services through an intermediary ie limited company, a service or personal service company or a partnership. Although the responsibility falls on the contractor and their intermediary, businesses may still be caught up in an HMRC enquiry into their contractor’s business methods.
This is a complex yet important area, therefore to safeguard your business you should check the status of your contractors as soon as possible. There are many factors to consider and professional and/or legal advice may be necessary. The cost implications and associated penalties for not taking the necessary steps to protect you and your business could be significant.