Self-employed individuals are not paid through your payroll, but is your working relationship really that of an employee? There is much scrutiny on companies currently to ensure that the correct tax and NI contributions are paid, and employee rights are not circumvented.
You should take advice to ensure that any contracts and processes within your business are truly reflective of the relationship.
Our top tips might help you to identify the nature of the engagement and protect your business against employment tribunal claims and HMRC tax breaches.
1. Do treat everyone fairly
Self-employed contractors and consultants are still protected by the Equality Act 2010. This means that a contractor on your premises should be treated fairly and should not be discriminated against. Your Equality and Diversity Policy should apply to all employees, workers and contractors. You may want to stipulate in your contract with a contactor that they expressly agree to abide by the Equality and Diversity Policy and provide them with a copy of the policy. If you do not have a policy, we can provide you with a bespoke policy at minimal cost.
2. Don’tpay holiday pay
Self-employed contractors and consultants are not entitled to holiday pay. If your contractor wishes to take time off during their appointment with you, they should inform you in advance and will not be paid for the absence.
3. Don’t discipline
Your disciplinary procedure should not apply to contractors or self-employed consultants. If you have issues with performance or conduct, you should ensure that there are provisions within the contract to allow you to terminate a contract early should they not improve, or commit a serious breach of the contractual terms. If you were to apply your procedure and issue warnings or dismiss for gross misconduct, you are implying that the contractor is in fact an employee who may have employment rights.
4. To ensure that the situation is genuine
Whilst the contract is an important document to assist in the determination of an employment relationship, the reality of the situation is much more important. A worker or employee has significantly more employment rights than someone who is self-employed, including the right to minimum wage and holiday pay. HMRC and the Employment Tribunal use slightly different tests to determine employment status but the bottom line is that if you are using a self-employed contract to mask an employee or worker relationship to avoid the payment of tax, minimum wage, holiday or to deny employment rights, there is a good chance that this will be challenged. The recent litigation surrounding the Gig Economy workers is a key example of this and should serve as a warning to those who are deliberately or even unintentionally falsely defining their employment relationships.
6. Don’t pay tax and national insurance
This may seem like an obvious one but it still needs to be clearly stated within your contract. Someone who is self-employed is responsible for the payment of their own tax and national insurance. They will submit their own tax returns and you should not be involved in this process at all. There is an exception with certain Government schemes such as the Construction Industry Scheme but you should always read the rules carefully.
6. Do check that they have the right insurance and qualifications
When taking on someone who is self-employed, they should ideally have their own insurance in place and be able to evidence any qualifications that they claim to have. You should ask for copies of any insurance policies and check when these expire to ensure that the contractor renews them whilst working with you. Your own insurance may also cover self-employed workers but you need to check this. You should also check and retain copies of qualification documentation, as this may be needed by your own clients or insurance.
7. Don’t pay Statutory Sick Pay, Statutory Maternity Pay, or other family leave payments
Self-employed contractors and consultants are not entitled to statutory sick pay, statutory maternity pay and other family leave pay and rights. If you do offer payment under these circumstances, you may be suggesting that the employment relationship is that of a worker or employee.
8. Do be clear about the right to sub-contract
A common clause in a contractor agreement is a right for the contractor to subcontract the work to another provider. This is fairly standard in the building trade but is not so desirable in other sectors when you believe that you have contracted for a specific individual to do the required work. The contract needs to clearly state whether sub-contracting is allowed and, if so, what conditions apply to that arrangement.
9. Do be clear on what you are paying for
What you pay, when you pay it, how they invoice you and what you are paying for, should all be clearly stated within the contract. Make sure that contractors deliver you detailed invoices, on time, and for the amounts agreed.
10. Do have a contract in place
This is essential to clearly set out the terms of the appointment, but also to clarify employment status. The contract should be detailed, unambiguous and cover as many reasonable eventualities as possible- many of which are outlined above.
To ensure that you are protected have your contract reviewed or drafted by one of our legal experts, at an affordable, fixed fee price. Contact us for a free telephone consultation and quote.
If you are unsure as to whether you are at risk then please don’t hesitate to get in touch with us. We can help you to identify whether you are adhering to current guidelines and put in place legally compliant sub-contractor agreements to minimise the risk to your business.
We will agree on a fixed cost for this work with you, depending on how much we need to do. In some cases, we can offer you free guidance.
For our Watertight HR & Legal clients some of this work may be included in your fees so please ask. If you are not a Watertight client and would like a quote, contact us today.