It is crucial that employers understand the importance of worker status and can distinguish between their employees and the genuinely self-employed. Categorising this wrongly can lead to significant financial exposure for all employers, including those in the motor industry.
What are the main differences in employment status?
Having clarity regarding employment status enables an employer to determine an individual's rights and their responsibilities towards them. This article focuses on the three main types of status: worker, employee and self-employed consultant.
The information set out in an employment contract is not the only determinative factor. What occurs in practice will, ultimately, be very important when assessing employment status. Key factors include:
- how reliant the individual is on the employer to provide them with work;
- how much control the employer has over the individual; and
- whether the individual is expected to carry out the work personally (or is able to provide a substitute).
Workers
Where work is 'casual' in nature, working hours are irregular or are not guaranteed, or people are not obliged to make themselves available for work, they will often be deemed to be workers. This category of people will usually include those engaged on zero hours' contracts, as well as agency and freelance workers.
Workers have significant employment rights, including an entitlement to the following:
- written terms outlining their job rights and responsibilities;
- National Minimum Wage;
- paid holiday;
- payslips;
- protection for whistleblowing and against unlawful discrimination; and
- protection from being treated unfairly if they work part-time.
Workers may also be entitled to receive certain statutory payments, such as Statutory Sick Pay (SSP) and Statutory Maternity, Paternity, Adoption, Parental and Parental Bereavement Pay, as the definition of "employee" is wider for these purposes than the standard definition and may extend to them.
Employees
An individual is likely to be categorised as an employee when they are expected to be consistently available and receive direction from a line manager regarding the amount of work they are required to carry out and how they are expected to undertake it. They are also expected to carry out the work personally, i.e. they cannot send a substitute.
Employees have all the employment rights of a worker (as above) and, in addition, are entitled to:
- parental and shared parental leave and pay;
- maternity, paternity and adoption leave and pay;
- parental bereavement leave and pay;
- time off to care for dependants and to carry out public duties;
- redundancy pay after two years' continuous service;
- claim unfair dismissal after two years' continuous service;
- receive statutory minimum notice period if dismissed or made redundant;
- the right to make flexible working requests after 26 weeks' continuous service; and
- be protected from dismissal or detriment if they take action in relation to a health and safety issue.
Self-employed/contractors
Employers must be careful to ensure that the status of individuals who are initially engaged on a self-employed basis does not change over time. Those people who are truly self-employed will contract for services with different clients, assume ultimate responsibility for how and when they work, and send substitutes when necessary as personal service is not required. They will invoice their clients for their services and are at liberty to determine the fees payable.
They have some employment rights, relating to such matters as health and safety whilst on clients' premises, and are also protected from discrimination. However, they do not have the same employment rights and responsibilities as workers and employees.
Why status is important
If employment status is not identified and managed appropriately, employers can face claims, such as for holiday and sick pay. The Court of Appeal decision in Smith v Pimlico Plumbers Limited [2022] EWCA Civ 70 is particularly significant as it means that employers may be open to claims by individuals categorised as workers for pay in respect of a maximum of four weeks' leave for each year worked where such leave has been taken but pay has not been received.
Mr Smith successfully claimed that he was a worker within the meaning of section 230(3) of the Employment Rights Act 1996 (ERA) and regulation 2(1) of the Working Time Regulations 1998 (WTR), meaning that he was entitled to paid leave. Pimlico Plumbers Limited had maintained that he was a self-employed independent contractor with no entitlement to paid leave. However, the Supreme Court determined in Pimlico Plumbers Limited and another v Smith [2018] UKSC 29, [2018] ICR 1511 that he undertook to "perform [his services] personally" and therefore he was a "worker".
In light of this judgment, it would be prudent for employers to review the arrangements they have in place with their staff, in particular those who are considered to be self-employed but who may, in fact, be workers or employees.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.