Individuals carrying out work for an Organisation for payment are not necessarily employees of that Organisation. The distinction between the self-employed who carry out work for an Organisation under what is a 'contract for service', and employees who carry out work under a 'contract of service' is unclear. Employment legislation sometimes gives benefits and/or rights to 'workers' rather than 'employees'. All employees are workers but not all workers are employees.

Determination
Guidance as to whether a person is or is not self-employed and therefore not an employee, can be gained from the answers to questions such as:

a. Does the person have managerial control over their own activities?

b. Do they have investment control over their actions?

c. Have they the right to hire and fire their own staff?

d. Are they registered for VAT?

e. Can the individual refuse to carry out work offered without sanction?


If the answers are YES then almost certainly the person is self-employed, particularly if the question:

f. Is the Organisation obliged to provide work for the individual? generates the answer NO.


Conversely, if the Organisation:

a. directs the work of the person;

b. dictates the time the work is done and its manner;

c. exercises control over the person, particularly disciplining them; and

d. has an ongoing obligation to provide work (and pay for it) for the person; then almost certainly that person is an employee.


Taxation Implications

In 1999 the Government attempted to tighten the restrictions on those claiming to be self-employed to ensure that the tax they pay is a fair amount in relation to their earnings. Thus, where a person is 'under the supervision, direction or control' of their client (or of a number of them) then they will be assumed to be an employee of that client and be subject to tax and national insurance deductions on the amount that they charge. This is to ensure the State receives an appropriate amount of tax - it does not necessarily create an employment relationship. The only body that can determine that, if it is challenged, is an Employment Tribunal. In recent years, the Inland Revenue has constantly sought to bring more 'selfemployed' workers within the PAYE tax net regardless of their status. Their practice note IR35 requires those who use workers who have formed a company to market their (sole) services to deduct tax and national insurance contributions when paying them. In the High Court the Revenue's attitude was criticised but IR35 remains in force.

Non-Employees
Those who perform personal work for the Organisation who are not employees are workers - operating under a 'contract for services' - whereas employees operate under a contract of service, written or implied. Nonemployees or psuedo-employees still have rights.

1. Access to the tribunal system is not limited to employees. An applicant for a job as well as someone who works under a contract for service can still use the tribunal system to claim discrimination, breach of statutory rights (e.g. not being paid the correct amount), etc.

2. Homeworkers, regardless of their status, have the right to be paid at least the National Minimum Wage.

3. Those who provide a personal service to an Organisation and are not running a 'business' may be entitled to the appropriate proportion of annual statutory holiday.

4. Workers, unless they sign an opt-out (or are genuinely selfemployed), are required to comply with the provisions of the Working Time Regulations - that is not to work more than 48 hours a week.

5. The obligation on an employer to provide a safe place of work for employees applies similarly to other non-employees working on (and visitors to) the premises.

6. A person working on a Fixed Term contract which is comparable to that being worked by a permanent employee is entitled to the same rights as that employee.


Agency Staff
Most employers needing coverage of a job will use a 'temp' supplied by an Agency. Care needs to be taken with such workers to ensure employment is not created unwittingly.

Of course Motorola should have asked the Agency to remove him and supply someone else - shortcuts in employment administration tend to lead only to lost cases in a tribunal.

Comparability Principle Extension
In the near future Mr Davidson might be entitled to the same rights as other employees, since the EU is proposing that temporary agency workers should have the same rights as (i.e. to be treated no less favourably than) comparable permanent employees doing the same work - unless such different treatment can be objectively justified. This requirement is subject to a 6-week qualifying period which UK employers organisations have described as unworkable and are attempting to extend the qualifying period to 9 or 12 months. Temps who are employees of the Agency supplying them would be exempted from these requirements - but no doubt their Agency would reflect their additional responsibilities in the fees they will charge. The exact status of such workers should be clarified prior to the assignment.

Regulating Agencies
The Conduct of Employment Agencies and Employment Business Regulations (effective 2004), require Agencies to:

  • set up a 'hiring extension option' so that employers who wish to employ workseekers (as temps are described) do not need to pay a fee to the agency unless this is specifically covered in the contract between the parties;

  • ensure that workseekers' cvs are not circulated indiscriminately;

  • introduce clearer contracts to demonstrate that workseekers understand that they are employed by the Agency, although their pay may be required to be paid to them directly by the client;

  • prohibit the practice of agencies which do not pay anything where a workseeker is sick, or withhold pay until the client has paid the agency;

  • prohibit agencies from publicising purely speculative positions (i.e. only genuine positions can be promoted);

  • ensure agencies control clients accounts properly when dealing with work seekers earnings.


  • The underlying aim of these regulations is to increase permanent employment by reducing the number of agency-supplied workers. There are currently 1,000,000 such workers in the EU - 700,000 in the UK.

    Contracts Tainted by Illegality
    Some workers (including employees) prefer to 'live outside the system', in other words they do not wish to pay tax and national insurance on their earnings. Whilst it is possible for them to gain agreement of the paying Organisation to pay in cash without deductions (i.e. outside the payroll system) this has a number of implications:

    a. The employing Organisation breaches income tax law and can be made liable for the tax which should have been deducted and paid over.

    b. The worker is similarly liable to the tax authorities.

    c. Whether the worker is an employee or not, should they then try to bring a case against the Organisation, since the 'contract' is tainted with illegality it becomes unenforcable and thus, the person cannot pursue a claim in a tribunal.

    1 comments

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