Labour only sub-contractors often fall into the legal status of a ‘worker’, but what does this mean?
I bet most people are familiar with the term ‘employed’ and ‘self-employed’, and the distinction this brings. In many situations though people engaged on a self-employed basis morph into a working relationship whereby they act more like an employee. This status is known as a ‘worker’ and is defined under s.230 of the 1996 Employment Rights Act;
‘…whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer…’
The Government suggest someone is an Employee where most of the following is true:
• they’re required to work regularly unless they’re on leave, for example they’re on holiday or on sick leave or on maternity leave.
• they’re required to do a minimum number of hours and expect to be paid for time worked.
• a manager or supervisor is responsible for their workload, saying when a piece of work should be finished and how it should be done.
• they cannot send someone else to do their work.
• they get paid holiday.
• they’re entitled to contractual or Statutory Sick Pay and to maternity pay or to paternity pay.
• they can join the business’s pension scheme.
• the business’s disciplinary and grievance procedures apply to them.
• they work at the business’s premises or at an address specified by the business.
• their contract sets out redundancy procedures.
• the business provides the materials, tools and equipment for their work.
• they only work for the business or if they do have another job, it’s completely different from their work for the business.
• their contract, statement of terms and conditions or offer letter (which can be described as an ‘employment contract’) uses terms like ‘employer’ and ‘employee’.
And define a Worker as someone where:
• they have a contract or other arrangement to do work or services personally for a reward (a contract can be written or unwritten).
• their reward is for money or a benefit in kind, for example the promise of a contract or future work.
• they only have a limited right to send someone else to do the work (subcontract).
• their employer has to have work for them to do as long as the contract or arrangement lasts.
• they are not doing the work as part of their own limited company in an arrangement where the ‘employer’ is actually a customer or client.
It is a common misconception to think workers have very few employment rights, but if they do fall unexpectedly into this status of engagement then they are entitled to:
• the National Minimum Wage
• protection against unlawful deductions from wages
• the statutory minimum level of paid holiday – 20 days generally
• the statutory minimum length of rest breaks
• to work no more than 48 hours on average per week or to opt out of this right if they choose
• protection against unlawful discrimination
• protection for ‘whistleblowers’ who report wrongdoing in the workplace
• not to be treated less favourably if they work part-time
Business owners are often shocked when they are challenged by informed workers enforcing their rights. Here are a couple of recent cases that demonstrate the obligations that often fall upon a business.
Case Study 1:
A self-employed driver claimed they had been paid under the National Minimum Wage for the 18 months they had been working. On review of their pay and time sheets we identified an underpayment of around £6,500.
Case Study 2:
The law relating to holiday accrual is complex. A self-employed contracts manager claimed 2 years of unpaid holidays. This would have been around £8,000 had there not been some very timely breaks taken by the worker.
It is important to recognise such claims generally arise when the working relationship ends.
Recommendations:
1. Have a robust Contract for Services in place. This is very different to a contract of employment, defining terms such as inclusive pay, insurances, self-employment, substitution, indemnity and tax compliance.
2. Undertake routine monthly calculations to ensure the compliance with the relevant National Minimum Wage.
3. Undertake an IR35 ‘Complete Employment Status for Tax’ on the Government website to see if the engagement with each labour only subcontractor meets the ‘off payroll’ test. Otherwise, PAYE and National Insurance taxes may be due!
Remember, tribunal claims are very public affairs and claims against minimum wage breaches are amongst the worst. Prospective work givers, customers and partners view such breaches seriously.
If you feel the need to talk anything of this through, or have other HR issues which you don’t know how to handle then contact our HR and Employment Law Team on 03456 122 144.