You might think it’s a simple matter to decide whether a worker is employed or self-employed. Yet recent court cases (and an HMRC employer compliance review) show that, while the distinction has never been more important, correctly identifying status has never been trickier.
Getting an individual’s status wrong could leave you facing HMRC interest and penalty payments, employment rights costs and PAYE and Class 1 National Insurance on payments made.
It’s an issue often compounded by workers themselves, many of whom will ask to be treated as self-employed when they patently aren’t.
Contractual obligations
Writing in Payroll World, Alastair Kendrick, director at MacIntyre Hudson, notes that the courts, when ruling on such matters, return to the terms of engagement. What level of control does the business exert over the engaged person? To what extent is the worker bound by working times and conditions? What level of direction exists in carrying out the work? If the worker can pick and choose their hours, their place of work and their methodology there’s a greater chance they will be considered to be self-employed.
Responsibility and intention
The contractual test alone, however, could leave home-workers, among others, in a legal limbo. Additional tests have been applied to clarify matters.
Who carries the financial risk? A worker with professional indemnity or public liability insurance possesses evidence suggesting that, should things not go according to plan, it will be they, not the employer who takes responsibility. Such evidence would support a claim to be self-employed.
Original intentions and level of involvement may also be used to clarify matters. Is a worker who is integral to the success of a business really likely to be self employed? What was the understanding of the parties at the outset?
HMRC status indicator
HMRC’s status tool indicator should be all an employer needs to correctly asses who joins the payroll and who gets paid gross, but the indicator has an annoying tendency to result in a ‘contact HMRC’ outcome which defeats the object of using it in the first place.
It seems that the people best placed to determine who should be on your payroll are the payroll providers. If you’re unclear as the status of your workers, ask your payroll specialist.