FRIDAY HR FAQS – Employee or Contractor?

The rules around distinguishing between an employee and an independent contractor may be subtle, but getting it wrong and breaching IR35 rule can result in serious tax and legal consequences for your business!

We thought we’d try and clear this blurred line and clarify the differences!

The three main differences are:

1. Control

Employees generally have limited control over their work, their hours these are set in place at the commencement of employment and the relationship is ongoing. They are restricted from working for another company, customer or generating their own work. Contractors on the other hand cannot be treated with the same level of control, dictating their own working hours, working on multiple projects for multiple businesses simultaneously. A business has no obligation to provide the contractor with work and employment rights do not apply to the relationship.

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2. Pay

Employees are generally paid a regular set amount, agreed on the commencement of their employment in return for working the set agreed hours. The employer will also deduct tax and national insurance contributions from their wages, whereas contractors will need to invoice for their services at an agreed rate per day/week month or fixed price basis. They are not paid via PAYE therefore are responsible for looking after their own tax and NI contributions.

3. Benefits

Whilst contractors do have certain protections, for example for their health and safety whilst on business premises and, in some instances, protection against discrimination, they are not entitled to any employee benefits such as paid holidays, sick pay, company pension or medical insurance.

This can be a grey area, which many employers struggle with, so hopefully the above has given you some starting points to think about!

There is a third status known as a ‘worker’, sitting somewhere between an employee and contractor. This category of the workforce have some, but not all employment rights, as an employee would but more than a contractor. The classification depends on the level of flexibility of the working relationship … but we’ll leave that for another day!

If you need any HR help, advice or tips, get in touch:+44 203 538 5311 or email: hello@hrrevolution.co.uk or visit www.hrrevolution.co.uk where our expert CIPD HR professionals are waiting to help you with any questions you may have.

HR Revolution; supporting you, your employees AND your business.

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What is an employment status?

When you employ someone you need to assign them with an employment status. An employment status defines the rights and responsibilities that an employee has at work and therefore determines what is required from the employer; employee’s will have different rights depending on their employment status.

There are three main types of employment status that a person will fall into, they are:

  • Employee
  • Worker
  • Self-employed

Employee

There is often confusion surrounding the differences between an employee and a worker. It is important to remember that all employees are workers, but employees have extra employment rights that don’t apply to workers who aren’t employees. Employers should be aware of the employment status of the people working for them as they are liable for the majority of employment rights for their employees.

An employee is a person who works under the conditions of a contract of employment. The contract will include, but is not limited to, terms of payment, annual leave and working hours. For a contract to be binding, the terms should be put in writing and presented to the employee within two months of them starting work. A contract can be formed of a mixture of verbal and written terms but it is best practice to put it all in writing.

Employees are entitled to the same rights as workers plus:

  • Statutory sick pay
  • The National Minimum Wage
  • The right to request flexible working hours
  • Holiday pay
  • Statutory maternity, paternity, adoption and shared parental leave and pay
  • Statutory redundancy pay
  • Minimum notice periods if their employment is being terminated
  • The right to not be discriminated against

Worker

A worker is a person who undertakes work personally as part of a contract or not. They generally have to carry out the work themselves but do have a limited right to sub-contract the work to someone else.

Typically these workers include casual workers, zero hour contract workers, agency workers, freelancers and seasonal workers.

The rights that workers are entitled to include:

  • Receiving the National Minimum Wage
  • Statutory minimum holiday pay
  • To not work in excess of 48 hours a week on average, or have the option to opt out of this right if they choose to do so
  • To not be treated less favourably if they work part-time
  • Protection against unlawful discrimination
  • The statutory minimum length of rest breaks

Self-employed

A self employed person does not have the same employment rights as a worker or employee. They will run their own business and typically will be contracted to service a client. However an individual can be both an employee and self-employed at the same time. For example they could work for an employer during the day and work for their own business in the evenings.

Someone who is self-employed is their own boss. It’s because of this that in most cases they aren’t covered by employment law. However, a self-employed person is entitled to:

  • Protection for their own health and safety
  • Protection against discrimination (in some cases)
  • Their rights and responsibilities set out in their contract with their client

In general the self-employed are not entitled to receive holiday pay.

It is important for employers to know and understand the employment statuses and their rights and responsibilities of their employees, with the rise in the gig economy, companies are being caught out by not knowing the basics.

If you need any further help or guidance for your business in regards to employment status rights and responsibilites, HR Revolution are here to help, please get in touch: +44 203 538 5311 or email: hello@hrrevolution.co.uk or visit www.hrrevolution.co.uk  where our expert CIPD HR professionals are waiting to help you with any questions you may have.

HR Revolution; supporting you, your employees AND your business.

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A version of this article first appeared on breatheHR

Hung parliament – what does it mean for HR and employment law?

We have a new government of sorts, after all the campaigning, the Conservative party didn’t get enough votes to form a majority government meaning they will be forming a minority government in alliance with the Democratic Unionist Party.

The main priority for the Government will be Brexit negotiations but the following points will be good to keep an eye out for:

  • There will be lots of attention to those working the in the “gig economy” and the introduction of legislation to make clear their worker/employed status.
  • There could be limited changes to National Insurance payments – they could rise but this has not be stated clearly yet.
  • It is likely there will be an increase in the personal tax allowance to £12.5k and £50k for higher tax payers.

Things for businesses to look out for

Brexit negotiations around the rights to work, both for UK and EU nationals and EU workers currently in the UK, should be kept under careful review for any developments.

With increased attention on the “gig economy”, it may result in the re-assessment of contracts between businesses and self-employed workers and will also require greater analysis of the status of an employee, worker or contractor.

If you need any HR advice give us a call, we are here to help +203 538 5311 or email: info@hrrevolution.co.uk

HR Revolution – www.hrrevolution.co.uk

 

Do you think Zero Hours Contracts are fair?

Zero Hours Contracts are all over the place at the moment. They have become widespread in recent years, possibly due to the, dare I say the R word? Single, double, triple dip recession! But what exactly do they mean for employers and employees?

The CIPD has recently published a fact sheet on Zero Hours Contracts following a report into their use in the UK, 2013. If you are wondering exactly what a Zero Hours Contract means, the official definition is as follows:-

‘an agreement between two parties that one may be asked to perform work for the other but there is no set minimum number of hours. The contract will provide what pay the individual will get if he or she does work and will deal with the circumstances in which work may be offered (and, possibly, turned down).’

Zero Hours Contracts are a great way of staffing in casual work environments, according to the CIPD, approximately 3% of the working population are employed under such contracts. In best practice, the contracts should offer the following:-

– Flexibility from both sides, in that there is no obligation for the employer to offer work, and neither does the employee have to accept the work offered.

– No exclusivity clauses within them – they should allow the employee to be employed for several companies under similar contracts as they wish, or maybe with “permission.”

– Should offer clarity on employee status – employee, worker or self-employed.

– Should offer clarity on the employees’ rights, benefits etc, although this would be decipherable by looking at the employee status, it IS best to make this apparent.

If you need any help with either recruiting for zero hours roles or with writing or defining zero hours contracts, don’t hesitate to let us know, we at HR Revolution can help you with both!

Resources –

http://www.cipd.co.uk/pm/peoplemanagement/b/weblog/archive/2014/09/23/pickavance-zero-
hours-contracts-are-detrimental-to-health.aspx (Zero-hours contracts: myth and reality, CIPD, 2013)

HRREV Blogger, HR Revolution | HR Outsourcing UK