In the UK, the three main categories of individuals who are in paid employment or engagement are:
- Employees: who are individuals employed under a contract of employment. To be an employee, there must (as a minimum) be an obligation to perform the work personally, mutuality of obligations between employer and employee and sufficient control over the employee's work. Employees benefit from extensive employment rights.
- Workers: who are individuals who work under a contract whereby they are required to personally perform work or services, normally as part of a business carried on by others. Workers benefit from limited employment rights.
- Independent contractors: who are self-employed individuals in business on their own account who work for clients or customers. Independent contractors have very limited employment rights.
In 2014, according to the Office for National Statistics, 4.6 million people in the UK were self-employed in their main job. This accounts for 15% of all those in work. Self-employment is considered to bring many benefits to both business and individuals. For individuals, it gives them a chance to work flexibly; the freedom to make their own business decisions; to receive a larger cut of what they earn; and to achieve tax savings. For businesses: tax and benefits savings can be made; they can access highly skilled specialists; there is reduced exposure to employment liabilities; and they benefit from a flexible workforce which is more reactive to economic changes
However, to avoid unexpected and substantial tax and employment liabilities, it is critical that businesses who engage independent or self-employed contractors ensure that they are genuinely self-employed. The distinction between employee, worker and independent contractor is an important one when it comes to employment rights, as independent or self-employed contractors are not entitled to many of the valuable employment protections available only to employees or workers. Self-employed contractors are responsible for their own tax affairs (but might have to charge VAT in respect of their fees) whereas if someone is an employee, their employer has the primary responsibility to deduct tax from the individual’s wage. And yet, despite the fact that it is critical to get the classification right to avoid unexpected liabilities, it remains difficult accurately to distinguish between each category of worker. There is no statutory set of criteria to assist in distinguishing between the three main categories, the case law in this area is vast and employment status is a frequently litigated area.
Against this backdrop, for those businesses who do engage individuals as independent contractors, we have developed ContractorCheck, an effective and quick tool designed to assist organisations in navigating this complex, ever changing area. It is an innovative online system across multiple jurisdictions that enables businesses to gain a better understanding of the risk that the individuals which they engage on an independent contractor basis could be re-classified as workers or employees.