The employment status debate - What does it mean?

Alan Price – CEO at BrightHR

August 30 2016

Employment status has become a long running issue in the papers and the courts due to increasing incidences of major companies - from delivery businesses to taxi services - have faced disputes surrounding pay. In many of these cases, the companies are adamant that they have no ‘staff’ and instead work with self-employed individuals on a ‘partner’ basis. So what does this mean? Well essentially, using self-employed staff means that they don’t have to pay National Minimum Wage (NMW) or National Living Wage (NLW). Instead, these companies can implement ‘payment plans’, such as pay-per-delivery or pay-per-mile, while also removing any liability for worker benefits such as holiday and sick pay. This has become a hot topic because many people are claiming that these companies are wrongly labelling staff in order to pay them lower than the legal minimum. Where workers believe they’ve been wrongly labelled, they can take the employer to tribunal to determine their correct status. Determining status Employers should always ensure that they’re correctly determining the status of their staff, to allow them to establish who is, and who isn’t, eligible for the legal minimum rates of pay. Status is determined on a number of factors, of which the label specified in the contract can be one. Contractual documents will usually be an accurate overview of the agreement between the parties, unless one can show that this doesn’t reflect reality or it was a sham agreement. Any contended status issue will ultimately be decided by an employment tribunal. The main factors which point towards self-employment are:
  • That the individual has an unrestricted right to send a substitute in their place if they can’t do or choose not to do the work themselves
  • They determine their own hours of work and how they do the work, using their own equipment and tools
Comparatively, workers can’t send a substitute but they may not always be offered work and can turn this down if it’s offered. In contrast, employees work under the control of the employer and must do work when this is offered to them. The differences in practice may be slight, and an employment tribunal can blur the lines to determine the true circumstances of the arrangement. Different categories of workers have differing entitlements to the NMW and NLW. Categories of workers who are entitled to the legal minimum include, among others:
  • Workers
  • Employees
  • Agency workers
  • Apprentices
Individuals who don’t need to be paid the legal minimum include:
  • Self-employed
  • Company directors
  • True volunteers

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