Can I ask my employees to go self-employed?

Peninsula Team

February 03 2013

I’m thinking of retiring and none of my staff would be in a position to buy the company from me. I don’t want to have to pay redundancy pay either because they are all long serving. If they go self-employed then I have no liability towards them, do I? The transition from employee to self-employed may on the face of it seem quite easy, being a case of only changing the way in which you pay your staff i.e. without deductions. However, this is certainly not the case and your liability towards them may not cease merely because you will have ‘re-labelled’ them. This move would raise questions about the employment status of the individual because the difference between employees and self-employed individuals is much more far reaching than the way that they are paid. It is a fact that your liability and your obligations towards self-employed people that you contract with are vastly different from those that you have towards employees. However, you would have to show a tribunal that these individuals were truly self-employed in order to have reduced liability towards them. There are ways of doing this but it is all about the ongoing relationship you have with them, and your behaviour towards them on a day to day basis. You certainly would not be able to label an individual as self-employed merely because you pay them without deductions. There are many more factors involved and lines must be drawn firmly between your treatment of them when they were your employees and their treatment as a self-employed person. One point that is indicative over whether someone is deemed self-employed or not is the ‘control’ that you have over the way the individual works. Will you be able to dictate how he works, what his working hours are and will you be able to terminate the relationship if you no longer wish it to continue? If the individual wants time off to take a holiday, for example, or to attend a medical appointment, will you expect that he clears this with you first? Whose equipment will he use? Will you provide premises he works from? The more control that you exert over an individual, the greater the indication that he is an employee and not self-employed. You will have had this control over the individuals as your employees and their move to become self-employed would involve a great shift in behaviour. It is also significant whether the individual would be able to delegate any of his work to another person without your control or prior approval. In order to be considered self-employed, an individual must be able to send a substitute to perform the work instead of him, and this must be without restriction from yourself. Any restriction you place on the ability to send a substitute will temper any self-employed label you place on someone. Will any contract you have oblige you to give him work to do, or oblige him to do any work that you give to him? If you did, for instance, create some work for him to do, would he be able to turn it down? Where obligations exist between the parties, an employee relationship is inferred. To be self-employed, all of the above factors would have to influence the way that you treated the individual and if you could not show that you were acting in the correct way, a tribunal would be likely to find that the individuals remained your employees even after you started to label them as self-employed and paid them without deductions. Your liabilities and obligations would therefore remain the same towards them as they are now. By Nicola Mullineux. For any further clarification, please call our 24 Hour Advice Service on 0844 892 2772.

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