Is your business at risk from the Uber decision? Why your self-employed contractors could really be employees

Fuelled by companies such as ride-hailing business Uber and personal courier firm Deliveroo, the so-called ‘gig economy’ is on the rise. So much so, that at the end of November, the government announced an official review into its impact on workers’ rights. But could the impact on businesses—and employers—be even greater?

That’s certainly one of the conclusions to be drawn from the high-profile employment tribunal ruling at the end of October, which found that Uber’s self-employed drivers were in fact employees of the company, and were consequently due holiday pay, sick pay, and the National Minimum Wage.

Uber is appealing the decision. But a warning shot has been fired across the bows of the ‘gig economy’—and thousands of ordinary businesses, including yours, may become collateral casualties.

Put another way, workers that you currently regard as self-employed contractors may instead be determined to be employees.

The risks—and dangers—are obvious, not to mention costly. Holiday pay. Sick pay. Minimum wage. Parental leave. In short, the bill quickly mounts.

Hidden trap

It’s not a new problem, of course. But the rise of the ‘gig economy’ has thrust it into greater prominence—and here lies the danger.

For years, businesses have assumed that it was up to them to determine if a worker was either an employee, or a self-employed contractor. If a worker’s contract said that they are self-employed, ran the logic, then that worker was indeed self-employed.

Nor did the IR 35 clampdown on so-called personal service companies in the late 1990s affect this coy assumption—because that was about self-employment in the other direction, with workers such as IT contractors wishing to enjoy the tax advantages of self-employment, when they were in fact more properly regarded as being employees.

Don’t rely on contracts

But as the Uber case highlights, the question of whether a worker is truly self-employed, or is instead an employee, is one of ‘substance over form’. A contract might say that a worker is self-employed, but that will be irrelevant if the facts show that the relationship is actually one of employment.

Hence the danger. Because if bodies such as employment tribunals and the tax authorities judge a relationship to be one of employment rather than self-employment, then the back-dated financial obligations could be considerable.

And all it takes is one disaffected worker, or an HMRC audit, for those financial obligations to become reality.

Moreover, the risk can affect a business’s value upon sale or transfer. In one case that we know of, a six-figure sum was deducted from a business’s sale price and held in escrow, pending an HMRC audit of the firm’s use of self-employed workers.

Complex judgements

What to do? Truth be told, there are few easy answers.

As a rule of thumb, engaging contractors through so-called personal service companies is the safest option, because that transfers the risk (and financial obligation) to contractors’ companies, and the provisions of IR 35 come into effect.

But in many cases, workers won’t want to become limited companies. And nor is that always practical: in one case that we know of, a company hired several dozen students as self-employed contractors in order to support a marketing initiative for several weeks. An HMRC audit has since found that the relationship was more properly one of employment—but the students, of course, have long since moved on, leaving the company to pick up the tax bill.

And nor do businesses always help themselves, in our experience. You might think that you’re engaging a contractor for two days a week. But if that contractor comes to your offices two days a week, works at one of your computers, and—worse—appears on the internal telephone directory, then the law is likely to take the view that they are a part-time employee for two days a week, and not a part-time contractor.

Practical guidance

It is, in short, something of a minefield. And if your business is gingerly picking its way through this minefield, you might like to pick up the phone to one of us here at The Legal Director.

Simply put, we specialise in providing clear-cut legal advice from your business perspective—and providing it affordably, to suit a business’s own needs and workloads.

With a range of offerings stretching from a fixed-fee monthly retainer for simple telephone advice, to your own part-time legal director, working alongside your own board of directors, access to business-friendly legal advice has never been easier.

To find out more, get in touch on 020 3755 5099.

Posted Thursday, January 12th, 2017 by Warren Ryland



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