Employment status

Employee or not

A worker is not an employee when they are self employed. However, it is not enough to just class a person as employed or self-employed, there is a distinct set of circumstances that when applied to the relationship between the worker and the 'work provider' will determine the correct status of the worker which has great significance legally.

Definition of an employee

An employee is an individual who has entered into or works under a contract of employment as opposed to a self-employed person who would normally have a contract for services. This is all well and fine so long as a physical document exists. Where it gets complicated is that a contract need not be in writing, it can be a mixture of verbal, implied and working customs and practices. In the event of a dispute an Employment Tribunal will decide the status of the worker.

Multiple-factor test

One of the main tests for an 'employee' is that: is the 'employer' obliged to provide work and is the 'employee' obliged to personally perform that work, if this is true then there is a strong chance that there is an employer / employee relationship.

To help make this decision or to further prove, or disprove, the decision there are a number of statements and circumstances specific to each status, this is called the multiple-factor test and is used by an Employment Tribunal to reach a balanced decision. Below are some of the main factors but there are more less important factors that can used should the man ones provide an inconclusive result.

FACTOR	EMPLOYEE	SELF-EMPLOYED
Is the worker contracted to provide the work personally?	Yes.	No. Can send along a substitute if unable or unwilling to do the work personally.
Does the worker work exclusively for the other party?	Yes.	No. Can do work under two or more contracts with different parties at the same time.
Does the worker work as part of the other’s business?	Yes, an integral part of his employer’s business, working within the core of the business.	No. Works as and when required.
Does the worker provide his own equipment?	Employer provides all tools, machinery and equipment required.	Most often provides his own tools and equipment.
Does the worker provide his own support staff?	Employer provides all required support staff.	Provides own support staff as required and pays them directly at own expense.
Is the worker responsible for own profit and loss?	Not able to increase profits over and above wage received.	Ability to enhance profit by maximising efficiency. Puts errors right at his own cost.
Tax, NI and VAT arrangements.	All dealt with by employer. Subject to PAYE rules.	Produces own accounts and paid on invoice.
Is the arrangement designed purely to achieve tax advantages and/or to avoid employment legislation?	If yes, it is likely to fail and the worker will be regarded as an employee.
Does the worker receive paid holidays, sick pay and/or a company pension scheme and does he receive regular wages?	Yes.	No.
Is the worker subject to disciplinary action in the event of misconduct or poor work performance?	Yes.	No.

Employee rights

All employees are entitled to, among others, the following rights:

• Equal pay
• National Minimum Wage pay
• Holiday pay
• Protection against unfair dismissal
• Redundancy pay
• Health and Safety protection
• Protection from discrimination

Relationships

There are some relationships which are fairly well established, however, each type of relationship has it's own set of circumstances so even these are not set in stone and there are some new relationships being explored.

Directors

If a director performs specific tasks and receives a regular salary, especially if there is a service agreement, then generally they are an employee. In most other cases they will not be an employee.

Partners

If a partner receives payment by means of a share in the profits they are self employed. There can, however, be an employed partner who does not own part of the business and receives a salary for work performed.

Home workers

Application of the multiple-factor test is generally required to clarify the relationship.

Agency workers

This is a very difficult area for concrete decisions to be made. There are a number of contracts in existence: agency and client, which is not as important as the ones between: agency & worker and client & worker, which can develop over a period of time. In addition to this new legislation has been introduced that give agency workers 'employee' type rights even though in strictest of terms they are not employee's of anybody.

Excluded employees

There are some categories of employees that are excluded from either some or all employee rights.

• Employees with illegal contracts
• Consular and diplomatic staff
• Crown employees, including armed forces
• Police
• Seamen
• Employees exceeding retirement age
• Temporary workers

Avoiding statutory rights

The statutory rights of an employee can not be avoided by private agreements or contract clauses excepting when a 'compromise agreement' has been signed or with ACAS agreement.