Self Employed vs Employed - What's the Difference?

UK employment laws are extremely complex and with the government introducing regular changes, many UK employers often struggle to keep up to date and keep their business compliant.

The thought of complying with these complex UK employment laws often leaves business owners concerned and unsure about employing staff directly and so many choose instead to use self employed workers, thinking this means they won't need to worry about typical employment related matters... but it's not that simple!

An increase of atypical contracts has effectively blurred the lines between self-employed and employed status and so employers should be very careful when entering into any sort of working relationships.

Increasingly, disputes over the definition of working relationships between individuals and Employers are being referred to Employment Tribunals where preliminary hearings are being used to determine the legal definition and, in many cases, businesses who thought they were contracting self-employed individuals have found they are actually employing them and so immediately find themselves subject to the full range of UK employment law.

So how can employers work out whether the working relationships they have with individuals are that of employer/employee or employer/self-employed?

Over the years, various different tests have been used to determine the nature of working relationships between individuals and Employers including the 'Control Test', the 'Integration Test' and the 'Economic Reality Test' but these days, preliminary hearings held by Employment Tribunals use the 'Multiple Factor Test'.

The 'Multiple Factor Test' looks at a number of different factors opposed to just one or two. The factors normally taken into consideration include but are not limited to the following:

1. Does the worker receive a regular wage or a one off payment or fee?
2. Can the employer dictate the place of work and the way it is to be carried out, in other words what is the employer’s degree of control in the relationship?
3. Does the employer have the right of exclusive service?
4. Does the employer have the right discipline and the power to dismiss the worker?
5. Who owns the tools or other means of production?
6. To what extent is the employer obliged to provide work for the worker to perform and to what extent is the worker obliged to accept such offers of work? Commonly known as 'mutual obligations'.

Recent case law suggests that the minimum criteria to establish a contract of employment is mutuality of obligations and control but this is no guarantee that the presence of these two criteria means there is definitely an employer/employee relationship. However, if either of these is missing then there won't be an employee/employer relationship.

It is critical that employers correctly determine the nature of the working relationship they have with their workers and then review their contracts to ensure they are compliant with current legislation and are what they actually were intended to be.

 Given the complexity of UK employment law, and the potential impact and cost that getting it wrong could have, employers should speak to qualified experts to prevent problems and protect their business.

No sure if the workers you have are self employed or employed?  Give us a call on 0800 612 4772 and we'll help you to prevent problems and protect your business.