The recent ruling against Pimlico Plumbers in favour of one of its workers highlights the need for every business owner to understand the rules around self-employment and employment.
The worker in question was self-employed but wanted to be paid sick pay when he fell ill and also to be paid holiday pay. Employers know they have to pay their employees for holiday and for sickness absence but it does not seem right that they have to pay someone who is self-employed for their absences. Being self-employed generally means you don't have continued income when you go on holiday or are off sick. However in this case the Court ruled that the worker was entitled to sick pay and holiday pay as well as the minimum wage.
Self-employment means working for yourself. You find your customers, you charge them and you chase up payment, you take out your own insurance, you provide your own transport, equipment, uniform, etc. You take the risk. Pimlico Plumbers provided the customers for their self-employed workers, provided their vans and charged the customers therefore they were not considered to be self-employed.
HMRC do not like self-employed workers because it reduces the taxes they receive so they are likely to investigate if anything out of the ordinary comes to their attention. Self-employed workers can claim costs against their business thereby reducing their profit and there is reduced National Insurance contributions. HMRC can go back 20 years to review the taxes you have paid if they want to so it is worth understanding the rules and being able to justify the status of your worker.
If you have self-employed workers or are self-employed yourself it is definitely worth checking the Employment Status for tax tool HMRC provides on their website. It asks a series of questions and once completed will identify whether you should be employed or self employed (or will tell you it cannot decide from the answers you have given!). Once completed you can keep the result as a record and HMRC will stand by the result unless it finds that the answers given are inaccurate or circumstances have changed.
It really is worth knowing whether you are treating your worker correctly as self-employed or whether they should be employed by you. If HMRC or a court find that you have been treating them incorrectly you are likely to have to pay employers NI, employers and employees pension contributions as well as any sick pay, parental pay, holiday pay and penalties which may be due.
For further reading about status, contracts, substitution, the work that is done, payment and financial risk visit HMRC's Employment Status Manual.
And if you decide your workers should be employed we can help you set up as an employer and run your payroll for you.