Reflect the values of your organisation
Robust contracts of employment are a vitally important tool to help you manage your staff and protect your business in the event of employee disputes.
Whether you’re looking to create them or revise them, Solutions for HR will work alongside you to ensure they are fit for purpose and reflect the values of your organisation.
We have years of experience supporting companies like yours to create flexible, up to date and robust employment contracts to comply with legal requirements and provide the best possible protection to the business.
Read our article What type of employment contract should I use?
What is the difference between a contract of service and a contract for service?
Basically, a contract of service applies to an employee-employer relationship, while a contract for service applies in the case of an independent contractor.
It is important to determine employment status, especially in light of recent changes to IR35 legislation in the private sector which is used to evaluate whether a contractor is a genuine contractor rather than a ‘disguised’ employee, for the purposes of paying tax.
You can usually work out employment status by asking a few straightforward questions…
You are probably self-employed if you:
- run your own business and take responsibility for its success or failure
- have several customers at the same time
- can decide how, when and where you do your work
- are free to hire other people to do the work for you or help you at your own expense
- provide the main items of equipment to do your work
- are responsible for your own NI & Tax payments
You are probably employed if you:
- will work to the terms of a contract (including some zero hours)
- are required to attend work (unless on leave/sick)
- work for one person at a time, who is in charge of what you do and takes on the risks of the business
- can be told how, when and where you do your work
- have to work a set amount of hours
- are paid a regular amount according to the hours you work or work that you perform
- can’t send someone else to do the work
- get paid holiday, sick pay and access to the business’s pension scheme
But, what about the grey area, that of worker?
Recent cases with the Gig Economy have brought into questions the status of people who provide work for businesses and how easily the lines between employed and self-employed can be blurred.
A worker is defined as an individual who works under a contract to perform work or services personally for the other party, where the other party is not a customer or client of the individual’s business.
A person is generally classed as a worker if:
- they have a contract or other arrangement to do work or services personally for a reward (your contract doesn’t have to be written)
- their reward is for money or a benefit in kind, for example the promise of a contract or future work
- they only have a limited right to send someone else to do the work (subcontract)
- they have to turn up for work even if they don’t want to
- their employer has to have work for them to do as long as the contract or arrangement lasts
- they aren’t doing the work as part of their own limited company in an arrangement where the ‘employer’ is actually a customer or client
It is essential to get it right because workers are entitled to certain employment rights, including:
- receiving the National Minimum Wage
- protection against unlawful deductions from wages
- the statutory minimum level of paid holiday
- the statutory minimum length of rest breaks
- to not work more than 48 hours on average per week or to opt out
- protection against unlawful discrimination
- protection for ‘whistleblowing’ – reporting wrongdoing in the workplace
- to not be treated less favourably if they work part-time
When deciding whether employment status is worker or self-employment there are three essential questions to consider:
- Is there a requirement for the worker’s personal service?
- Is there a sufficient degree of control over the worker?
- Are there mutual obligations to the contract?
Whilst these aspects are not the be all and end all, they are significant factors in deciding whether an individual is a worker or genuinely self-employed.
HMRC also have a tool you can use to check whether IR35 applies to a contract:
In reality IR35 status is a combination of IR35 case law and employment legislation, developed through case law over time.
It is recognised that the HMRC status test tool may not be entirely accurate as it doesn’t take into account the employment perspective of mutuality of obligation.
This is why both an HMRC and employment assessment should be carried out.
If you would like to receive the latest employment law updates by email sign up for our monthly newsletter. You can unsuscribe at any time.