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Employment Status, IR35 and Related Issues
When you take on an individual to do work for you, you need to consider their employment status, that is, whether they are employed or self-employed or a worker, as this will affect not only their rights but also how you should deal with tax and national insurance.
It is your responsibility to correctly determine their employment status. Many employment rights apply only to employees, for example, the right not to be unfairly dismissed, the right to a statutory redundancy payment, statutory maternity, paternity or adoption pay, statutory sick pay and the right to written particulars of employment and payslips.
Some employment rights, such as the right to paid holidays, rest periods and the national minimum wage are also afforded to workers as well as employees. Workers include any individual who works for you whether under a contract of employment or some other type of contract but is not self-employed. It includes casual or freelance workers.
Very few rights apply to the genuinely self-employed. Their main right being the right not to be discriminated against due to any protected characteristics (that is, sex, sexual orientation, race, disability, religion or belief, age, gender reassignment, marriage and civil partnership, pregnancy and maternity). This right also applies to workers and employees.
An individual’s employment status depends on how the relationship works in practice. Just because they have a contract describing them as an ’employee’ or as ‘self-employed’ does not mean that it is correct. There are various factors that need to be taken into account including whether there is mutuality of obligation, the degree of integration into the business, whether the individual is risking his own money in the business and whether the individual has to provide the services personally. This is a non-exhaustive list.
Making the whole area more tricky is the fact that it is possible for the Employment Tribunal and HM Revenue and Customs to come to different views about an individual’s employment status.
There are special anti-avoidance rules that apply to contracts where individuals provide their services to the engager through an intermediary such as their own limited company. The IR35 legislation ensures that, if the relationship between the individual and the engager would have been one of employment were it not for the intermediary, the individual will pay tax in line with that payable by employees. They will be regarded as being employed by the engager for national insurance purposes.
There is a special tax regime for contractors and self-employed sub-contractors in the construction industry. Employees in the construction industry should be dealt with under the normal PAYE system.
We are able to advise you on all of the above issues, to ensure that you have correctly classified your workforce and are dealing with them appropriately.
Head of Employment & Intellectual Property