A note of caution
Exercise caution when relying on answers and following a checklist solely on the basis of a written contact: the parties may act very differently in reality. Any changes agreed by the behaviour of the parties may be enough to vary any written terms.
- In IR35 cases where an intermediary needs to evaluate the hypothetical contract between the individual and the end-client: the written terms of any contact between the end client and and intermediary or individual and intermediary may sometimes be persuasive however again it is the reality of the situation that is considered by the courts.
- In view of the 2011 decision by the Supreme Court in Autoclenz Ltd v Belcher and ors those who engage individuals over a number of years on a self-employed basis may wish to review their relationships to ensure that no employment rights have been created.
Employment status checklist
To determine status must consider whether an individual is engaged under a "contract of service", or a "contract for services". The first one will evidence an employment relationship the last one self-employment.
- Contract terms may be expressed in writing, however unwritten or implied variations also affect the actual relationship between the person engaging the individual.
- The courts and HM Revenue & Customs (HMRC) consider a series of different factors to determine employment status. In each case it is necessary to weigh up their importance before considering the fuller picture.
This checklist provides a quick guide to the key employment indicators that may be used to denote whether an individual is employed or not.
| Factor | Self-employed | Employee |
| Personal service | Will provide own services, but may also sub-contract work to others, or bring in outside assistance. | Only provides his personal services. |
| Mutuality of obligation | Is free to accepts or turn down work if he desires. The engager is under no obligation to offer any work, or further work. | The employer is obliged to offer work, and the employee is obliged to do as the employer requests. |
| Right of control | Likely to be in control of most aspects of the work done. | An employer may control "what", "how", "where" and "when" work is done. However, a highly skilled employee may also exercise "what" and "how" also as the employment demands. |
| Right of substitution | May sub-contract work, or bring in assistance. Depends on nature of work; an individual may be engaged because of their personal reputation or skill and so no substitute will be acceptable. | It is rare for an employee to have the right to appoint a substitute. |
| Provision of own equipment | Will normally supply all small tools and bring in or hire in plant. | May sometimes supply own small tools or equipment: employer will provide all plant and machinery. |
| Financial risk | Will quote on a job-by-job basis, may profit by more efficient working, or may incur loss if overruns on time, or if required to rectify defects in own time. | Paid whatever work is done,benefits from the National Minimum Wage and statutory holiday entitlement. An employee will bear little risk unless exceptionally work directly relates to a bonus or commission scheme. Or, if poor work affects appraisal for promotion or other benefits. |
| Opportunity to profit | Can profit if work is performed efficiently, or from re-charging and making a profit on materials. | May only profit under a bonus or incentive scheme. However, may benefit from tips, or payments from third parties. |
| Length of engagement | Generally a fixed-term or short-term contract. | Contract will generally be open ended after probation period (if any). |
| Part and parcel of the organisation | May become "a fixture" in that his work brings him to the company regularly, but acquires no additional responsibilities or privileges as a result. | Is capable of being promoted, or manages other staff. Part of works pension, or SAYE scheme. |
| Employee type benefits | Unlikely to be entitled to any type of benefits. May be invited to functions with other external suppliers. | Part of pension scheme, enjoy canteen or sports club facilities, car parking, attends staff functions. |
| Right to terminate contract | If other party is in breach. | Would normally give notice under specified contract term. |
| Personal factors | May be engaged because of skills, reputation etc. | Personal factors may be the reason for appointment. |
| Mutual intention | The intention of the parties should be stated in written contract. This may not be persuasive if in reality the parties behave differently. | If the parties intend the relationship to be one of employment it is difficult for the courts to say otherwise. In most cases the parties will have agreed written terms of employment and the employee will have enforceable rights under employment law. |
Not employed:
In Brian Turnbull [2011] TC 1243 a driver was found not to be an employee of a haulage contractor even though he used its vehicle. The Tribunal concluded that:
- Employment status not a mechanical exercise, a picture needs to be painted.
- There was no mutuality of obligation.
- A person can be in business on own account, even when all he supplies is his services.
In contrast:
In Weight Watchers (WW) v HMRC, the Upper Tax Tribunal upheld the decision of the First Tier Tribunal and decided that WW leaders were employees. Key factors:
- Substitution: leaders were unable to provide their own choice of substitute.
- Control: WW dedicated the way that classes were run.
- The ability to profit or loss: this was limited the price of the products was set by WW.
Construction industry and employment status: special factors
In PA Bell [2011] TC1234 the First Tier Tax Tribunal considered whether a bricklaying subcontractor was a worker for NICs purposes. They found him self-employed.
The conventional tests for control were found to be affected by construction site specific factors which meant that a main contractor would always have overall control and the Health & Safety rules, which together dictate:
- Working hours
- How the work is done
- The level of direction by supervisor
These need to be factored in when considering site workers
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