Practical Tips – When is that contractor actually your employee? Checklist Time!

Due to the current economic climate, people who were previously happy to maintain their status as independent contractors are now seeking to be viewed as employees by the employment law tribunals in order to avail of employment law protection. The distinction between an employee and an independent contractor is of critical importance for both the person providing the services and the company/person using the services. If the services are provided by an independent contractor then the relationship is purely commercial and any termination of the contract can only be disputed as breach of a commercial agreement. This is costly and time consuming as it must be brought to the civil courts and the onus is on the side claiming the breach to prove it.   

However if a person can be recognised as an employee rather than an independent contractor then they can potentially take claims for unfair dismissal and redundancy payments and a whole raft of other legislation that is only applicable to employees. Therefore a company considering a services contract must be careful that the relationship is clear from the start and the lines do no become blurred over time.

Leman Solicitors have prepared a check list to help companies when dealing with independent contractors:

Criteria On Whether An Individual Is An Employee

While all of the following factors may not apply, an individual would normally be an employee if he or she:

• Is under the control of another person who directs as to how, when and where the work is to be carried out
• Supplies labour only                                                                                                 
• Receives a fixed hourly/weekly/monthly wage                                                                         
• Cannot sub-contract the work. If the work can be subcontracted and paid on by the person subcontracting the work, the employer/employee relationship may simply be transferred on  
• Does not supply materials for the job
• Does not provide equipment other than the small tools of the trade. The provision of tools or equipment might not have a significant bearing on coming to a conclusion that employment status may be appropriate having regard to all the circumstances of a particular case.
• Is not exposed to personal financial risk in carrying out the work
• Does not assume any responsibility for investment and management in the business
• Does not have the opportunity to profit from sound management in the scheduling of engagements or in the performance of tasks arising from the engagements
• Works set hours or a given number of hours per week or month
• Works for one person or for one business
• Receives expense payments to cover subsistence and/or travel expenses
• Is entitled to extra pay or time off for overtime

Criteria On Whether An Individual Is Self-Employed

While all of the following factors may not apply to the job, an individual would normally be self employed if he or she:

• Owns his or her own business                                                                                                          
• Is exposed to financial risk, by having to bear the cost of making good faulty or substandard work carried out under the contract
• Assumes responsibility for investment and management in their enterprise
• Has the opportunity to profit from sound management in the scheduling and performance of engagements and tasks
• Has control over what is done, how it is done, when and where it is done and whether he or she does it personally
• Is free to hire other people, on his or her terms, to do the work which has been agreed to be undertaken
• Can provide the same services to more than one person or business at the same time
• Provides the materials for the job
• Provides equipment and machinery necessary for the job, other than the small tools of the trade or equipment which in an overall context would not be an indicator of a person in business on their own account
• Has a fixed place of business where materials equipment etc. can be stored
• Costs and agrees a price for the job
• Provides his or her own insurance cover e.g. public liability cover, etc
• Controls the hours of work in fulfilling the job obligations. 

While the above is a guide only it is useful in ascertaining if there is potential for a contractor to argue that they are an employee. Companies should be mindful of these issues when dealing with contractors on a day to day basis and when preparing the documents that will govern their relationship with the contractor. Always remember that the situation as a whole will be looked at and not just the tax status of the contractor or the documents in place between the contractor and the company.

Disclaimer
This publication is for guidance purposes only. It does not constitute legal or professional advice. No liability is accepted by Leman Solicitors for any action taken or not taken in reliance on the information set out in this publication. Professional or legal advice should be obtained before taking or refraining from any action as a result of the contents of this publication. Any and all information is subject to change.