NOT ANOTHER IR35 BLOG! There’s constant talk of IR35 and tax status, but don’t forget about the separate matter of employment law status. Protect your business by using our five point checklist!
With April 2020 fast approaching, you will no doubt have been inundated with information about the IR35 changes and have started to put in place measures to address this. Whilst IR35 is relevant to a person’s tax status, it’s important to remember that a person’s tax status is NOT necessarily the same as a person’s status under employment law. As workseekers are now looking at their status more closely than ever, then businesses need to be prepared for disgruntled individuals (for example, those now categorised as ‘inside IR35’, who weren’t previously) considering their employment law status in more detail and seeking to argue they have more employment law rights. Have you put in place measures to deal with potential employment law status issues and challenges?
If you aren’t sure what you need to do, then don’t worry - we have prepared a summary of what you need to know and a helpful checklist to assist you.
Why you need to know the difference - Tax Status v Employment Law Status
As you will be aware, IR35 is a form of tax legislation and its primary purpose is to make sure that workseekers, who would have been an employee if they were providing their services directly to the client, pay certain tax and National Insurance contributions as employees are required to. It is important to understand that an individual’s IR35 and tax status does not, of itself, determine that person’s employment law rights or employment law status. Whilst the tests for “employment” are similar for tax and employment law purposes, there are differences. For example, it is possible that an individual may be considered by HMRC to be self-employed for tax purposes but that the employment tribunals or courts may still decide that the person is a worker or an employee under employment law legislation.
The employment law status tests consider several factors and result in individuals being categorised as either self-employed, a worker or an employee. Employees have the most protection and self-employed persons have the least. The concern is that if individuals are now deemed by the client not to be self-employed for tax purposes, the individual workseeker could now seek to enforce extra employment law rights and benefits associated with worker or employee status including, for example, asserting that they have the right to annual leave and holiday pay.
Five Point Checklist
Our specialist recruitment team at JMW have put together a checklist of five factors, which you can tick off to make sure your business is prepared for the risk of employment law status challenges.
1. Checking if personal service is required and the terms of substitution
One of the main characteristics of ‘worker’ status in employment law is that the individual worker must be obliged to personally provide their services. This issue often links to an analysis of whether they have the right to offer a substitute to do the work or not and on what terms. If there is no right to provide a substitute, this means personal service is required and normally indicates worker or employee status. Even if they can provide a substitute, the courts will consider if there are any conditions attached to that and the extent of those conditions; a limited power to appoint substitutes is not inconsistent with an obligation of personal service. If you are proposing to supply an individual on a self-employed basis, you should check whether they have the ability to provide a substitute and keep the individual’s discretion to provide a substitute as wide as possible.
2. Consider the degree of control and if there is mutuality of obligation
Another key factor that the courts will take into account when considering employment law status is the degree of control that exists over the individual. For employment law purposes, factors that could affect status include whether the individual can choose when and how they work (subject to constraints such as emergencies and deadlines) and whether they are involved in company procedures, such as appraisals, or not. Also, whether the individual has to accept an offer of work or to provide services or not. If they have to work when offered an assignment or there is control over when and how they work, then this is likely to be considered a red flag against them being self-employed.
3. Review the wording and language in contractual wording
It is worth analysing your contractual terms and whether the current wording is indicative of worker status or whether the terms genuinely reflect that the worker is self-employed. Existing terms may need to be amended. We can assist businesses with amending terms to suit their particular circumstances.
4. Check whether the contractual terms reflect reality by conducting a review
Assessing employment status is not always simple and it is not just determined by how the parties label the relationship in the terms. It is important to regularly review and monitor the arrangement between the parties to ensure that it is consistent with the contractual terms. Some businesses choose to do this by asking the workseeker to complete a questionnaire, for example, once they have started providing the services to check that the right terms are being used and the practical arrangements have been properly understood. The courts can look behind the contractual terms, where there is a dispute, to consider the reality of the situation so it is important that you have also checked this.
5. Review your insurance coverage
Regardless of whether you have identified an individual’s employment law status correctly or not, this does not necessarily prevent claims being brought from time to time and your business being put to the time and cost of defending such claims. These claims can incur significant costs and, unfortunately, costs are not usually awarded by employment tribunals even if you successfully defend the claim brought against you! Our final tip is to check whether your insurance policy currently provides you with cover for employment status claims (i.e this extends to claims brought by self-employed persons) and to make sure you have this protection in place.
How we can help and our offering
If advice is needed on dealing with this issue or any of the other changes mentioned, then we would urge those businesses to get in touch with us. Please contact Paul Chamberlain, Simon Bloch or Emma James at JMW by email to arrange a free 30 minute consultation on these issues; contactable on Paul.Chamberlain@jmw.co.uk, firstname.lastname@example.org and email@example.com respectively.
This bulletin is for general guidance only and should not be used for any other purpose. It does not constitute, and should not be relied upon as, legal advice. JMW Solicitors is a Limited Liability Partnership. The copyright in this article is owned by JMW. Any reproduction of this article should be credited to JMW. All rights reserved.
Paul Chamberlain - Head of Employment, JMW Solicitors LLP
D: 0161 838 2762