If you are self-employed, or you regularly employ self-employed contractors, you need to be aware of some recent court rulings.
They could change the legal status of your working relationships, contracts, rights and how you pay your taxes.
Since the financial crisis in 2008, more people than ever before are working in the ‘gig economy’.
This refers to those freelancing or taking on short-term contracts for companies such as Uber and Deliveroo.
This major shift in working trends has led to a number of unprecedented court rulings, which may be applicable to the self-employed in general, including many of those working in the building services engineering sector.
What were the court cases about?
Earlier in the year, The Court of Appeal ruled that although technically self-employed, a plumber working for Pimlico Plumbers was entitled to holiday pay, sick pay and other benefits.
Pimlico Plumbers have been granted the right to appeal the decision in the Supreme Court.
Another recent case highlighting miscategorised self-employment involved a self-employed window salesperson.
Following his dismissal, a UK tribunal ruled that the man should have been classified as a worker and as such had workers’ rights and he successfully brought a claim against his former employer for £27,000 of holiday pay.
Again, the ruling is being appealed.
John Thompson CEO of APHC, said of the ruling:
“My understanding of the ruling means that employers who have miscategorised workers as self-employed, could now be liable for back holiday pay when a worker’s employment is terminated.
This could be very pertinent to the plumbing and heating industry as the decision could mean that companies which routinely use staff on self-employed contracts could face liabilities if that employment status is later challenged.
“It is important to understand that HMRC may regard someone as self-employed for tax purposes even if they have a different status in employment law.
This means that employers should check if a worker is self-employed in tax law to understand whether they’re exempt from PAYE and in employment law to see whether they have any employee rights”.
Are you self-employed for tax purposes?
If you are self-employed for tax purposes, you pay your tax through Self-Assessment and the Construction Industry Scheme (if applicable – find out more about the scheme here) rather than the PAYE system.
According to HMRC’s website, you are probably self-employed if most of the following statements are true:
- you are in business for yourself, are responsible for the success or failure of your business and can make a loss or a profit
• you can decide what work you do and when, where or how to do it
• you can hire someone else to do the work
• you are responsible for fixing any unsatisfactory work in your own time
• your employer agrees a fixed price for your work – it doesn’t depend on how long the job takes to finish
• you use your own money to buy business assets, cover running costs, and provide tools and equipment for your work
• you can work for more than one client
You can check your employment status for tax here.
Are you entitled to worker’s rights?
People classed as “workers” rather than self-employed contractors are entitled to certain employment rights, such as being paid the National Minimum Wage, statutory paid holiday and protection against discrimination and whistle blowing.
According to gov.co.uk, 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
What should I do next?
Whether you are a sole trader or an employer it’s advisable to take some action to make sure any contracts you have are up to date and compliant.
If you are unsure about something, seek legal advice from a lawyer or a trade association.
The massive shift towards this type of work is putting pressure on the government to change the law to protect workers and put a stop to bogus self-employment.
In the meantime, the government has commissioned a review looking into worker’s rights in the gig economy.
The findings could affect self-employed plumbers, electricians and other workers in the building services sector, as well as the companies that employ them so it would be wise to keep a keen eye on updates as they occur.