How to assess employment status

Determining status

Determining employment status is complex and there is no straightforward test or definition. While the terms of the contract are important, what happens in reality is key and the courts will look beyond the written terms to establish the true agreement between the parties.

Some of the key questions to ask are:

• Is there personal service? Is the individual required to perform services personally, or can they subcontract their work or appoint a substitute? Personal service is a condition of employee status. If there is no personal service requirement, this suggests self employment.
• Is there mutuality of obligation? Is the company obliged to provide the individual with work and pay, and is the individual obliged to do that work personally? If so, this suggests an employment relationship. Where the individual is a worker, there tends not to be an obligation for the company to provide work, and no obligation on the worker to accept it (however, they should complete work that they have agreed to carry out).
• Is there a high level of control? Does the company exercise a high level of control over the individual’s workload and where, when and how the individual carries out the work? Extensive control suggests employee status. If the individual has some freedom over where, when and how much they work, albeit is under a degree of control when they are actually working, this suggests worker status. Self-employed individuals have the freedom to choose where, when and how they work.
• What do other contract terms say/what other relevant factors are present? For example, does the individual provide their own equipment? Are there minimum or set hours? Does the company or the individual set the pay rate? Is the individual exposed to any financial risk? Can the individual work for others? How integrated into the business is the individual?

It’s crucial that the arrangement is looked at holistically. It is not enough to run through a ‘checklist’ or focus only on the written contract. The tribunal will be interested in the reality of the arrangement as a whole, rather than what the contract states.

Future reform: a two-tiered solution?

The Labour Party’s Plan to Make Work Pay promised a move towards a single status of worker and transition towards a simpler two-part framework for employment status. Although these reforms were not contained in the employment rights bill, the ‘next steps’ document confirms that, as part of the government’s longer-term reforms, it will consult on a simpler framework that differentiates between workers and the genuinely self employed.

Labour still appears committed to moving towards a two-tier employment status model, though this is a longer-term reform with no set date. If implemented, it will result in a much simpler regime, but it will have a huge impact on businesses. Workers would be entitled to all basic employment rights, which would kick in from day one. Coupled with some of Labour’s other changes – such as day-one unfair dismissal rights – this will increase costs for businesses and reduce flexibility.

We regularly support clients in relation to employment status determinations and associated matters. To discuss any of the issues raised in this article, please contact Robert Forsyth.