Is your business at risk from the Uber decision? Why your self-employed contractors could really be employees
Fuelled by companies such as ride-hailing business Uber and personal courier firm Deliveroo, the so-called ‘gig economy’ is on the rise. So much so, that at the end of November, the government announced an official review into its impact on workers’ rights. But could the impact on businesses—and employers—be even greater?
That’s certainly one of the conclusions to be drawn from the high-profile employment tribunal ruling at the end of October, which found that Uber’s self-employed drivers were in fact employees of the company, and were consequently due holiday pay, sick pay, and the National Minimum Wage.
Uber is appealing the decision. But a warning shot has been fired across the bows of the ‘gig economy’—and thousands of ordinary businesses, including yours, may become collateral casualties.
Put another way, workers that you currently regard as self-employed contractors may instead be determined to be employees.
The risks—and dangers—are obvious, not to mention costly. Holiday pay. Sick pay. Minimum wage. Parental leave. In short, the bill quickly mounts.
It’s not a new problem, of course. But the rise of the ‘gig economy’ has thrust it into greater prominence—and here lies the danger.
For years, businesses have assumed that it was up to them to determine if a worker was either an employee, or a self-employed contractor. If a worker’s contract said that they are self-employed, ran the logic, then that worker was indeed self-employed.
Nor did the IR 35 clampdown on so-called personal service companies in the late 1990s affect this coy assumption—because that was about self-employment in the other direction, with workers such as IT contractors wishing to enjoy the tax advantages of self-employment, when they were in fact more properly regarded as being employees.
Don’t rely on contracts
But as the Uber case highlights, the question of whether a worker is truly self-employed, or is instead an employee, is one of ‘substance over form’. A contract might say that a worker is self-employed, but that will be irrelevant if the facts show that the relationship is actually one of employment.
Hence the danger. Because if bodies such as employment tribunals and the tax authorities judge a relationship to be one of employment rather than self-employment, then the back-dated financial obligations could be considerable.
And all it takes is one disaffected worker, or an HMRC audit, for those financial obligations to become reality.
Moreover, the risk can affect a business’s value upon sale or transfer. In one case that we know of, a six-figure sum was deducted from a business’s sale price and held in escrow, pending an HMRC audit of the firm’s use of self-employed workers.
What to do? Truth be told, there are few easy answers.
As a rule of thumb, engaging contractors through so-called personal service companies is the safest option, because that transfers the risk (and financial obligation) to contractors’ companies, and the provisions of IR 35 come into effect.
But in many cases, workers won’t want to become limited companies. And nor is that always practical: in one case that we know of, a company hired several dozen students as self-employed contractors in order to support a marketing initiative for several weeks. An HMRC audit has since found that the relationship was more properly one of employment—but the students, of course, have long since moved on, leaving the company to pick up the tax bill.
And nor do businesses always help themselves, in our experience. You might think that you’re engaging a contractor for two days a week. But if that contractor comes to your offices two days a week, works at one of your computers, and—worse—appears on the internal telephone directory, then the law is likely to take the view that they are a part-time employee for two days a week, and not a part-time contractor.
It is, in short, something of a minefield. And if your business is gingerly picking its way through this minefield, you might like to pick up the phone to one of us here at The Legal Director.
Simply put, we specialise in providing clear-cut legal advice from your business perspective—and providing it affordably, to suit a business’s own needs and workloads.
With a range of offerings stretching from a fixed-fee monthly retainer for simple telephone advice, to your own part-time legal director, working alongside your own board of directors, access to business-friendly legal advice has never been easier.
To find out more, get in touch on 020 3755 5099.
Posted Thursday, January 12th, 2017 by Warren RylandTweet
Other Articles In This Category
- The Legal Director - Commended for Innovation
Law firm The Legal Director (TLD) has been commended in the FT Innovative European Lawyers awards, which were announced at the beginning of this month. TLD ranked... read more
28th of October 2016 by Warren Ryland
- Debt versus Equity - Financing for SMEs
The need for additional finance is often the price of success for small to medium-sized enterprises (SMEs) that are looking to grow. The question that faces the... read more
14th of October 2016 by Warren Ryland
- The deceptive complexity of the Modern Slavery Act
At the end of July, Prime Minister Theresa May launched a cabinet-level government taskforce to eradicate modern slavery in the UK. It was, she said, “one of... read more
31st of August 2016 by Warren Ryland
- How our clients will benefit from the Bar Council’s escrow account
Outside the narrow realms of consumer technology, there’s often an inevitable trade-off between cost and quality. In other words, you can have something at... read more
7th of July 2016 by Warren Ryland
- As the net starts to close, the Bribery Act prosecutions begin
As we have written before, the Bribery Act 2010 is a law with undoubted teeth. Fines are potentially unlimited, and custodial sentences can be up to ten... read more
1st of May 2016 by Warren Ryland
- New rules on shareholder identification are now in force
New rules on shareholder identification are now in force - and yet many businesses aren’t aware of them. Does your business have corporate or nominee... read more
12th of April 2016 by Warren Ryland
- First SRA-regulated law firm signs up to Bar Council’s escrow account
PRESS RELEASE: The Legal Director has become the first law firm regulated by the Solicitors Regulation Authority (SRA) to sign up to the Bar Council’s... read more
31st of March 2016 by Warren Ryland
- Trade marks: the 3 biggest mistakes to avoid
Wander around a supermarket, or browse the advertisements in newspapers and magazines, and you’ll see trade marks everywhere. And it’s likely, too, that... read more
29th of February 2016 by Warren Ryland
- Avoiding flexible working’s hidden pitfalls
You don’t have to look too far to see that traditional modes of employment are increasingly giving way to more flexible working arrangements. Returnee... read more
9th of November 2015 by Warren Ryland
- Are you paying your workers the right amount of holiday pay?
A recent ruling by an Employment Appeal Tribunal is set to cause many businesses a headache. Quite an expensive headache, at that. Simply put, it means that... read more
15th of July 2015 by Warren Ryland
- The Bribery Act 2010: are you running a risk of breaking the law?
To see the difficulties that businesses can get into through bribery - or even allegations of bribery - look no further than the reputational damage suffered... read more
11th of June 2015 by Warren Ryland
- It’s official: “Lawyers not cost-effective"
Imagine, for a moment, that when faced with a serious illness, significant numbers of people took no action. And of those who did take action, around... read more
20th of January 2015 by Warren Ryland
- Could a Shareholder Agreement save your business?
Here at The Legal Director, we’ve recently come across a business where the two co-founders have fallen out -- one is now leaving, in order to set up on his... read more
1st of December 2014 by Warren Ryland
- The high-fee culture that’s hobbling British business
Another week, and yet another critical item in the press on the cost of obtaining corporate legal advice. And to be sure, it’s certainly a fairly open goal at... read more
11th of November 2014 by Warren Ryland
- Is crowdfunding the answer to your business's financing challenge?
As the credit crunch and ensuing recession of 2008 began to bite, lending to businesses dried up. To their shock, even long-established, profitable businesses... read more
2nd of September 2014 by Warren Ryland
- Complying with the Data Protection Act: 3 business bear-traps awaiting the unwary
Visit the website of the Information Commissioner’s Office, and there’s an interesting section entitled ‘Enforcement’. In it, the... read more
1st of September 2014 by Warren Ryland
- What might a Legal Audit reveal about your business?
When we start working with a business we assess their existing legal arrangements to determine how these can be improved and aligned with commercial objectives. We... read more
9th of July 2014 by Warren Ryland