An employee or not?
Many statutory rights at work are available only to ‘employees’ who work under a ‘contract of employment’ (although 'employee shareholders' may be excluded from some of them – see below). Fewer are available to other providers of work or services who operate as independent contractors under a ‘contract for services’. For this reason, it can become necessary to determine whether someone is (or was) an employee or some other type of provider of work. This may also be important to determine who should pay income tax and National Insurance contributions.
An employee or not?
The main questions to be considered are:
◉ Who has control over how the work is done?
◉ To what extent is the person integrated into the structure of the organisation? For example, is he or she subject to the employer’s disciplinary procedure?
◉ Who provides the equipment or materials necessary to do the work?
◉ Must the work be done personally, or may it be delegated to someone else?
◉ Is there ‘mutuality of obligation’ (an obligation on one party to provide work and on the other to do it) ?
◉ How are payments processed and how are they treated for tax and National Insurance?
◉ Does the person have access to benefits, such as sick pay and pension?
◉ Are there restrictions on the person’s freedom to work for others?
Some workplace rights are available to ‘workers’. A ‘worker’ is defined more widely than an employee. The term includes people who are technically self-employed but who are nevertheless obliged to do work personally. This could include an independent contractor.
Someone who is neither a worker nor an employee is not covered by statutory employment rights. Such people are regarded as being ‘in business on their own account’. The main distinction between workers and people in business on their own account is that workers (like employees) have an obligation of personal performance, that is, to do the work themselves.
Casual workers, who include intermittent, ‘bank’ and seasonal staff, often operate under short-term contracts of employment, each lasting for the brief period they are engaged to work. Formally, there is considered to be no ongoing legal commitment between the parties to work together again.
However, if, historically, they have been engaged to work with sufficient frequency, they may also be able to argue that their overall relationship with the work provider, spanning all the separate, short-term periods of work, is an ‘umbrella’ contract of employment. This would be on the grounds that the regular provision of work and agreement to do it create a ‘mutuality of obligation’ between the two parties (see above). If this is the case, continuous service (important for some statutory rights) can be calculated to include even the weeks that fell between the discrete periods of actual work.
Zero-hours workers (ZHWs)
One aspect of casual working – the application of exclusivity clauses to ZHWs - is subject to specific regulation by employment legislation.
A ZHW is one who works under a zero-hours contract (ZHC) or a non-contractual zero-hours arrangement (ZHA).
A ZHC is one under which:
◉ the undertaking [by a worker] to do or perform work or services is an undertaking to do so conditionally on the employer making work or services available to the worker; and
◉ there is no certainty that any such work or services will be made available to the worker.
A ZHA is one under which an employer and an individual agree terms on which the latter will do work made available by the former but there are no obligations to provide or accept work.
Within a ZHC or ZHA, any clause that seeks to tie the ZHW to the employer by prohibiting work for another employer, either absolutely or without the former's consent – an exclusivity clause – is unenforceable.
Note: From 6th April 2019 workers, including ZHW are entitled to receive itemised payslips including the number of hours worked if they are hourly paid.
Change alert: ZHW will have the right to receive a written statement of terms and conditions, and to request more predictable hours after 26 weeks’ service although the timing of these changes is not yet known.
Even if a contract contains some terms that are associated only with a certain status (generally, ‘self-employment’), a court or tribunal can look behind it to examine the way the overall relationship actually operates, or did operate. If that analysis points to another status (generally, ‘employment’), the court or tribunal can ignore the conflicting words of the contract and find that an individual is or was a worker or, even, an employee, with corresponding access to statutory protections. This has become particularly pertinent with the working patterns and arrangements associated with the ‘gig’ economy.
Under an agreement to take shares in the employer’s business worth £2,000 or more (for agreements made before December 2016, up to £2,000 being exempt from income tax and up to £100,000 being exempt from Capital Gains Tax), an employee can choose to forfeit the rights to:
◉ give only eight weeks’ notice of early return from maternity or adoption leave (see Chapter 5), instead having to give 16 weeks
◉ request flexible working (see Chapter 5)
◉ request study or training (see Chapter 7)
◉ claim unfair dismissal (see Chapter 10) unless the dismissal contravenes the equality laws (see Chapter 8) or is for an ‘automatically unfair’ reason (see Chapter 10)
◉ receive a statutory redundancy payment (see Chapter 11).
Employee shareholder contracts can:
◉ be offered to existing employees (as an alternative to their current arrangements) but not imposed upon them;
◉ be the only arrangement offered to new recruits (who will not be automatically disqualified from Jobseeker's Allowance for failing to accept the arrangement).
In either case, an agreement for a person to become an employee shareholder will be ineffective unless, beforehand, the person:
◉ first receives from the employer a written statement of the employment rights affected by shareholder status and the nature of and rights associated with the shares offered; and
◉ then receives advice from a lawyer or other relevant independent adviser (whose reasonable costs must be met by the employer, regardless of whether an employee shareholder agreement is concluded) at least seven days before the agreement.
Change alert: while, despite the removal of tax reliefs for employee shareholder agreements made from December 2016 onwards, new agreements are still lawful, the Government has indicated its wish to abolish employee shareholder status altogether, although no steps have yet been taken.
Whether engaged under a traditional contract of apprenticeship or under more recent statutory arrangements – an 'approved apprenticeship' in England, an 'apprenticeship agreement' in Wales – an apprentice is an 'employee' with access to most of the statutory employment protections (an exception is discrimination against fixed-term employees).
However, a contract of apprenticeship, which has its primary focus on training and is for a fixed-term without provision for early termination with notice, cannot generally be terminated partway through the term without exposure to an award of damages, which will be enhanced to take account of career opportunities lost through incomplete training.
The apprenticeship levy was introduced by section 98 to 121 of the Finance Act 2016. It is payable with effect from 6th April 2017 by employers through PAYE alongside income tax and NICs if the pay bill exceeds £3m in the previous year. HMRC has published an Apprenticeship Levy Manual that can be found on the gov.uk website.
Levy-paying employers with employees located in England, will be able to set up a Digital Apprenticeship Service account that will contain funds they can spend on apprenticeship training and assessment costs in England.
If the employer is levy-paying, with operations based wholly or partly in Scotland, Wales or Northern Ireland, they will need to engage with the relevant authorities for funding apprenticeships located there as apprenticeships are a devolved policy.
Regulation of employment businesses
An ‘employment business’ (often known as an employment agency) may directly employ people seeking work under a contract of employment and supply them temporarily to work for, and be controlled by, a hiring organisation. Or the person supplied by the agency may work under a contract for services and so not be regarded as an employee of the agency. The agency must confirm, in writing, to both the work seeker and the hirer whether the worker is its employee or is working under a contract for services.
An employment relationship directly with the hirer?
Courts or tribunals have been known to decide that someone hired out by an employment business had, through a lengthy relationship and ‘mutuality of obligation’, an implied contract of employment with the hirer. However, that approach is now favoured only in very exceptional circumstances.
Parity of terms
'Agency’ workers hired out for an assignment that is not open-ended (or 'permanent') who have completed a 12-week qualifying period have the right to the same pay and basic terms and conditions (such as hours, rest breaks/periods and annual leave) from the employment business/temporary work agency (TWA) as would have applied had they been recruited directly by the hirer.
There is an exemption from the pay element for a TWA that has engaged an agency worker under a 'permanent' contract of employment that provides for payment between assignments at a rate that is at least 50% of that for assignments and at least equivalent to the national minimum wage'. This is sometimes known as 'the Swedish derogation'.
The agency worker must accrue the 12-week qualifying period with a single hirer (but not necessarily through a single TWA) and in the same job or substantively similar ones, on one or more ‘assignments’. A break of less than six weeks within an assignment or between assignments will not break continuity. Any change in a job that does occur will not break continuity unless the TWA has confirmed it in writing to the agency worker.
Although the central responsibility and liability for any necessary improvement in the agency worker’s terms lie largely with the TWA, the hirer also has direct obligations:
◉ to give hired agency workers, immediately on commencement, the same access to ‘facilities’ (such as canteen and childcare) as its own employees;
◉ to notify the TWA about any changes in the agency worker’s role;
◉ to provide the TWA with information about the pay and terms and conditions applicable if the agency worker had been directly recruited; and
◉ if the TWA has failed to pass that information on to an agency worker, to provide the agency worker directly with that information within 28 days.
Enforcement, by application to the employment tribunal, is generally against the TWA that has the contract of employment or contract for services with the worker, but, if the hirer has caused or contributed to a breach, may be against it too. The tribunal can award loss of earnings or, for denial of facilities, other appropriate compensation.
A tribunal also has the power to deem the 12-week qualifying period satisfied (and to make an award of up to £5,000) if it considers that actual satisfaction was intentionally defeated by an artificial ‘structure of assignments’.
Use of temporary labour during industrial action
Legislation prohibits an employment business from knowingly supplying a worker (a) to do the work of one of the hirer’s employees if that employee is participating in official industrial action, or (b) to do the job of another employee who has been transferred by the hirer to cover for the employee who is on strike or taking other industrial action.
Change alert: The ‘Swedish derogation’ will be abolished from 6th April 2020, and TWAs must inform workers of this by 30th April 2020. The TWA must also provide agency work-seekers with a Key Information document, including information on the type of contract, the minimum expected rate of pay, how they will be paid and by whom.