Agency, Contractors, and Self-Employment Contract

Business owners or managers can enter into various types of contractual relationships with their staff, some of which may suit their interests better than others.

Ordinary employees are bestowed with the greatest number of employment rights out of any staff category. Apart from all the rights generally granted to workers, agency workers, and self-employed individuals, employees are likewise entitled to protection against unfair dismissals, as well as to redundancy payments.

For this reason, many employers feel tempted to classify most of their staff as anything other than employees. However, this course of action could eventually warrant an employment tribunal claim against them (a successful one, in many scenarios).

Page Contents

• Why Is It Important to Pick the Correct Employment Status For Your Employees?
• How Do I Determine Whether or Not a Person Has “Employee” Status?
• Who Are Considered “Workers”?
• What Is an Agency Worker?
• What is The Employment Status of Agency Workers?
• What Is a Self-Employed Person?
• What Differentiates a Self-Employed Person from a Worker and an Employee?
• What Employment Rights Do Self-Employed Individuals Have?
• What Are the Advantages of Hiring Self-Employed Persons?
• What Are the Disadvantages of Hiring Self-Employed Persons?
• Contractor vs. Freelancer vs. Consultant
• Agency Work, Independent Contractorship, and Self-Employment Advice. How We Can Help
• Frequently Asked Questions

Who Are Considered “Workers”?

Another category of labour introduced in UK law is that of the “worker”. According to section 230(3) of the ERA 1996, the category of “worker” describes someone under a contract of employment or any other contract who performs personal work or services for another party who’s not a client or customer of their profession or business undertaking.

While it may be easier to differentiate between an employee and a non-employee, establishing the difference between a worker and an “independent contractor” is an effort fraught with bigger challenges.

The worker test, similar to the employee test, comprehends a series of criteria to be scrutinised. They may be summarised as follows:

Contract

This requisite is mildly similar to that linked to employee status, but contrary to what’s the case with an employee contract, workers are not required to perform work when asked, nor is the employer obliged to provide it. In other words, there is no “mutuality of obligation”.

Personal Service

Just as with an employee, a worker must undertake the work themselves, without the possibility of summoning any intermediaries to work on their behalf.

The Other Party is Not a Client or Customer of Their Profession or Business Undertaking

A tribunal will ascertain whether the nature of the relationship is that of a worker or independent contractor by focusing on the main purpose of the contract. If the purported worker signs the contract as a sole trader, through partnerships or other business structures, they would not be considered a worker. On the flip side, if the person’s work is integral to the client’s operations, they would carry the status of a “worker”.

We will return to the subject of independent contractors later. First, let’s segway into the topic of agency workers.

What Is an Agency Worker?

Agency workers (typically called “temps”) work through agencies or recruitment services. They would either sign an employment contract or a services contract with an employment agency or business, which, in turn, finds them work according to their skills and profile.

Employment Business vs. Employment Agency

While these are oftentimes treated as synonyms, employment agencies and employment businesses are very distinct concepts from each other:

Employment Agencies

Employment agencies (in the strict sense) assign work-seekers to employers, who then assume the responsibility of fulfilling all employment obligations, both contractual and statutory. In other words, the work-seekers become employees under the hirer, detaching themselves from the agency.

Employment Businesses

These are also called agencies, though they’re technically businesses that assign workers to “hiring companies” while retaining a relationship with said workers. In that sense, these agencies are ultimately responsible for handing out the workers’ paychecks, while the hiring company pays a fee to the agency.

These businesses can’t charge any fees to work-seekers for their recruitment services, nor can they restrict them from finding a job elsewhere or ceasing to utilise their work-finding services. Furthermore, they can’t withhold payment on account of the hiring business’ delay or neglect in paying the fee.

What Are the Disadvantages of Using Agency Workers?

Agency workers could pose some other difficulties, such as:

• Administrative burdens associated with sending the payment information to agencies, with potential compliance risks in the interim.
• Depending on the agency’s markup, the rates – which include the worker’s wage, holiday pay, and pension contributions – could turn out costlier than directly hiring the worker as a permanent employee.
• Agency workers will be less likely to abide by their hirer’s policies than regular employees would, for they would not have the same level of commitment. This is owed primarily to the fact that, since there’s no contract between the agency worker and the hirer, the former won’t have the same chances of getting promotions, hence no incentives to remain engaged in their work.

What is The Employment Status of Agency Workers?

Agency workers are immersed in a tripartite arrangement by which they agree with the agency to work for one of the agency’s clients (hirer), with whom there is no contractual link, as indicated before.

Though they’re tagged as “workers”, their status is not necessarily that of a “worker”. Each case would have to be assessed separately to unequivocally declare an individual as a “worker” or an “employee” of the agency, albeit hirers are usually off the hook either way.

For the record, the possibilities of having an agency worker recognised as an “employee” are exceedingly slim, especially when considering that most of the time, they would be under the direct supervision of the hirer in their daily undertakings.

What Is a Self-Employed Person?

A self-employed individual or contractor is one who runs their own business and is not under the direct supervision of an employer or hirer. These self-employed persons are solely responsible for the success and failure of their venture and do not enjoy the same employment rights as employees or workers.

Self-employed persons are in charge of their tax filings. They must make their self-assessments and pay tax (income tax and VAT whenever applicable) to HM Revenue & Customs, as well as the respective National Insurance contributions. Integral self-employment advice would have to encompass these subjects.

What Differentiates a Self-Employed Person from a Worker and an Employee?

Apart from the qualities we just exposed, these are other important distinctive traits of self-employed individuals (in contrast to workers and employees):

• The possibility of choosing when and how to perform their work.
• The capability of employing others to do the job for them.
• The ability to work for more than one client at a time, drafting separate agreements for each one.
• They don’t receive a wage. Rather, they invoice their clients.
• They typically carry and employ their own equipment.

What Employment Rights Do Self-Employed Individuals Have?

While the employment rights bestowed to self-employed persons are not as numerous as those of employees and workers, they still maintain certain fundamental entitlements, such as:

• The right to request information on how organisations use their data and what data they keep (in accordance with the Data Protection Act 2018).
• According to the Equality Act 2010, the right to be shielded against discrimination on account of any protected characteristics such as age, civil status, pregnancy, disability, race, religion, etc.
• The right to a healthy and safe workplace.

Other rights with respect to government authorities include:

• The right to claim a Maternity Allowance (MA) for 39 weeks, provided that they were self-employed for a minimum of 26 weeks within the 66 weeks prior to their due date and earned at least £30 a week.
• Whistleblowing protection, particularly if they work as self-employed healthcare providers for the NHS.

Those with self-employment status do not enjoy protection against unfair dismissals, nor the rights to:

• Redundancy pay
• Paid sick leave
• Paid holidays

What Are the Advantages of Hiring Self-Employed Persons?

These are the most relevant benefits from the point of view of employers:

• People with self-employed status are regularly less expensive because they’d be getting paid for the specific work they’ll undertake and are not entitled to any additional benefits or training.
• There is no obligation to summon them when there is no need for their services.
• Managers might call upon them to take part in specific projects that require their specialised knowledge.
• “Employers” are not bound to assign a specific working space for them, making it possible for the former to increase their headcount.
• Just as with agency workers, it’s markedly easier to terminate the relationship with self-employed people than with employees.
• You won’t need to assume any responsibility for any tax and National Insurance liabilities that they could incur. This means you won’t have to withhold income tax and NICs through the PAYE system.

What Are the Disadvantages of Hiring Self-Employed Persons?

As with every other type of relationship, relying on self-employed individuals carries some disadvantages. These are just some examples:

• Availability or willingness to take part in a project or work is not guaranteed on the part of self-employed professionals.
• There is a lesser chance of developing a solid relationship with them, especially if they’re hired for small, short-lived projects. This will create stability problems in the workforce.
• You won’t be able to place restrictive covenants on them in the same way you would on senior employees. This could hinder your ability to maintain certain trade secrets and protect your own business from potential unfair competition.
• You won’t be capable of imposing hedges on how, when, and where they may perform or deliver their work or service. This could bring more uncertainty about the yields resulting from their labour. By contrast, employees and workers are given clear guidelines that are aimed at producing more predictable outcomes.

Agency Work, Independent Contractorship, and Self-Employment Advice. How We Can Help

As you may already see, navigating through the rugged terrain of UK law when determining the employment status of individuals can be overwhelming, let alone stressful.

We at IAS Law can provide assistance to employers and agencies by:

• Advising on the right types of contracts for your business needs.
• Reviewing your contracts to make sure they fulfil the regulatory demands, eluding prospective employment status claims.
• Providing counsel on the ways to manage your workforce legally.
• Arranging representation services in the event of an employment tribunal claim.

We will also support individuals by:

• Giving advice on your employment status and its repercussions.
• Making sure your proposed contract consistently upholds your rights according to the employment status you’ll enter into.
• Devising a tribunal claim for unfair dismissal, unlawful treatment, or incorrect depiction of your employment status.

Call us at 03334149244 for more information. Our friendly employment experts are here to help!