In recent months, I have been asked by a number of HR clients to draft contractual agreements between themselves and their subcontractors. In light of current high profile legal cases (such as the Uber case) still debating this area of law, such requests have required a serious conversation about the fine line that can sometimes exist between subcontractor and employee status first, to ensure legal interests are protected.
This is a subject area very much in the current political spotlight. The recent Taylor Review on Modern Working Practices, brought about by cases such as Uber and Plimco Plumbers, whilst commending the emergence of new flexible working relationship models, calls for primary legislation to define the boundary between self-employment and worker status. The current legal guidelines are confusing and a lack of alignment between the categories used in tax regulation and employment regulation serve to blur the definitions further. If and when employers are held to account, the consequences can be hugely damaging if they called it wrong.
So how can a business owner deduce if their sub-contractor, as far as the Employment Tribunal service and the HMRC are concerned, is in fact an employee?
Some key issues to consider…
How do you and your sub-contractor work together?
Do they work set hours? Do you provide the tools and equipment they require to do the job? Do you control their activities? This would be strongly argued as an employer/employee relationship. Or have you ‘contracted out’ a specific piece of work to a third party for a set fee and with autonomy to complete the task as they see fit? This could genuinely reflect a subcontractor relationship; even with the existence of inherent deadlines, quality control and other contractual obligations, providing the third party is essentially working independently.
Does the subcontractor agreement wording resemble a contract of employment?
There are a number of important words and phrases to categorically avoid using when drafting an agreement, due to their association with an employee status. Terminology such as ‘salary’, ‘holiday’, ‘disciplinary’ or ‘gross misconduct’ are inherently dangerous. A true subcontractor can hire others (a suitable substitute) to do the work, can decline work and can work with other clients (providing no conflict of interest). Equally, The contractor is under no obligation to provide or guarantee work and can change contract terms unilaterally. The terms of the agreement should provide for this, and the reality of the situation should reflect it.
Does the subcontractor have other clients or work for other companies?
The HMRC are more likely to consider the authenticity of a subcontractor working relationship if they provide their services to multiple clients at any one time
Are they responsible for their own actions?
Employers are ultimately accountable for the actions of their employees, which are covered by company Insurance policies for public liability, professional indemnity etc. Although a company can still be held responsible for any substandard work produced by a subcontractor, the subcontractor will still have their own insurance protection in place and will carry all the financial risk. Also, there is a general statutory assumption that an employer owns any intellectual property created by an employee during the course of his or her employment. However, with a subcontractor, clarification of ownership of any IP produced by the sub-contractor should be expressly detailed in the contractual agreement, as would the management of any confidential information.
So these are my thoughts on the factors to consider if you’re to avoid the risk of your sub-contractors being deemed employees. These considerations are in no way clear cut or mutually exclusive, and from an employment law perspective, the courts continue to attempt to define the legal status of vague contractual agreements. Whilst HR professionals wait with baited breath for the next case law development, employers and contractors will need to continue wading through the current murky water that governs this area.
Peas In a Pod Consulting provides HR advice and workforce development training to small business’ in Hampshire. If you have any concerns about the status of any of your employment relationships in your workplace, please do get in touch.