Self-Employment and the Law

Judge gavel, scales of justice and law books in court

It’s been a turbulent few months for the self-employed and the firms that use them. We’ve had the unveiling of a new and aggressive stance from HMRC, new case law and a startlingly fast u-turn on Class-4 National Insurance contributions. The government’s attack on false self-employment is already claiming casualties, with Transport for London reacting to a shift in the rules around public bodies using Personal Service Companies by banning them outright. If that change in regulations proves effective enough to be rolled out in the private sector, then a fair number of self-employed noses are likely to be put out of joint.

A large part of the problem seems to be that, by necessity, the government is casting a pretty wide net to tackle the issue of companies treating people who really ought to be employees as self-employed. As a result, they’re almost inevitably going to be hauling in more than just deliberate abusers of the system. The case law on this is all still in its early stages, but with more and more of the challenges being kicked off by the self-employed themselves, there’s a lot more to worry about that random HMRC status challenges.

The chances of unwary firms being caught out, despite genuinely believing themselves to be within the rules, are increasing – and much of that appears to be due to muddiness around the language and terminology of employment law. The ways people are organising their work lives are becoming more fluid and complex. The gig economy seems to have taken the legal framework entirely by surprise and ageing mechanisms like the now worryingly outdated IR35 legislation are struggling to retain their relevance. Determining someone’s employment status is not  a binary, black-and-white issue – and there’s even confusion and uncertainty in the language being used to describe it.

Sitting uncomfortably somewhere between the comparatively well understood categories of employment and self-employment, we find the vaguely defined “worker”. At first glance, a worker might be difficult to distinguish from an employee. They have contracts and qualify for the National Minimum Wage. They get paid breaks, holidays and a number of key protections in law. However, they also share some characteristics with the self-employed. They may have a limited right to have someone else do the agreed work on their behalf, for example. Right now, 50% of all agency workers are effectively on permanent contracts. However, since they aren’t classified as employees they’re often in a worse position. Where did this stat come from?

The unhelpful language and imprecise guidelines are found everywhere. The government’s own website speaks in terms of people “probably” being employees if “most” of certain criteria are met. We’re trying to crowd a two-evenings-a-week cleaner and a self-employed investment banker under the same umbrella and expecting the rules to be fair to both.

So far, where employment status challenges have been initiated by the workforce themselves in pursuit of a fairer deal, the tribunals seem to be coming down squarely in their favour. People manoeuvred into disadvantageous positions are waking up to the fact that if their written contract and their working realities don’t match up, they’re not as stuck as they thought they were. In HMRC’s eyes, if it walks like a duck and quacks like a duck, then it needs to be taxed PAYE like a duck.

With false self-employment costing HMRC an estimated £2 billion a year, this isn’t an issue that can be ignored or avoided. The demand for short-term and irregular labour is growing, and existing mechanisms and definitions are struggling to cope. Right now, the balance is tipping toward reclassifying the self-employed as employees whenever the matter’s tested. That means it’s essential for firms with self-employed workforces to get themselves prepared, protected and compliant with a shifting set of frequently misunderstood laws.

Just a few careful precautions could make all the difference to your business. Contact RIFT Legal Services for information, advice and practical help.