Flexible workforce – avoiding the pitfalls

Nov 21, 2019 | Employing people, Employment Law, Flexible Workforce

More and more businesses rely on access to a flexible workforce to meet their operational needs.  This can work well for both the business and the individual, however, careful consideration should be given to the structure of these relationships to understand the options available, the advantages and disadvantages, and the most appropriate contract structure to support the agreement.

In employment law there are three types of employment status: employees, workers and self-employed (also sometimes called consultants or sub-contractors).  However, in relation to taxation there are only two: employees and self-employed. In employment law ‘employees’ have the full set of employment rights, ‘workers’ have a more basic set and those who are neither workers or employees are considered businesses in their own right and therefore have no rights in employment law.  In taxation employees are subject to PAYE and NI, whilst the self-employed pay tax on their profits.  These distinctions and differing frameworks are confusing and need careful navigation.

When working with a flexible workforce, many businesses will engage individuals on a self-employed basis, and this can be absolutely fine.  The key risk is that the individual, some time later, decides that they consider themselves to be an employee or worker, and wants to assert their rights related to that status.  Workers, for example, are covered by the National Minimum Wage and Living Wage Legislations and the Working Time Directive.  There have been many cases of individuals who have signed contracts stating that they are self-employed, who have taken claims to Employment Tribunal, been found to be ‘workers’ and awarded compensation for their claims.  Back pay holiday claims are unlimited in time, therefore an award for 28 days’ holiday pay over several years can be extremely costly.  Recognising an individuals’ correct status up-front can be safer and cheaper in the long run.

Understanding the tests used by Employment Tribunals in deciding employment status is key to helping businesses choose the most appropriate and lowest risk route of engaging a flexible workforce.  When employment is the best option, we can help new employers to navigate the legal requirements of employing people.  In cases where engaging self-employed contractors is the most appropriate, we can draft contracts that are alive to the legal tests and provide the greatest protection to your business.

If you would like to find out more about how we can help get in touch.