Putting workers into categories

Farmers who use other people to do work for them have always been faced with the question of whether the person they are using to complete the task is either an employee of theirs or is acting in a self-employed capacity.

The position is often not black and white, but the cost of making the wrong decision and categorising the person incorrectly can be expensive.

Employees come with a 13.8% National Insurance bill, a pension autoenrolment cost and an entitlement to holiday and sick pay at the very least.

Until recently, clients really only concerned themselves with the tax implications of the employment status question. However with changes to working practices in relation to the “gig” economy, workers themselves have been challenging their employment status to gain more employment rights in this grey area. Uber taxis being a prime example.

The proportion of jobs carried out on a traditional master/servant relationship are on the decline as new working practices emerge such that the number of “self-employed people” increases.

Consequently, determining the employment status of someone is becoming increasingly complex. With this in mind, the government published a consultation document on employment status in February.

The consultation asks for genuine debate to be held on the problems and potential solutions so the government can decide whether to, or how to, reform employment status. The consultation closes on June 1, and so the government may have some proposals or legislation coming forward in this year’s Autumn Budget.

In the meantime, farmers have to make up their own minds as to whether the person in front of them is employed or self-employed. In many cases this will be obvious and in other cases someone may slip from being genuinely selfemployed to becoming employed over a period of time. Take, for example, a farmer who takes on a self-employed dairyman to cover for an employee being off sick. The new person works for the farmer for two days/two weeks/ two months/two years. At what time does genuine self-employment stray into becoming employment?

The government has a website for those employers concerned about someone’s status www.tax.service.gov. uk/check-employment-status-for-tax. This website guides the user through a series of questions which should indicate at the end whether the person is employed or self-employed in the eyes of HMRC. The questions focus on three key areas that concern HMRC regarding employment status.

The first two questions both focus on whether or not the employer is engaging a specific person to carry out the work personally or whether the “worker” can arrange a suitable substitute instead to carry out the work. If the answer is that the employer is only going to engage the specific person then this points to employment.

The next series of questions relate to control of the worker. If the employer controls virtually everything the “employee” does such as the tasks they undertake, details how the work is done and which hours to work, then again this points to employment rather than self-employment.

The final questions focus on whether or not the worker carries any risk in carrying out the job. This includes incurring expenses which are not paid for by the employer and being paid on an hourly or daily basis rather than quoting a price for the work. The key point in this section is whether or not the worker has to put right mistakes at their own cost.

This is a hot topic for HMRC and they are examining various categories of worker who have been traditionally classed as self-employed. No doubt a new definition of employment will emerge from the consultation, perhaps improving workers’ rights but also allowing the government to collect more in National Insurance Revenue which may be the main motivation behind this review.

David Walker is a partner at Thomson Cooper chartered accountants.