Ask Us – Using a Self-Employed Contractor

I have a small family business and after much hard work we are growing at our fastest rate ever. I need to take on some staff but I a nervous of starting a commitment to employ someone when I’m not sure what our future work levels will be. Can I just take on someone on a contractor basis?

First of all congratulations on your success and growth, it looks like you have exciting times ahead. Small businesses can legitimately use self-employed contractors for the very reasons you explain, but there are some considerations before you pursue this route:

An employer/employee relationship

Regardless of what is set out in a contractor agreement, what actually happens in practice is an overriding factor and it may be that the nature of the work completed is in fact an employment relationship. If you are (knowingly or not) employing someone there are a greater number of obligations on you for:

• Paying employers national insurance contributions
• Paying statutory rights such as sick pay, paid holidays, maternity pay
• Acting reasonably as an employer as the worker may have protection against dismissal
• Ensuring you have employers liability insurance
• Exercising your duty of care

An employment tribunal is likely to deem there is an employment relationship for the following scenarios:

Personal service – Where a particular person is required to perform a job rather than any competent person the contractor supplies.

Mutuality of obligation – where contractually (and/or in practice) the employer requires the worker to complete a set number of hours each week and the worker is obliged to attend work for these

Degree of control – where the worker is integrated into the organisation – wears a uniform, books holiday, is closely managed rather than being left to perform their task etc

When employing a contractor is appropriate

Using a contractor would normally take place where:

• There is little predictability about the number of working hours required
• You are buying in expert skills not possessed in the organisation
• Your contractor provides their service for a number of clients

Put it in writing…

It is good practice for you set out a contractor agreement. This should include a substitution clause that you put into practice from time to time to ensure the ‘personal service’ definition of an employee is not established. Working arrangements should be reviewed from time to time to ensure the contract is still representative of the way you and the contractor are working together.

“what actually happens in practice is an overriding factor”

… but keep an eye on the practice

Even if the contractor wishes to be considered self-employed you need to assess whether the working arrangements are employment or contractor in reality so you can follow the correct procedures and meet your legal obligations. Circumstances could change in the future – for example, if work comes to an end, the contractor may want to demonstrate an employment relationship in order to claim unfair dismissal at employment tribunal. And of course, HMRC is always on the lookout for revenue and are very keen on identifying sources of unpaid Employers NI contributions.

If you want to talk through your particular needs and whether they lend themselves to employment or using a contractor, please get in touch for some specific advice.