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Independent Contracting in United Kingdom

Independent Contractor & Employment Guidelines in the UK


Contractor length allowance

Many self-employed workers are engaged on a consultancy basis. However, a person who works in a consultancy or advisory capacity may be an employee. Whether an individual is self-employed, or an employee will depend on the circumstances and the application of relevant case law.  The length of a consultancy arrangement can be for an indefinite term (with notice to terminate) or it can be structured on a fixed term basis to cover a specific task. There is no minimum or maximum term. However, a person engaged on a long term or permanent basis might be more likely to be an employee than someone taken on for a specific task.  


Fixed-term contract limitation

A fixed term employee must not be treated less favorably than permanent staff. Successive use of fixed term contracts is limited to 4 consecutive years. After 4 years, the contract may become permanent unless the continued use of the fixed term contract can be objectively justified.

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What makes someone an employee

Although there are statutory definitions of employment, it is necessary to consider whether the key factors identified in case law are present and also what the written terms of the employment are and the intention of the parties. The existence of an employment contract falls to be determined by consideration of several factors such as the following:
  • The business provides and maintains the materials, tools and equipment for the individual’s  work.
  • The individual is required to do a minimum number of hours and expects to be paid for time worked.
  • The individual  works at the business’s premises or at an address specified by the business.
  • Control shifts to the employer  around working hours, how that work should be carried out and where.
  • Mutuality of obligation arises, where the employer is expected to provide work and the individual is obliged to accept it.
  • The individual  must carry out the work themselves and not provide a substitute.
  • The individual is told what work to do, as well as how, where and when to do it.
  • The individual can be moved from task to task.
  • They are contracted to work a set number of hours and get a regular wage or salary, even if there is no work available.
  • They have an employment contract and work for a business which is not their own and in which they are not a partner.
  • There is control by  the person who is  the employer.
  • They are subject to restrictions around working for other people during and after their employment.
  • They can join the business’s pension scheme.
  • The business’s disciplinary and grievance procedures apply to them.
  • The business’s redundancy procedures will apply to them.
  • The company they work for gives them time off for things like sickness , holidays and family related leave  which is usually paid subject to eligibility requirements and the terms of the employment. A manager or supervisor is responsible for the individual  and controls  when a piece of work should be finished and how it should be done.
  • The business deducts tax and National Insurance contributions from their wages.
  • They only work for the business or if they do have another job, they need prior consent and  it’s completely different from their work for the business.
  • Their contract, statement of terms and conditions or offer letter (which can be described as an ‘employment contract’) uses terms like ‘employer’ and ‘employee’.
It is important to be aware  that an individual can be considered an employee  if they work part time or have flexible hours or if they are on a short term contract.


Employee vs Contractor

Under current law in the UK, an individual will fall into one of three categories providing their services in the job market: employee, worker and independent contractor. Although there are statutory definitions of an employee and worker, these are not comprehensive and the current position has been substantially defined through case law. Anyone who is neither an employee nor a worker will be self-employed for employment law purposes.
The distinction in employment law between the three categories of employee, worker and self-employed contractor is significant for a number of reasons including:
  • Employees and workers are entitled to written particulars of employment.
  • Employers and employees have obligations that are implied into the contract between them (e.g. the mutual duty of trust and confidence).
  • Some core legal protections only apply to employees, such as rights on termination of employment (the right no to be unfairly dismissed, the right to notice and the right to receive a redundancy payment).  However, workers are also covered by some important protections including in relation to working time and the minimum wage.
  • Only employees are covered by the Acas Code of Practice on Disciplinary and Grievance Procedures.
  • Only employees will be automatically transferred to any purchaser of their employers business under The Transfer of Undertakings (Protection of Employment) Regulations 2006 (although workers may be transferred depending on the facts) .
  • An employer is vicariously liable for acts done by an employee in the course of their employment.
  • Employers owe employees statutory duties relating to health and safety.
  • Handling personal data under GDPR will have different implications depending on whether an individual is an employee or self-employed.

Penalties for Employee Misclassification in the United Kingdom

If an employee is wrongly classified as a contractor, they can make a claim against their employer for not honouring their employment rights. Employees can demand backdated pension, holiday pay and any paid leaves that employees have rights to.
An independent contractor working as a full time employee for a company has the right to take the employer to court and be compensated by the employer for unfair dismissal (maximum of £78,962 in April 2016), redundancy payment (maximum of £14,370 in April 2016), accrued holidays, maternity, paternity, adoption and shared parental leave and pay rights, pension auto-enrolment rights and compensation for breach of working time rules (such as failure to give appropriate rest breaks). HRMC will also pursue the employer for under-deducted tax, employer NICs and any interest or penalties accrued on the sum.

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