Pimlico Case: Understanding the difference between contractor, worker and employee
In June 2018, the UK’s Supreme Court dismissed Pimlico Plumbers’ appeal in the widely publicised case of Pimlico Plumbers v Smith. The Pimlico Plumbers case centred on determining the employment status of Gary Smith. Whilst Mr Smith was paying self-employed tax, and was also VAT registered, it was decided that he was effectively a ‘worker’, having been exclusively operating for that plumbing business for a number of years.
The judgement is of importance to all workers denied the right to holiday pay, usually on the basis that they are not ‘workers’, and to all claims for unlawful deductions from wages, not only those brought in relation to underpaid holiday pay under the Working Time Regulations. Full details of the judgement can be found here.
The difference between contractors, workers and employees
There are three main types of employment status under the Employment Rights Act 1996: employee, worker and self-employed.
Employees have the most rights and responsibilities under employment law. When determining whether an individual is an employee, there are three main factors (amongst others) that must be present:
Mutuality of obligation: there is an obligation on the employer to provide work and an obligation on the employee to carry out work.
Personal service: an employee must personally perform the work their employer gives them and cannot hire someone to do it in their place. If the employee does not work, cover is managed by the employer.
Control over an employee’s performance of their work: an employee will generally not have a large amount of control over their schedule or tasks assigned to them.
In contrast, a self-employed individual, often referred to as an independent contractor, runs their own business and takes responsibility for its success or failure, with minimal rights under employment legislation. A contractor is also typically characterised in the following ways:
Mutuality of obligation: unlike employees, they can accept or reject contract work that is offered to them.
Substitution: an unrestricted right to appoint a substitute to complete the client or customer work usually indicates that an individual is a contractor and not an employee or worker, but this assessment will need to be based on what happens in practice, not simply what is written in the agreement.
Control: contractors have much more freedom over the manner in which they carry out their contract jobs; this could include the approach to the task and working pattern.
According to ACAS, workers sit between these extremes because the work for the organisation is more casual, less structured and the employer may not offer regular hours. There is a limited obligation for the worker to make themselves available, but they should personally do the work they’ve agreed to.
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The gig economy and changing working practices
The gig economy is an economic model where people make a living by taking on short-term jobs, or gig work. Individuals provide their services through various online platforms giving them the ultimate flexible working arrangement. Organisations can reduce people costs by calling in labour supply when it is needed. Common examples of gig jobs include transportation and food delivery.
Changes in technology and flexibility needs within the workforce have driven the rapid growth of this sector. However, there are some tensions with the belief that this model can be exploitative. The Taylor Review was therefore commissioned to consider the rise of the gig economy and make recommendations to organisations to ensure fairness to this workforce.
Legal considerations for employers
The status of your worker for employment law purposes determines the legal rights that they have and in turn your obligations to them. The recommendations of the Taylor Review were incorporated within The Good Work Plan which took effect in April 2020 and introduced wide-ranging changes to employment law. The changes impacted employees, workers, agency work-seekers and self-employed individuals. Therefore, your practices in engaging with these different segments of the workforce must match the requirements of The Good Work Plan.
It is possible that the person you take on may have a different status for employment law purposes than for tax purposes. It is important that you carefully check the status for each. HMRC’s Check Employment Status for Tax Tool can be used to check employment status for tax purposes.
Key considerations for employers
- Auditing the employment status of your workforce periodically is key to ensuring ongoing compliance and this should consider the reality of the arrangements rather than solely what is written down in contractual documentation.
- Ensure clear documentation is in place that reflects the relationship so that the chance of misunderstanding and conflict is reduced.
Seeking HR advice and guidance
We welcome a conversation with employers feeling uncertain about employment status. We’re here to help you get beneath the jargon and understand any obligations, rights and opportunities. Please contact us if you would like to discuss this further.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact us.
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