Determining employment status can be a minefield for employers, and the risks of getting it wrong are growing.
There is currently a three-category system for employment legal status; individuals are employed, self-employed, or have worker status. These determine whether employment rights, like sick leave, paid annual leave, protection from discrimination and the national minimum wage, will apply.
For employment tax purposes, there is a two-category system: individuals are either employed earners or non-employed earners. This clarifies the tax and national insurance contributions to be paid.
At present, HM Revenue and Customs (HMRC) provides a rather unsatisfactory online tool, Check Employment Status for Tax (CEST). However, there is no such equivalent to help decide employment legal rights status. The status definitions in the employment legal statutes are deliberately outline only.
Employers, therefore, have the difficult job of trying to assess employment legal rights status based on the very extensive case law developed in differing sectors and situations over several decades.
Tribunal judges also find it hard to reach an employment status decision, because they must try and form a complete picture from various elements of a working relationship. Often, they disagree with outlines derived from thin interpretational differences.
A judgment from the Employment Appeal Tribunal (EAT) published in July 2019, pertaining to the case Community Based Care Health v Dr Reshma Narayan regarding the status of an out-of-hours GP working for a not-for-profit provider, showed that no fewer than 13 factors were considered to make the initial working status determination.
In this case, the GP was deemed to be a worker, but in a very similar previous EAT case in the medical sector, the doctor in question was judged to be self-employed.
The government has announced its wish to harmonise legal status and tax status, but it has not clarified how it intends to do this. New tools to help organisations reach status determinations have also been promised.
It is to be hoped that these will be available soon, before major employment law regulation changes and new employment tax rules on off-payroll working come into force from April 2020.
For now, employers should review the contractual relationships they have from both an employment law and employment tax position, and make sure their status assessment processes and procedures are ready for the change.
Carolyn Brown is employment legal partner and head of client legal services at RSM