False-employment in the construction industry

Being self-employed can have many positives, and brings with it flexibility, freedom and the chance for an individual to be their own boss. On the other hand, being self-employed means no access to an employer pension scheme or other benefits, no right to receive holiday pay or sick pay, and no entitlement to other statutory employment rights.

Being falsely self-employed seems to be the worst of both worlds. Individuals are in effect “employees” but without the benefit or protection of their employment rights. Coupled with the estimated annual loss to the economy of £314 million, and it becomes clear why this is a hot topic.

False self-employment is a concept that has been prevalent in the construction industry for some time.

Some startling statistics from the union, UCATT estimate that over 50% of those working in the construction industry are falsely self-employed, and a recent report from the Citizens Advice Bureau suggests that one in ten respondents of the 500 they surveyed suspected are falsely self-employed.

What is it?
False self-employment is when individuals are labelled (either knowingly or unknowingly) as self-employed, but in reality they meet the legal test to qualify as a worker or an employee.

Does it matter?
In a word – yes. An individual’s employment status has important implications in relation to both tax, and employment rights. Although an individual might be engaged as a self-employed contractor, if challenged an Employment Tribunal would look at the whole nature of the relationship and not just the label given to it by the parties. If a Tribunal decides that, actually, the individual is a worker, they will be entitled to all the employment rights attributable to this status such as paid holiday, national minimum wage and the right to receive employer pension contributions.

An individual who is found to be an employee is entitled to even more rights, such as statutory sick pay, maternity, paternity, adoption and shared parental leave and pay and the right not to be unfairly dismissed and the right to receive a statutory redundancy payment. There will also be tax implications if HMRC determines that a contractor is actually a disguised employee, in the form of fines and the recovery of historic liabilities.

Protecting your Business
If you are engaging self-employed contractors, you should ensure that you assess the whole arrangement to reduce the risk that an individual is found to be falsely self-employed. A Tribunal would look, amongst other things, at the following questions.

If the answers are yes, this increases the likelihood that the individual will be found to be an employee:

• Is the individual required to undertake work personally (i.e. no substitute is allowed)?
• Can the individual turn down work if it is offered to them?
• Do they work a regular set pattern of hours?
• Do you tell the individual what to do and how to do it?
• Are they hourly/weekly/monthly paid?
• Do you pay them overtime or other benefits?

It is therefore crucial that businesses look at the whole picture and make sure that individuals are not being offered the “choice” of self-employment, when in reality the facts suggest that they might be an employee or a worker.

If you have any questions in relation to this article please contact Catherine Daw on 01622 655291 or email catherinedaw@brachers.co.uk.

This content is correct at time of publication