You’re probably familiar with the complexities of determining the IR35 status of an employee, as it’s dependent on multiple factors which can vary from assignment to assignment. If that’s not hard enough, determining the true status of an employee can be subjective and requires in-depth knowledge of legislations.
Let’s take a look at some of the factors which determiner a worker’s status.
Where the truly self-employed have more influence over where, how and when they complete their assignments, employees are usually under the direct supervision and control of their employers.
This could include:
- Working hours
- Line management and grievance procedures
- Benefits, including holidays, pensions and sickness
Whilst, it’s acceptable for truly self-employed to complete an assignment within an agreed timeframe, they shouldn’t be under any control or supervision from the employer.
In essence, substitution poses one question: can the worker be easily substituted for another, who can provide the same services? Where a business or self-employed worker provides their services to an employer (and can easily be substituted), an employee provides a personal and exclusive service (and cannot be substituted).
As a result of this, it’s crucial those wishing to remain outside of IR35 include ‘the right to substitute’ in their contracts. For this to be valid, the following aspects must be agreed:
- The employer must agree
- The worker must pay for the substitute
- The employer cannot vet any replacement
- Mutuality of Obligations
An employer is obligated to provide continuous work for their employees and the employee is obligated to complete this work. On the other hand, self-employed workers don’t expect an employer to give them additional work beyond the scope of what has already been agreed and will finish with no expectation of further work.
- Provision of Equipment
Who provides and owns the equipment – the worker or the employer? Self-employed workers generally supply their own equipment, whereas an employee would expect this to be provided for them. This could be anything from hardware to software.
- Financial Risk
How much financial risk is the self-employed worker taking? This could be down to who is hiring the equipment, staff required to complete the assignment, financial risks, and responsibility for profit.
- Part and Parcel
A self-employed worker should not be ‘part and parcel’ of the employer. This could include things such as having access to the staff room, receiving the same benefits and bonuses, including on any internal staff registers.
- Exclusive Service
How many clients is the self-employed working providing their service to?
- The Right of Dismissal
Unlike a contractor, a true employee would have the right to be given statutory notice of the termination of their employment.
- Basis of Payment
How is the self-employed worker paid? It is generally expected that a truly self-employer worker would be paid after each job, rather than have an hourly/day rate.
- Business Account
Is the self-employed worker’s business behaving like a ‘real business’? This could include: office-space, licenses, VAT registration, health and safety requirements and legal tender.
- Intention of the Parties
HMRC seeks to determine the relationship between both parties, even if no written contract exists.