The advantage of a more flexible workforce in the hospitality industry is clear. It means businesses can meet supply and demand better, switching the flow of workers on and off to ensure service levels remain high at busy times.
Increasingly businesses are using flexible contractors rather than full time employees. These staff will work flexible shifts, in temporary roles, with no minimum hours – and are self-employed. It works well for the business, and often suits the worker too. It’s a new way to earn money working on demand and a new flexible way for employers to manage variations in staffing requirements.
But the so called ‘gig’ economy has hit the news frequently in recent years, with workers bringing claims against employers relating to their employment status.
Why does it matter?
In a series of cases staff have challenged their self-employed status and claimed that they should be more properly classified as ‘workers’ and therefore be entitled to receive holiday pay and the national minimum wage. The outcome of these challenges has huge potential cost implications for businesses using this model, given the additional benefits that employees are due.
Therefore it is vital that you are clear on the status of the staff working in your business.
How can you tell?
There are three categories of worker:
- Employees
- Workers
- Self-employed
Deciding which category an individual falls into can be very difficult; this is a complex area of law and there are no clear defining criteria. Each case will depend on its own facts – if in doubt you should seek specific legal advice.
Worker type: the tests
Employee
There are three key tests to consider when deciding whether an individual is an employee:
- Personal Service – an employee provides a service themself, whereas a self employed contractor will have a right to provide a substitute to carry out that work. If there is an unqualified right of substitution in a contract then it is very likely that it is not an employment arrangement. For example, with employed staff, if one of your waiters was not able to work a particular shift, he would not be able to get a suitably qualified replacement to take on that shift on his behalf.
- Control – does one party have sufficient control to make it a master/servant relationship? The following will be taken into account: how is the job to be done, timing, working hours, method, where is it to be done, is the individual subject to rules and procedures. The employer is in control.
- Mutuality of obligation – this is the obligation on the employer to provide work and on the employee to accept work that is offered to him. A subcontractor could clearly refuse to work a shift if they wish.
None of the three key tests alone is conclusive proof of employment however, if one of the three elements is missing it may point towards an individual being self employed. In addition to the three key tests there are other factors to be considered in each case such as:
Who provides the tools? If the worker owns the means to carry out the work (eg the delivery van) it suggests they are not an employee.
- Degree of financial risk.
- Is it a fixed salary or wage.
- Is the individual given paid holidays, sickness absence.
- In reaching a decision on whether or not an individual is employed, checklists are a useful starting point. But the court will look at the practical reality of the relationship – as in the Uber and Citysprint cases.
Self employed contractor
Someone is self employed if the tests above are not met; in other words substitutes can be provided (if compliant with the employer’s requirements), there is no mutuality of obligation in terms of providing work or the worker carrying out duties. The worker is also more independent and has control over their working situation.
Worker
In between the categories of employee and genuinely self-employed is the category of workers. The definition of worker includes employees but also someone who passes a lesser test – they agree to provide certain services personally but are not in business on their own account and therefore not genuinely self-employed.
When identifying a worker the following is a helpful test:
- Personal Service: A worker agrees to personally provided services although there may be a limited power to appoint substitutes.
- Business Undertaking: is the ‘employer’ a client of a business carried on by the individual? If yes, then the individual is self-employed; if not then the individual is a worker. Whether or not an individual is really carrying on a business is decided by looking at factors such as the degree of control by the employer, the exclusivity of the arrangement, its duration, the method of payment, who supplies the materials and equipment, and the level of risk taken by the individual.
- Mutuality of Obligation: this is essential if the individual is to be a worker rather than self-employed. Mutuality of obligation is the obligation on the employer to provide work and the obligation on the individual to accept that work. If there is no mutuality of obligation then the individual will be self-employed.
Protection for workers
Some legislation extends protection to workers as well as employees – for example, workers are entitled to rest breaks and paid holiday under the Working Time Regulations, as well as the national minimum wage and protection from discrimination and victimisation. They are also entitled to a contribution from their employer under an auto enrolment pension scheme
The tax implications
The other consideration for employers when it comes to the correct categorisation of their workers is the tax position.
With employees there is a PAYE/NI obligation. Self employed workers clearly deal with payment of tax themselves. If the assumption is that an individual is self employed, rather than an employee, and the employer does not pick up any tax liabilities, then there could be repercussions by way of a large fine should it be found the individual is in fact not self employed and obliged to pay tax and NI themselves
Recent cases in the ‘gig economy’
Two recent cases have brought out the importance of looking beyond written documentation that purports to make clear that staff are self-employed.
Uber: in the recent case, taxi drivers contended they were workers, and therefore entitled to rights such as minimum pay rates. Uber claimed the business was merely a platform which brought together many small business owners (ie the drivers) and facilitated the opportunity to gain work.
The court decided that despite drivers being able to choose whether or not to accept work by turning on the app when they in their designated territory, it must look beyond the written terms to the reality of the situation and decided that the drivers were workers. There is likely to be a challenge by Uber on the status of their drivers, but in the meantime the business will have to fund holiday pay etc. This is the harsh reality if workers are deemed to be employees.
Citysprint: In a similar case a cycle courier engaged by Citysprint was found to be a worker. The courier worked only when she was available, there was a right of substitution and under her agreement she was not entitled to holiday or maternity pay.
In reality the courier wore a Citysprint uniform and when she was available logged on to their tracker system and was directed by a controller through a radio and mobile phone.
The court looked beyond the documentation to the reality of the arrangement and applied the 3 key tests above concluding that the documentation was “window dressing”. The individual had little autonomy and when she was logged on to the Citysrpint system. She was therefore a worker, rather than self employed. This meant that she had basic rights such as a minimum wage and holiday pay.
We all hear a lot in the news about the “gig” economy. This refers to the increasingly common practice of businesses using flexible contractors rather than full time employees to carry out work. These people work flexible shifts in temporary roles with no minimum hours and are “self-employed”. It is a new way to earn money working on demand and a new flexible way for employers to manage variations in staffing requirements.
In a series of recent cases staff in the gig economy have challenged their self-employed status and claimed that they should be more properly classified as “workers” and therefore be entitled to receive holiday pay and the national minimum wage. The outcome of these recent challenges has huge potential cost implications for the businesses in the gig economy and businesses using this model will be rightly concerned to understand the implications of these cases and to be clear on the status of its workers.
Taylor Review
The issue of employment status, particularly in the gig economy, is a real hot potato. Indeed the Government launched the Taylor Review to report on the impact of modern working practices and whether employment practices need to change to keep pace with modern business models. We await the recommendations of this review.
