Self-employed contractors – what are the key employment issues?

Mar 7, 2023

Self-employed contractors and sub-contractors provide vital resource. They provide a degree of flexibility and specialism which can be beneficial on projects and are an important part of many construction business plans. However, many people will be aware that contractors are engaged in a different manner to employees and therefore a varied approach needs to be taken towards them.

Employment Status

A key difference between a contractor and other staff is their employment status. Both parties to the arrangement will be seeking to have the contractor work as on a self-employed basis. However, the danger can be that if not engaged correctly they may still be deemed as an employee or worker entitling them to the rights which come along with this status’ such as holiday and sick pay entitlements or dismissal protections.

Employment status is an area which has been considered heavily by Employment Tribunals and HM Revenue and Customs. Some key elements of the relationship that an Employment Tribunal would look at when determining employment status are:

  • Whether there is a true right to substitution.
  • Whether there is a mutuality of obligation i.e. an obligation for the Company to provide work and for the contractor to accept work.
  • Whether there is an obligation to carry out the work personally or a right to substitution.
  • Whether the contractor is expected to supply their own tools and equipment.
  • Whether the company is paying tax and national insurance on the contractor behalf.

Whilst a Tribunal would look beyond just the physical contractual documentation when determining the relationship and employment status a strong starting point for a Company is to ensure the terms an individual are contracted under reflect and are indicative of the intended employment status.

Indeed, when managing a truly self-employed person, it is important to ensure that employment status is not passed to them, when this is not intended. This requires care and skill in the direction given and ensuring the instructions do not go beyond what is expected of a self-employed person.

Health and Safety

If you are engaging contractors on sites, health and safety responsibilities must take precedence both for the contractors and anyone else effected by their activities. The contractors also have responsibilities in respect of this.

A contractor will need to be properly managed and communicated with, so they are aware of the standards expected and how any particular workplace or site operates.

HSE have issued the following caution in respect of contractors

Remember that contractors may be at particular risk – they may be strangers to your workplace and therefore unfamiliar with your organisation’s procedures, rules, hazards and risks. Even regular contractors may need reminding. The level of control needed will, of course, be proportionate to the complexity of the task.

Vicarious Liability

In an ordinary employment relationship employers can be vicariously liable for the actions of their employees. The same can apply in some circumstances for the actions of self-employed contractors. An example of where this could arise is if the contractor were to make a discriminatory comment to an employee, the employee would have a claim against the contractor and potentially the employer.

To have vicarious liability for a self employed contractor there must be :

– An appropriately close relationship between the person committing the wrongdoing and the employer

– The employment relationship must be closely connected with the specific act of wrongdoing.

There are steps employers can take to reduce the potential risk of vicarious liability:

  1. Be clear upon the employment status of those working for you.
  2. Ensure the manner in which the contractor is engaged is clearly established.
  3. Ensure the contractor is aware of the standards and behaviours expected.
  4. Make sure you have carried out due diligence and are content the contractor is competent and professional.
  5. Ensure that the terms the contractor is engaged on requires them to have suitable insurance policies in place to cover negligent acts.

Our top tips

Our general top tips for someone seeking to engage a self-employed contract are:

  • Make sure the relationship is properly documented.
  • Ensure that the contractor is aware of the standards required and given clear unequivocal instructions.
  • Ensure the contractor is component to carry out the required task.

If you would like any assistance in respect of self-employed contractors or anything else mentioned within this article please not hesitate to contact our Employment Group on 01276 854 663 or email employment@herrington-carmichael.com.

This reflects the law and market position at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought in relation to a specific matter.

Samuel Gray

Samuel Gray

Solicitor, Employment

Alistair McArthur

Alistair McArthur

Partner, Head of Employment Law

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