Many businesses will engage self-employed individuals to provide assistance during busy periods, or due to staff absences. For example, pharmacies and opticians may engage a self-employed individual, or 'locum' - a qualified pharmacist or optometrist to carry out work as and when required. Often, a business will use a self-employed individual on a semi regular basis, and may even come to rely on them. The question then arises – what is their employment status?
Businesses will engage individuals on a self-employed basis, rather than as employees, to afford more flexibility to the working arrangement. Employees receive holiday and sick pay and those with two or more years' service will have protection from unfair dismissal, whereas self-employed individuals receive a tax break and increased control over how and when they work in exchange for less protection when a working arrangement ends.
Written Agreement
As a matter of best practice, businesses should make sure that there is a written agreement with their self-employed staff. The terms of this agreement will specify their employment status and should set out the way in which the parties will manage the working relationship in practice.
There is, unfortunately, no quick and easy test applied by the courts to determine an individual's employment status. Simply labelling an individual as self-employed within an agreement will not in itself determine an individual's employment status. It also will not be sufficient to satisfy an Employment Tribunal or HMRC that the relevant individual is not a worker or an employee. Courts, Employment Tribunals and HMRC will look behind a written agreement to consider how the parties manage the relationship on a practical level. It is therefore essential that parties conduct themselves in keeping with any written agreement to avoid the contract being deemed a sham.
Factors considered when Determining Employment Status
It is necessary to consider a number of factors, which may or may not be addressed in an agreement. Previous case law has highlighted a number of indicating factors that should be taken into account when determining employment status:
Obligation to accept Work Offered
If the agreement includes an obligation on an individual to accept all shifts offered to them by the business, this is likely to indicate employee rather than self-employed status. Self-employed individuals should be freely able to turn down work on a particular day or shift (for example, because they have already been engaged by a different business).
Indeed, a non-exclusive working relationship between the individual and the business is in keeping with self-employed status.
Right of Substitution
A requirement that the individual provides the services to the business personally (without a right to send a substitute in their place) will suggest that the individual is an employee. However, particularly given the responsibilities of a locum pharmacist, an individual's employment status will not turn solely on a requirement for personal service.
Often, locum agreements will include a right on the part of the locum to send a substitute, but only with the prior approval of the pharmacy.
In the event that a locum exercises any right of substitution, it is key that they assume responsibility for payment of the substitute, rather than the pharmacy.
Level of Control and Integration into the Pharmacy Business
Whilst locums will need to assist with the running of the business, and supervise staff, they should not (in keeping with self-employed status) be exercising any management function in relation to either the pharmacy or its staff. By way of example, locums should not lead staff appraisals, attend marketing/business development events or be subject to grievance and disciplinary procedures.
Businesses will not be able to circumvent employee protection if the locum is treated the same as an employee. Locums should not receive staff benefits (such as a retail discount, entitlement to an employee share scheme etc) or be paid during any period of holiday or sickness absence. Such conduct would be in keeping with an employer/employee relationship.
Financial Risk
Self-employed individuals assume a level of financial risk that would normally be borne by an employer. They are in business on their own account and therefore enjoy the profits and endure the losses. As a result of preferential tax treatment, locums must not be paid through the business's PAYE system as if they were employees. They should be paid without deduction of income tax and national insurance contributions. They are responsible for accounting to HMRC for these.
To distinguish between employed staff and locums, it is preferable to pay locums by the hour and only for hours worked rather than a monthly amount akin to a salary.
Locums should also pay for their own training costs, membership of the professional bodies and professional indemnity cover, which would otherwise be covered by the business for employees.
It is important to remember that fulfilling one factor on its own will not necessarily result in a locum being considered to be an employee. The test applied by the courts is to look at all the relevant factors and decide whether, on balance, it indicates an employment or self-employed relationship.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
