Financial Matters
With David Frederick FCCA | Marcus Bishop Associates | marcus-bishop.com
Employment to Self-Employment Freedom Many people aspire to, or dream of the ‘freedom or alleged freedom’ enjoyed by the self-employed. The freedom to work the hours that suit you. The freedom to get paid the rate that you set. The freedom to carry out work when convenient to yourself. Doesn’t that sound like bliss? Therefore, imagine the excitement and joy you experience when you are told, “you have got the job” and “you will be required to be self-employed”. Is that a dream come true or the start of something else? This is the growing experience of many employees in the economy right now and across various sectors. These employees have been successful in their job application and in an instance, they have also been converted into selfemployment. Overnight they seem to be offered a dream come true. Whilst many employees may welcome this opportunity, it is probably fair to say that this is far from an opportunity. Equally, on the other side of the fence the employer will be jumping for joy. Why? Immediately, the employer has reduced their payroll costs and employer responsibilities. Therefore, we have a win-win situation, or do we? There are several tests to be satisfied to determine the status of the individual which we’ll examine with the help of the following case. The owner of a children’s day nursery had been in discussion with some colleagues and had devised a cost cutting solution. The solution was, “I will make my staff self-employed”. Can you imagine my shock and horror! An initial litmus test for the cost cutting scheme devised by our nursery owner and other employers are set out below: • Can the nursery staff send in a replacement if they cannot or do not feel like attending on any day? • Do the nursery staff have full control over their work, for example the children’s lunch break? • Do the nursery staff set their own rate of reward for their work? • Is the nursery owner obliged to provide the nursery staff with work for which they accept? • Is the nursery staff member an integral part of the operation of the nursey? 24 | SE21 - July 2022
If the answer, is ‘No’ to the first three questions and ‘Yes’ to questions four and five, then it is most likely that the nursery staff are employees. This litmus test should be considered by employers before they make mass conversions of their employees into self-employed status. Moreover, the statement often quoted, “my staff are self-employed” is indeed an oxymoron. Employees cannot be self-employed. They are two different relationships. In short, an employee is hired under an employment contract with specific statutory rights and employer obligations. A selfemployed person is hired or engaged under a contract for services with the associated risks and rewards. The alleged conversion of an employee to self-employed status results in the employer being in breach of their contractual duties to the employee. The employee is passed the administrative responsibility of self-employment and self-assessment. Is that what the employee applied for when they applied for the advertised job? Employees should be aware that their alleged conversion to self-employment is often devised for employers to save national insurance of 15.3% in 2022-23 and not provide altruistic freedom from employment. Self-employment is never a blanket term for all engagements but determined on a case-by-case basis. A registered self-employed person may be recognised as self-employed for one assignment but not for another. A classic, is in the case of freelance trainers who may be engaged on educational establishment courses. The alleged freedom of self-employment may come with hidden costs for employees and financial penalties for employers. Therefore, both parties should both be mindful of this path to their win-win situation and tread carefully.
