Consultants in the Law - Are you satisfied the way you are operating is legal?

You’ve probably heard of cases reported on the radio or in the news in relation to groups of workers such as Uber taxi drivers, Deliveroo riders or Pimlico Plumbers and whether or not the individuals concerned qualify for benefits such as holiday pay, giving little thought as to how these issues might affect your own legal practice.

The “consultant” model has long been used in firms to engage perhaps those who are working towards retirement or for whom employment or partnership is not preferred but this model has to be reviewed in terms of how it sits with the current legal position as regards tax and employment law.

The first really critical point to make is that just because the parties decide to describe somebody’s status as that of self-employed consultant in the paperwork that they put in place to govern the relationship does not mean that HMRC or a Judge would agree. Rather, focus is going to be on how the relationship operates in real life rather than the paper.

The first question that will be asked is whether or not an individual has to personally undertake to do work. If they don’t, then no employment or worker relationship will be found. This would be the case when you outsource something to another firm, and they are agreeing to service the work rather than provide you with an individual.

Assuming you wish the consultant to carry out the work for you personally, the second question that will then be asked is whether or not your firm is a client or customer of the consultant, for an undertaking that the individual is carrying out. If the consultant is genuinely in business on their own account and works for a number of different firms, providing their services to each as a client or customer then it is clear that the consultant will be self-employed. However, most relationships don’t operate that way, with most firms wanting their consultants to enter into an exclusive relationship, and the consultant does not have other customers or clients, so they are not likely to be deemed as self-employed at law or for tax purposes.

The next test that will be applied is whether or not there is “mutuality of obligation” which means that the consultant has to do work when it’s offered to them. If the consultant can pick and choose then it may be that they are not genuinely self-employed, but they are a “worker” for the purposes of certain legislation, such as the Working Time Regulations 1998 as regards the provision of holiday pay.

A penultimate question that will then be asked is the extent to which the firm has control over the consultant. So, for example, if the consultant can choose his or her days of work, hours of work, place of work and the service they provide then again, they may well be a worker rather than employee. However, if the firm requires the consultant to provide the services during business hours, in accordance with protocols and from their office, then it’s going to suggest to any Judge that the level of control is consistent with employment rather than anything else.

The final question is then the extent to which the person is integrated into the firm. Clearly, the more integrated they are, the more likely they are to be found to be an employee rather than a worker. For example, this might be an appearance on the website, appearance in marketing materials, having a firm business card, a firm social media handle and practical day to day issues such as carrying a swipe card or keys to enter the building, inclusion in social activities such as the Christmas party and being treated like an employee when it comes to issues such as access to the IT system and a firm email address and issues such as appraisals, inclusion on circulation lists for team notifications and seeking to discipline the consultant if there is an issue. Those things would suggest employment, rather than anything else.

The economic reality is also a very important factor here – if the firm is, for example, paying the individual’s professional indemnity insurance and the individual is not contributing to the costs of running their desk, and when they are paid in respect of fee earning work the individual concerned is not subject to any financial risk then the picture would be consistent with employment. However, if the individual has to pay their own way in all regards, and they get to earn commission and fees once costs have been accounted for, and there is a measure of risk in the sense that if the work is not done well the individual has to correct at their own cost, then the possibility of worker status is likely to be available.

That mental flow chart that we’ve just been through, represents the current case law on the status and it has for many years been a challenge to employers who want to do things differently and more flexibly. However, placing the label “consultant” on something does not guarantee that the person would not be found to be an employee. Often, it is at the breakdown of the relationship point that the issue emerges, i.e. the parties may have operated very happily with an individual paying their own tax for many years until the relationship is ended by the firm and then the individual will typically claim that they have been employed and therefore unfairly dismissed or that they should have received statutory redundancy pay.

Things get further complicated if the individual provides their services to you via a personal services company – think Joe Bloggs providing his services via Joe Bloggs Ltd. Many firms will fall in the ‘Small Company Exemption’ depending on turnover, size, number of employees, so they don’t have to think about the IR35 regime and the off payroll working rules but HRMRC’s check status tool is still useful to determine how HMRC would view the relationship.

Refreshing Law specialises in advising firms to consider whether their method of operating works for the level of risk that the organisation is prepared to take.

Anna Denton-Jones