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  1. Introduction

    All businesses should know whether their workers are employees or self-employed. The obligations that businesses owe to their employees are far more extensive and onerous than the obligations they owe to self-employed workers.

    Employers are subject to a range of obligations in relation to their employees, including:

    • Registering as a 'New Employer' with HM Revenue & Customs and operating the Pay As You Earn Scheme (PAYE) in respect of payments made to employees.
    • Obtaining compulsory Employers' Liability Insurance (see our Insurance section for further details).
    • Providing employees with a Statement of Particulars of Employment (see below).
    • Obligations set out in employment protection legislation, including the right of employees not to be unfairly dismissed and the right to receive redundancy payments.
    • Additional health and safety obligations.
  2. Who is an employee?

    Labels aren't decisive

    It doesn't matter what you call a worker, it's the relationship between that person and the business that determines whether they are an employee. A person may be an employee even if they have previously agreed with the employer that they are self-employed.

    Look at the reality of the relationship not the label.

    What is an employment relationship?

    At the heart of an employment relationship is (a) an obligation of the employee to provide his services to the business. An employee must carry out the work provided by the employer; and (b) an obligation of the employer to provide work to the employee.

    The employer and employee each have rights and obligations which form the employment relationship.

    There are many factors which indicate whether a person is an employee. Here are a few key ones:

    • If the worker is unable to perform his work can he provide a substitute person of his choosing to do the work at his expense?

      If so this would indicate that the worker is self-employed.
    • To what extent does the business control the worker? Can the business tell the worker how and when to do his work?

      If so this indicates that the worker is an employee.
    • Is the business obliged to provide the worker with work, or to pay him even if there is no work available?

      If so this indicates that the worker is an employee.
    • Is the worker obliged to do the work that the business asks him to carry out?

      If so this indicates that the worker is an employee.
    • Is the worker integrated into the business or is he an accessory?

      If the worker is integrated into the business this indicates that he is an employee.
    • How is the worker paid? Does he provide an invoice for his services or is he paid through the business' payroll?

      If the worker is paid through the business' payroll this indicates that he is an employee.
    • Who pays for and maintains the equipment that the worker uses?

      If the worker buys and maintains the equipment he uses to carry out the work this indicates that he is self-employed.
    • Who owns the equipment which the worker uses?

      If a worker owns the equipment he uses to carry out the work this indicates that he is self-employed.
    • Does the worker work exclusively for the business or does he also work elsewhere?

      If the worker also works elsewhere this may indicate that he is self-employed, although please note that employees can have more than one employer (eg two part-time jobs).
    • Can the worker benefit from the performance of the business?

      If a worker receives a profit related bonus, shares or otherwise benefits from the business doing well this would indicate that he is an employee.
    • Is the worker taking any financial risk?

      It would be exceptional for an employee to take a financial risk in relation to the work they are carrying out, whereas self-employed workers often take financial risks in relation to their work. For example self-employed persons often give fixed quotes which are binding even if costs overrun.
    • Does the person have managerial responsibility in the business?

      Self-employed persons are much less likely to have managerial responsibility than employees.
  3. Written Statement of Particulars of Employment

    If your business takes on an employee it must provide him with a written statement setting out particulars of his employment. This statement contains a list of the main terms of the employment relationship between the business and the employee.

    Click here to view a list of the information that needs to be included in the written statement.

  4. When do I have to give the statement to the employee?

    The statement should be provided to employees within two months of starting work, even if the employee has stopped working for the employer by that date.

    However, if the employee is employed by the company for less than one month, the company does not have to provide the statement.

    If the employee is to work outside of the UK for more than a month within the first two months of their employment then you need to provide them with the written statement before they leave the UK.

  5. Who do I have to prepare a statement for?

    All employees, full-time and part-time.

  6. I have provided a written contract to the employee, is the statement required?

    If you provide a written employment contract to the employee within two months of that employee starting work then a separate statement is not required, provided that all of the information you are required to provide in the statement is included in the contract.

  7. Are directors employees?

    If a person is appointed as a director of a company that does not necessarily make him an employee of that company. However, if that director takes an active role in running the company then there is a good chance that he is an employee.

    A director can be an employee of a company even if he owns all of the shares in that company. A person can simultaneously 'own' a company, be its sole director and its sole employee.

    If a director is an employee then all of the obligations that the company owes to its employees are also owed to that director. For example a director who is an employee is entitled to a written employment contract or a written statement of employment particulars. This may lead to a slightly absurd result - a person who is the 'owner', director and employee of a company needs to write his own employment contract.

  8. How do I appoint/employ a new director?

    The appointment of a new director who is also going to be an employee of the company is more complex than the appointment of a standard employee. It is vital that the company obtains advice. The following points should be considered:

    • The internal rules of the company (Articles of Association) and the relevant statutory procedures need to be adhered to.
    • Board resolutions need to be passed to approve the appointment.
    • The director is required to disclose his interest in the employment contract to the board.
    • It is advisable to have a full contract of employment, rather than just a Statement of Particulars of Employment for every director.
    • The director's employment contract/statement needs to be made available for inspection at the company's registered office.
    • Rules relating to the permitted duration of employment contracts with directors need to be adhered to.
  9. What if there is no written employment contract?

    A contract of employment can be entered into without anything being written down. Oral contracts are equally as valid and binding, although proving exactly what was agreed can be troublesome.

    Please note that if you avoid giving a worker a written contract that does not mean that he is self-employed.

  10. Changes to terms and conditions of employment

    The terms of an employment contract can be changed at any time if both the employer and the employee consent to the change. The employer cannot change the terms without consent.

    If there is a change in any of the terms of an employee's contract, the employer is required to confirm that change to the employee in writing as soon as possible after the change is made, and certainly within one month.

    If the change relates to the employee working outside of the United Kingdom for more than one month, the change needs to be confirmed to the employee in writing before the employee leaves the United Kingdom to work.

  11. Minimum Statutory Rights

    Employees have certain minimum rights which cannot be overridden by the employer, whether in the Statement of Particulars of Employment or otherwise. The list below sets out some of those rights.

    • National minimum wage.
    • The right not to be discriminated against. For example sexual, racial, disability and age discrimination.
    • The right not to be unfairly dismissed.
    • The right to receive a redundancy payment.
    • Minimum notice periods on termination of employment.
    • Statutory Maternity Pay
    • Statutory Sick Pay
    • Working Hours requirements (see below).
  12. 48 Hour Working Week

    The Working Time Regulations specify that employers cannot permit their workers to work more than 48 hours a week. A week for this purpose is Monday to Sunday, rather than the traditional working week, Monday to Friday. 'Workers' include employees and other persons carrying out work for the employer.

    In calculating whether the 48 hour maximum is exceeded working hours are usually averaged over a 17 week period. The minimum holidays required by law, sick leave, maternity leave and paternity leave are all ignored for the purposes of calculating the average. In other words the employee may exceed a 48 hour working week provided that, on average, he is working less.

    If a worker agrees to sign a written opt-out of the 48 hour working week then he can consistently work more than 48 hours a week.

    If the worker wishes to cancel the opt-out he is permitted to do so by giving 7 days notice to the employer (unless a different notice period of up to 3 months has previously been agreed with the employer).

    Employers cannot force their workers to agree to an opt-out.

  13. Working Time Regulations

    The Working Time Regulations provide for a number of limitations on the working hours of employees, including:

    • A maximum 48 hour working week (see above).
    • A minimum rest period of 11 hours a day.
    • A minimum rest period of 20 minutes if the working day is over 6 hours.
    • A minimum rest period of 24 hours every 7 days.
    • 24 days paid holiday, including public holidays (rising to 28 days on 1 April 2009).
    • An average limit of 8 hours night work per 24 hours.

    Young workers between 15 and 18 have enhanced protection under the Young Workers Directive.

    The hours of work of certain types of workers, such as truck drivers, are subject to their own set of rules or a modified version of the above rules.

The information provided on this website is intended as a general guide only. It is not exhaustive or tailored to your individual circumstances. Please consult our Website Terms of Use for further information.


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