In our last blog we talked about things to consider when you need to take on more people, and that ultimately the needs of your business will dictate the type of working relationship you decide to go for — whether it’s seasonal hires, or to outsource one-off projects to a self-employed contractor, or if you need someone to turn up regularly as an employee.
In our second part to this, we explain in more detail, the different rights and obligations that come with hiring employees, workers and self-employed contractors. So whichever hiring arrangements you decide to go for — here’s our checklist of the benefits and entitlements for those you have hired.
Options, obligations and offerings
1. Written statement of terms and conditions — any employees you take on will have a right to a written statement of terms and conditions within the first two months of their employment. This will include details of the job role, the employee’s responsibilities, their benefits and will generally define the working relationship.
Workers and those who are self-employed do not have this right, however it is likely that you will want to document these arrangements anyway in order to protect yourself and set the tone for the working relationship.
2. Sick pay — employees are entitled to receive statutory sick pay (SSP) provided that they are unable to work due to sickness for four or more days in a row. In contrast, if a self-employed individual falls ill, there is no obligation on you to pay them.
What about workers? It may be possible in some circumstances for workers to be entitled to SSP. “Employees” are a wider category in this context than under the normal employment law tests and will include all those whose earnings are liable for class 1 NICs. So in some cases, workers will be eligible for SSP.
3. Holiday pay — both employees and workers have the right to paid annual leave. The entitlement is to 5.6 weeks’ paid holiday per year (in other words 28 days for someone working a five-day week). It is possible for you to count bank holidays as part of that annual leave entitlement.
4. Family friendly pay and leave — employees are entitled to other statutory payments; namely statutory maternity pay, statutory adoption pay, shared parental pay, and statutory paternity pay (SPP).
Small employers can recover 100% of the cost of statutory maternity pay, but there will be the added administrative burden of dealing with this process.
Employees will also be entitled to take maternity, adoption, paternity and shared parental leave. This will entail the need to make arrangements (and the added costs) of employing someone to carry out the work in their absence.
If a self-employed woman becomes pregnant and stops work then there will generally be no obligation on the client to continue to pay her.
5. Redundancy — it may be that the work flow isn’t quite what you expected and you’re faced with having to cut down the number of people working for you. Employees will be entitled to claim a statutory redundancy payment if they have been employed for a minimum period of 2 years and they have been dismissed by reason of redundancy. A redundancy situation will occur where the business is going to close, or where there is a reduced requirement for employees.
Workers and those who are self-employed will not be entitled to a statutory redundancy payment.
6. What about pensions — employers are under a statutory duty to enrol their workers into a pension scheme which meets certain minimum standards and to pay a minimum level of contributions into that scheme on behalf of the worker. This process is known as auto-enrolment.
All “eligible jobholders” are entitled to be automatically enrolled. In order to be eligible the workers must meet certain requirements in relation to their age and their qualifying earnings. Those who don’t meet the requirements will still have the right to opt into a qualifying scheme. If they elect to join then the relevant scheme is a defined contribution scheme, and the employer must pay a minimum level of contributions to the scheme on their behalf.
7. There’s no need to pay tax where self-employed contractors are concerned is there? — Sadly things are not that simple! Employees have income tax and NICs deduced from their general earnings before they receive them under the PAYE system. By contrast, self-employed contractors are paid gross and account for their own tax and NICs. The self-employed pay significantly lower NICs compared to the total NICs burden imposed on employees and employers.
However, it’s worth bearing in mind the Supreme Court’s decision in Pimlico Plumbers and Mullins v Smith which we discussed in our last blog. The decision in this case proves how difficult it will be to argue that someone providing personal service is anything other than a worker and therefore any payments received by them, even via a personal service company, will have to be subject to a deduction of tax.
Please contact the Trowers’ team for more information. We have also produced a series of fact sheets to help you, so click here to access our online resources.
