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Self-employed workers in UK

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There is a large minority of individuals in the UK whose working arrangements are prone to difficulties when establishing employment status. These workers commonly fall between definitions of ””employee”” and ””self employed”” but are generally classified as legally ‘self-employed’. While the popular stereotype is that the self-employed are high earning, entrepreneurial professionals, this is often not the case. The category of self employed worker is very wide, ranging from low paid manual workers to high-paid information technology staff, journalists and creative professionals. Their work is often characterized by few training opportunities, increased risk of accidents, uninsured losses, long hours and little employment protection.

Legal provisions and social security

There are no statutory definitions of ””employment”” or ””self-employment”” in the UK. Decisions are made in light of judicial guidance in cases dealing with tax and employment law (Deakin and Morris, 1998). Four tests are widely relied on, which consist of a number of factors taken into consideration by the courts:

Table 1: Tests used to differentiate between ‘employed’ and ‘self employed’
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Control – who holds control over task, mode, means and timing?
duty to obey orders, discretion on hours of work, supervision of mode of working.
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Integration – how integral is the work to the business?
existence of disciplinary or grievance procedures, inclusion in occupational benefit schemes.
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Economic Reality – where does the financial risk lie?
method of payment, freedom to hire others, providing own equipment, investing in own business, method of payment of tax and national insurance (NI), coverage of sick pay, holiday pay.
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Mutuality of Obligation: what evidence is there of formal subordination to contract terms?
duration of employment, regularity of employment, right to refuse work, custom in the trade.
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Based on Burchell et al (1999:11)

These tests are designed to demonstrate the level of dependence of the individual on the employer, although the degree to which factors are taken into account is open to discretion. The mutuality of obligation is the most confusing of the tests and its widespread use has led to a situation where the distinctions between temporary, casual and fixed term workers are often confused with ‘self-employed’ status.

The tests as they stand lead to considerable confusion, often countering each other, and no one set of factors is decisive. Harvey (2001: 15) establishes that there are 11 possible outcomes of the application of the four tests on the basis of the different factors, with only two producing a definite outcome of ””employee”” or ””self-employed””. Similarly, Burchell et al (1999: 43) found that out of their representative workforce sample, only 12% were found to be completely dependent, whilst only two percent satisfied all independence tests, leaving a large proportion with levels of ambiguity. In addition, there is a lack of consistency between tax, social security and employment law such that tests are more easily satisfied under certain regulations (Burchell et al, 1999). This means that legal judgements do not always coincide with tax regulations.

The main differences in the social security regime of self-employed workers with no employees compared with: a) employees; b) self-employed with employees.

No distinctions are made between self employed with employees and self employed without employees.

A worker defined as ””self employed”” is usually excluded from employment protection law, although they do pay lower rates of income tax and can claim back certain expenses against tax. Those classified as ‘self-employed’ generally lose all rights to all non means-tested benefits (Harvey, 2001: 20) as well as protection against unfair dismissal, redundancy compensation and guaranteed pay. (Burchell et al, 1999: 46). In terms of taxation law, those classified as self-employed are eligible for lower income tax and can offset professional expenses against tax. The problem with many of those in the ‘dependent self employed’ category is that they gain neither the advantages of tax breaks nor employment protection, being classified as ‘self employed’ for employment purposes and ‘employed’ for tax purposes.

The existence of any particular legal forms of employment which cover contractual relationships which are commonly regarded to be mid-way between dependent employment and self-employment

In the UK context, the legal concept of ””worker”” was used for entitlement to the Equal Pay Act and Wages Act in 1986. Many rules, regulations and rights apply only to employees, but a number apply to all workers. The precise definition of who is an employee and who is a worker differs slightly from one area of legislation to another; but in general an ””employee”” is someone who works for an employer under the terms of a contract of employment, whether it is written down, agreed orally or implied by the nature of the relationship. Many casual workers are likely to be employees with short-term contracts. A ””worker”” is any individual person who works for an employer, whether under a contract of employment or not, who provides a personal service e.g. a casual worker, agency worker, or some freelance workers. For the most part, genuinely self-employed people or businesses to whom an employer subcontracts are not defined as workers. All employees are workers, but not all workers are employees.

Under this wider definition, some limited elements of employment protection legislation including the National Minimum Wage Act 1998, the Employment Relations Act (ERA) 1999, and the Working Time Regulations (WTR) 1998 have been extended to some individuals who fall into the ‘dependent self-employed’ category. This has offered rights to guaranteed minimum pay, paid holiday and an average working week of no more than 48 hours. However only certain types of rights are covered – those prescribed by the specific Acts. Therefore, these workers still face difficulty in claiming eligibility for rights to non means-tested benefits such as the state pension, sick pay and Job Seekers Allowance as they make no contributions toNational Insurance funds. Some of the employment protection rights, even under the extended ‘worker’ eligibility have a qualifying period of service requirement and therefore may exclude certain workers, on very short-term contracts (TUC 2000a). For example, to be eligible for parental leave payments a birth mother/adoptive parent must establish that they have worked an average of at least 10 hours a week over the six or 12 months immediately before the expected date of delivery or adoption of a child. The opt-out clause available under the UK WTR (allowing individuals to consent to working beyond the statutory average 48-hour week) has also meant that many workers have not benefited from reduced working hours (TUC 2000a).

Economically dependent employment

There is a large minority of individuals in the UK whose working arrangements are prone to difficulties when establishing employment status according to legal tests. These workers commonly fall between definitions of ””employee”” and ””self employed”” but are generally classified as legally ‘self-employed’. In the UK context they are most commonly termed (although not an official classification) as:

””dependent self-employed””: workers who are classified as self-employed but who are often reliant on one employer””false or bogus self-employed””: an individual who objectively speaking is an employee but who, for reasons connected to the evasion of regulatory legislation is described as self-employed by themselves and/or by their employer””borderline self-employed””: an individual whose legal status (employee or self-employed) is unclear (Burchell et al, 1999).

The category of workers is very wide, ranging from low paid manual workers to high-paid information technology staff, journalists and creative professionals. Often these ambiguous working arrangements are compatible with those considered ””non standard””, including casual, zero hours, home-, agency, portfolio and freelance workers.

(Extras from “UK : Self-employed workers”, Author: Helen Newell, University of Warwick, Source: http://www.eurofound.europa.eu/comparative/tn0801018s/uk0801019q.htm)

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