Self-employment (self-employment) or employment (employment)?

Are you an Uber driver? Do you work as a shop assistant? Do you tutor? Do you look after children?

Self-employment? Employment?

Does your employer require you to be self-employed?

The distinction between self-employment (self-employment) and employment (employment) often causes difficulties for employers and employees alike, with new cases constantly emerging in courts.

The most high-profile case in recent months is Uber's defeat regarding worker rights Uber BV and others v Aslam and others [2021] UKSC 5. The British Supreme Court ruled that Uber drivers are workers entitled to minimum wage and paid holidays. This is one of the biggest cases of recent decades and will certainly set a precedent for similar future cases.

The Uber case has been ongoing since 2016 due to the company's rather complex business model. However, it appears that even in much less complex structures, employers exploit their employees by making them issue invoices for their services as self-employed individuals, when they should be employed under an employment contract.

From a tax perspective, self-employed status may seem like a cheaper option for both the employee and the employer, however, legally there is no option to choose the status - this is determined based on specific criteria.

Am I self-employed, or should I have an employment contract?

HMRC determines employment status based on precedents. Let's take Paulina, a shop assistant, as an example. During my last visit to a Polish shop, she said that her boss requires her to issue monthly invoices based on her hours worked. Should she be invoicing as self-employed?

Let's analyze the situation:

What are the mutual obligations? 

One factor suggesting that a taxpayer should be an employee is the employer's obligation to provide work and organize it appropriately, and the employee's obligation to accept and perform that work. Upon arriving at the store, Paulina must perform tasks (e.g., arranging goods on shelves) assigned by the owner. She should be employed under an employment contract.

It would be different if the shop owner called Mr. Marek to repair the refrigerator. Mr. Marek could refuse the job for any reason, such as a lack of availability. The shop owner is not obliged to provide Mr. Marek with work, nor is Mr. Marek obliged to accept it – in this case, we are talking about self-employment.

No control over one's workday

In most cases, an employer will control their employee. Returning to Paulina's example, she will perform duties requested by the owner – open the shop, or display goods on shelves. It's rather unlikely that an employee in such a place would independently control their workday and be left to their own devices.

A person who has the freedom to choose how, where, and when to perform their work (like Mr. Marek the Handyman can) will be treated as self-employed.

Inability to provide a substitute

One day Paulina doesn't feel like going to work, so she sends her husband as a substitute. The next day, her friend, and another day, her brother. Do you think the shop owner would agree to her giving the shop key to a different person every day? It's hard to imagine. An employee does not have the option to hire help, send a substitute, or a subcontractor without the employer's consent.

Mr. Marek, on the other hand, could have his own subcontractors or other companies performing tasks for him and on his behalf. He could therefore call himself self-employed.

No financial risk

Paulina is at no point obliged to buy equipment, make large investments, or purchase her own cash register to work in the shop and serve customers. A mop will also likely be in the shop's inventory, and even if not, it's a relatively small expense that doesn't pose a significant financial risk. This issue also indicates that Paulina should be employed.

Mr. Marek must purchase his own equipment – tools, perhaps a van, certainly courses and certifications. He therefore takes on the risk of investment without a guarantee that the income will be sufficient to cover it.

Relationship with the business owner

One of the factors indicating that Paulina is an employee is her relationship with the business owner. She receives a fixed hourly wage and, as a result, should also be able to take leave after consulting with the shop owner about the dates. The owner provides her with equipment and a workplace (in this case, behind the shop counter), so Paulina does not have to find such a place herself.

As a self-employed person, Mr. Marek sets his own prices. His hourly rate may depend on his expertise or the difficulty of the assigned task. Mr. Marek also uses his own equipment, in which he has invested, and his client is not obliged to provide him with a workplace. 

All of the above examples can be interpreted separately by courts, and if an employee wishes to assert their rights and fight for unpaid leave, unremitted pension contributions, or unissued payslips, they should contact ACAS. This is a government organization that deals with employee rights free of charge and assists in preparing for a case at the Employment Tribunal.