The employment status of those in the courier industry is coming under increasing scrutiny. We consider the differences between self-employed and employed status.

Is self-employment appropriate?

Hermes couriers have self-employed contracts, which has benefits for the delivery drivers in that they can set their own schedules and work as much or as little as they wish.

MP Frank Field recently contacted Business Minister Margot James as part of his campaign for Government action to tackle the impact of the 'gig economy' - in which staff are hired by companies on a temporary basis and treated as independent workers - on UK employees, calling for increased protections for those affected. Apparently, Hermes faces 78 complaints from couriers who say they were treated badly while working for the firm; to put that in context, 78 represents under 1% of Hermes workforce.

Even though it doesn't appear as if any of the 78 have lodged employment tribunal claims and HMRC previously agreed that Hermes' employment system was legitimate, Mr Field says that Hermes workers should not be classed as self-employed as they are bound to abide by the company's orders on start times and delivery slots.

The Department of Business, Energy and Industrial Strategy has confirmed that Ms James has written to Mr Field in response to his concerns over the treatment of workers at the company, and assured him she would be raising the issue with HMRC.

HMRC could now look at whether hiring workers on a self-employed basis rather than directly contracting them with the company is appropriate in Hermes' case.

How can companies distinguish who is really an employee?

The test for employment status is notoriously complex and the results can be uncertain. In addition, someone could have a different status for tax purposes than for employment rights purposes, for example, HMRC could accept that they should be taxed on a self-employed basis but an employment tribunal may categorise them either as workers entitled to certain employment protections e.g. the national minimum wage and paid holiday, or even employees who would also be entitled to protection from unfair dismissal.

The following factors may help in identifying whether an individual is an employee or not:

  1. Mutuality of obligation: Does the company provide work to the individual and is there an obligation on the individual to accept it when it is offered?
  2. Personal service: Is the individual expected to provide his or her services personally as opposed to being able to choose to send a substitute to carry out the work?
  3. Control: Does the company exercise a degree of control over the individual and how they carry out their work, for example, dictate the hours of work, equipment used and policies, procedures and rules applied to the individual?

If the answer to all the above is yes, then it is unlikely that the individual is self-employed.

Factors which may point towards genuine self-employed status include:

Where the individual takes financial risk, ie they have the opportunity to profit but also bear the risk of loss.

  1. They supply their own equipment for work.
  2. They work for more than one company.
  3. They are not considered to be part of the company's undertaking, for example, they are not included in internal telephone directories or budgets.
  4. They have real independence from their payer and can control, to a large extent, how and when the work is carried out.

Practical points for employers

We recommend companies review any individuals currently engaged on a self-employed basis to determine whether there is a risk that their status could be challenged by HMRC or an employment tribunal. It is important to note that the contract is only half the story. Just because a contract says an individual is self-employed will not mean a tribunal or the HMRC will agree - the contract must accurately reflect the realty of the working arrangement.

Unfortunately this is not an exact science, each case will turn on its own facts and cases at the margins will always be difficult to decide. Ultimately only the HMRC and tribunals can provide a final adjudication on tax and employment status respectively.

Comment

Frances O'Grady, the head of the TUC recently signalled a renewed focus on securing improved conditions for workers and declared,

'Run a big brand with a dirty little secret? A warehouse of people paid less than the minimum wage? A fleet of couriers who are slaves to an app? Let me put you on notice. There will be no hiding place. We will organise and we will win.'

Undoubtedly, trade unions and politicians regard self-employed workers as vulnerable to exploitation and see such arrangements as inferior to the traditional contract of employment model. However, this does not always accord with the experience of those actually working with these arrangements as they can provide much needed flexibility in an increasingly complex world. With such opposing positions, this looks like being a battle which has only just begun.

Shoosmiths' employment team can help you identify whether an individual is an employee or worker or genuinely self-employed. Please contact the person you normally deal with or the author of this article, Simon Robinson, if you require assistance in this area.